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True reform in Bangladesh’s troubled banking sector will remain out of reach unless those who plundered banks under political protection are held accountable, experts warned at a seminar in Dhaka on Saturday.

They said recapitalising failing institutions without punishing the culprits only perpetuates a decades-long cycle of impunity, where depositors and taxpayers pay for the misconduct of politically connected borrowers.

The seminar, titled “Bangladesh’s Banking Crisis: The Way Forward,” was organised by the Cosmos Foundation, the philanthropic arm of the Cosmos Group.

Speakers said the sector’s fragility is rooted not in technical flaws but in deep political interference. They pointed to unchecked crony lending, concealment of bad loans, manipulation of balance sheets, and weakened regulation as factors eroding confidence — particularly after 2017, when several Shariah-based banks changed ownership under political patronage.

Bangladesh Bank Deputy Governor Nurun Nahar, speaking as chief guest, said the crisis in the five Islamic banks now being merged began after their controversial takeovers in 2017.
“Before that, none of them faced such distress,” she said, adding that once ownership changed, “money was spirited out, exposure limits were breached, and board-level indulgence replaced prudence.”

She said the central bank was compelled to force mergers to protect depositors and avert a wider collapse but admitted that “consolidation alone cannot cure structural decay.”
Acknowledging long-standing political pressure, she noted that resigning in protest “would only have made room for someone more willing to follow orders.”

Speakers sharply criticised the move to recapitalise weak banks using public funds, calling it a reward for looters. “Using taxpayer money to rescue banks stripped by politically connected borrowers is like punishing the victims,” one participant said.

Economist Towfiqul Islam Khan of the Centre for Policy Dialogue described the banking crisis as “fundamentally political, not technical.” He suggested that Bangladesh Bank use part of its Tk 220 billion profit from the last fiscal year to cover merger losses instead of burdening taxpayers.

In comparison, he noted, the most profitable commercial bank earned only Tk 7 billion during the same period.

Prof Nehal Ahmed of the Bangladesh Institute of Bank Management and MGK Jewel of the Asian Development Bank warned that reforms will fail unless the central bank is freed from ministerial control and board-level accountability is enforced. Without credible oversight, they said, “mergers will simply repackage old problems in new wrappers.”

Prof Nehal also cautioned that once hidden bad loans are fully exposed, non-performing assets could soar to levels that threaten Bangladesh’s sovereign and credit ratings.

Former Bangladesh Bank Executive Director Abdul Mannan described the surge in defaulted loans—from Tk 220 billion in 2008 to about Tk 500 billion in 2024—as “a governance failure of historic proportions.”

Other discussants said banks have long served oligarchic borrowers rather than small depositors, while state agencies routinely interfered in operations, undermining discipline.

They questioned the wisdom of injecting Tk 200 billion of public funds into distressed banks without reforms to stop future looting. “Banks have been looted before and recapitalised before—what’s the guarantee it won’t happen again?” one speaker asked.

Several also criticised the Islamic banking sector, saying political capture and mismanagement had stripped it of its ethical foundations. They urged judicial reforms and depositor insurance to restore public trust.

Deputy Governor Nurun Nahar assured that about 90% of small depositors — those with accounts under Tk 200 billion in the merging banks — would soon receive refunds. She reaffirmed that protecting ordinary depositors remains the central bank’s top priority amid the ongoing restructuring.