Look back 2025: Banking sector witnesses a hurting truth revelation

Reza Mahmud :

Bangladesh’s banking sector witnessed the 2025 as a year of painful truth revelation.

Number of ugly facts of the banking sector occurred during fascist Hasina era revealed through investigations done by Professor Muhammad Yunus led interim government.

During the tenure of the fallen Awami League government, with the direct and indirect support of state machinery, a small group of loan defaulters-including S Alam, Salman F Rahman, Nazrul Islam Mazumdar, and several business groups-looted the country’s banking sector on an unprecedented scale.

Public deposits were siphoned off through various schemes, yet these realities were concealed from public disclosure.

However, in the outgoing year, due to stricter oversight by regulators, these truths came to light.

As a result, by September-while three months of the year still remained-classified loans rose to more than Tk 6 lakh crore, accounting for nearly 36 percent of total loans.

For the sector, this year was both a major challenge and a year of policy reform and strengthened supervision.

At the beginning of the year, the banking sector was burdened with defaulted loans, liquidity stress, governance deficits, and a severe crisis of confidence.

By the end of the year, however, visible initiatives emerged in the form of tighter regulatory enforcement, policy realignment, and structural reforms.

Although the problems were not fully resolved, 2025 pushed the banking sector toward what can be called a “turning point.”

Economists admired the interim government’s pivotal role of finding out deep crisis of financial sector of Bangladesh saying the initiatives taken by Dr. Yunus government should be continued to recover and revitilise the country’s economy.

When contacted Dr. Zahid Hussain, former lead economist of World Bank Dhaka Office on Friday told The New Nation, “It is certain that the year 2025 revealed a very painful scenario of bank sector of Bangladesh.

The interim government has initiated number of reform programme to revive the financial sector. Those have to keep forwarded.”

“The government has taken Bank resolution ordinance, Bangladesh Bank initiated Risk Base Supervision, such other initiatives were taken to revitalise the country’s economy through recovering the banking sector,” the economist said.

He urged the next government to continue these schemes as long-term plan to strengthening the national economy.

Sources have discovered major hurting factors of the banking sector last year.
Defaulted Loans: A Major Crisis, A Major Challenge: The most discussed and alarming issue of 2025 was defaulted loans.

From the very start of the year, abnormal figures of non-performing loans (NPLs) in state-owned and several private banks came into public view.

In particular, at Janata Bank, the top 30-35 borrowers alone accounted for nearly Tk 57,000 crore in outstanding loans, raising serious questions about the bank’s regulatory capital.

Several private banks-especially some Islamic banks-also revealed massive volumes of defaulted loans.

These included Islami Bank Bangladesh Limited (under the control of S Alam Group), First Security Islami Bank, Social Islami Bank, Union Bank, NRB Global Bank, EXIM Bank, and National Bank, among others-nearly a dozen banks showing alarming default figures.

In some of these banks, defaulted loans reached as high as 98 percent. During the previous regime, such loans were deliberately concealed, and regulatory authorities-particularly Bangladesh Bank-were prevented from disclosing them.

Bangladesh Bank began to move away from the culture of hiding defaulted loans by enforcing “realistic loan classification.”

Strict directives were issued regarding loan rescheduling and write-offs. As a result, the true picture of defaulted loans became increasingly transparent throughout the year.

While this caused short-term discomfort, it laid the foundation for long-term transparency.

Bank Resolution and Consolidation Discussions: For the first time in 2025, the issue of bank resolution structures came into serious public discussion.

Bangladesh Bank initiated work on a “resolution plan” for several financially weak banks.

As part of this process, EXIM Bank, Social Islami Bank, First Security Islami Bank, Union Bank, and NRB Global Bank were consolidated to form a new Islamic bank under the name “Merged Islamic Bank.”

This opened pathways for mergers, management restructuring, or special supervisory arrangements where necessary.

During the year, the draft of the Bank Resolution Act and related regulations reached its final stage, which is expected to grant Bangladesh Bank the legal authority to handle failing banks in the future. Analysts view this initiative as a landmark step in reforming the banking sector.

Liquidity Stress and Challenges in Islamic Banking : In 2025, liquidity stress became openly visible in several Islamic banks. Pressure from deposit withdrawals, loss of confidence in the interbank market, and accumulated irregularities made the year particularly difficult for these institutions.

Bangladesh Bank intervened through special refinancing schemes, liquidity support, and close monitoring to stabilize the situation.

At the same time, discussions advanced on establishing a separate liquidity management framework for Islamic banking, strengthening Shariah governance, and empowering a central Shariah board.

Relief from the Dollar Crisis and Exchange Rate Stabilization : The banking sector experienced some relief in the foreign exchange market in 2025.

From mid-year onward, rising remittance inflows, import controls, and stabilization of export earnings eased pressure on the dollar market. By September, the exchange rate of the taka became relatively stable.

By the end of the year, the country’s gross foreign exchange reserves stood at approximately USD 33 billion, with net reserves at around USD 29 billion.

Bangladesh Bank adopted a “crawling peg” and market-based exchange rate regime, limiting direct intervention and allowing the dollar market to normalize gradually. This improved banks’ ability to settle LCs and meet foreign payment obligations.

Interest Rates, Inflation, and Credit Flow: To contain high inflation in 2025, interest rates remained relatively tight.

Although the smart interest rate cap did not become fully effective, policymakers gradually shifted toward market-based interest rates.

This led to some slowdown in private-sector credit growth and investment, but by the end of the year, signs of gradual recovery began to appear.

Governance, Boards, and Management Tightening : Governance reforms gained special importance in 2025. Several banks underwent board reconstitution, appointment of independent directors, and changes in management. For the first time, Bangladesh Bank strictly enforced the “fit and proper test.”

Simultaneously, bank inspections, special audits, and online monitoring were intensified, signaling an enhancement in the regulator’s enforcement capacity.

Digital Banking and Technological Progress : Despite the crisis, digital banking continued to advance in 2025.

Mobile financial services (MFS), interoperable digital transactions, and smart payment systems expanded further. Bangladesh Bank issued new directives on cybersecurity and customer protection.

Overall Assessment : Taken together, 2025 was a “year of painful truth revelation” for Bangladesh’s banking sector. Efforts were made to bring problems into the open rather than conceal them-creating short-term pressure but laying the groundwork for long-term reform.

Although defaulted loans, liquidity stress, and governance deficits remain major challenges, the resolution framework, stricter supervision, and policy reforms offer hope for 2026.

History will remember 2025 as the year when Bangladesh’s banking sector acknowledged its crisis and demonstrated the courage to move toward reform.