Bankers cautiously optimistic about a turnaround

Bankers sound cautiously optimistic about a turnaround in the problem-ridden banking sector on right-minded policy support following the change-making polls ahead in the new year.

Bangladesh saw so many eventful happenings in the just-past year 2025 but it was the most challenging one for banking sector because of multiple factors, including a hangover of mismanagement and misdirected lending under the previous regime.

The adversities include persisting economic slowdown, plummeting private-sector credit flow amid higher-interest regime and panic withdrawal of deposits in a spillover effect from large-scale irregularities in few noncompliant banks that led to regulatory resolution interventions.

As a matter of fact, the commercial banks witnessed their NIM or net interest margin narrowing throughout the year that would prompt many of the bankers to forget the calendar year.

As parliamentary election is knocking at the door, scheduled for February 12 next, bankers have become optimistic about a turnaround in the country's entire economic activities on back of policy predictability and improvement in law-and-order situation.

Managing director and chief executive officer of Mutual Trust Bank (MTB) PLC Syed Mahbubur Rahman says the just-passed year was too challenging for banks. "We hope the economy in the post-election period will rebound but the liquidity pressure will remain in the sector."

He predicts the banking sector would see a jump in private-sector- credit demand. If the upward trend in government domestic bank borrowing continues in the coming days, it would create liquidity pressure on banks.

"The government needs to give serious efforts in revenue mobilisation to lessen pressure on banks," the experienced banker says in his suggestion for public-finance rebalancing.

Bangladesh Bank (BB) data show private-sector credits dropped to 6.23 per cent by end of October 2025, the lowest in more than two decades.

In respect of profitability, he says, the net interest margin in banks has been on a slide in recent months for squeezing business avenues amid economic sluggishness. In fact, banks are making some sorts of gains through investment in government securities.

Notwithstanding private-sector-credit push and vibrancy in post-election economy, the banker notes, reforms undertaken by the banking regulator, like amendment to the Bangladesh Bank Order 1972 and the Bank Company Act, have yet to be approved.

"These are very vital on governance purpose," he told The Financial Express.

Managing director and chief executive officer of Pubali Bank PLC Mohammad Ali strikes a high note of optimism about a breakthrough. He says the country would enjoy a significant turnaround in the banking sector this calendar year.

"After the upcoming February election, a political government would take over the economy, which would hopefully create the foundation for political stability. And political stability will help regain confidence of the investors, which will ultimately bring vibrancy in economic activities," he explains his views.

But he alerts that the commercial banks will be required to give serious attention to liquidity management to ensure that the credits flow into productive sectors.

About the possibility of crowding-out effect due to growing government bank borrowing, he says the central bank keeps buying US dollars and in exchange it is injecting liquidity into the market.

"I don't think such thing (crowding-out impact) would arise. I am optimistic that the lending rate would go down below 12 per cent in coming days," he adds.

According to the central bank, the banking regulator, since July 13 last, has purchased a total of $3.14 billion in exchange for around Tk400 billion from the market.

Regarding the NPL buildup, Mr. Ali says the banking sector would see significant drop in the volume or ratio of NPLs because of the various steps once the December-end data of the classified loan are made.

Managing director and chief executive officer of NRBC Bank Dr. Md. Touhidul Alam Khan opines, "As we look towards 2026, the banking sector stands on the brink of a significant transformation, particularly with a new government on the horizons.

"This presents a unique opportunity to reshape the narrative of financial governance. A robust banking system rooted in public trust, guided by competent professionals rather than political connections, is essential for achieving lasting financial stability."

However, establishing political neutrality requires more than just regulatory mandates. It necessitates a fundamental shift in mindset. "Policymakers must recognize the importance of a financially independent banking sector, while bankers must see themselves as stewards of economic integrity."

He has also told the FE correspondent, "In addition, the integration of comprehensive internal audit processes-including a built-in forensic audit system staffed with skilled personnel-and a Risk-Based Supervision (RBS) framework will significantly improve oversight and accountability."

He also suggests adopting an Expected Credit Loss (ECL) model in line with IFRS 9, while ensuring alignment with international banking standards, will further strengthen credibility and confidence in the sector.

Seeking anonymity, the treasury head of a leading private commercial bank says liquidity support matters as the struggling business entities would create some liquidity pressure on banks in the days ahead.

Under the policy support, he says, commercial banks need to give two years of grace period to such businesspeople. It means, the banks will get nothing in the first two years but they have to pay interest to the depositors.

"It will create liquidity pressure on the banks in the coming days," he says.

The bank executive informs that 2025 was a learning year for the bankers who see the result of providing loans without proper checking. "I think the bankers will be very careful in terms of giving fresh loans," he adds.

Regarding trust regaining, the bank executive says it will not be an issue if the government properly settles down the payment affairs of the depositors in the five Islamic banks merged into the country's largest Islamic bank very recently.

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