The proposed BDT 9.38 trillion national budget for Bangladesh for fiscal year 2026–27 is the largest in the country's history. It presents a roadmap for economic restructuring, administrative reform, social protection, and long-term growth.
The government has set a revenue target of BDT 6.95 trillion, with a budget deficit of BDT 2.43 trillion, equivalent to 3.6 per cent of GDP.
It aims to achieve 6.5 per cent GDP growth, contain inflation at 7.5 per cent, and raise the tax-to-GDP ratio to 6.8 per cent.
The budget has been proposed at a time when Bangladesh is grappling with persistent inflation, pressure on foreign exchange reserves, sluggish investment, a weak tax base, and slow employment growth.
At the same time, the fragility of the banking sector has emerged as one of the country's most pressing challenges. This is no longer simply a crisis affecting a few banks; it raises broader questions about the relationship between the state, the market, and political power.
To restore stability, the government has proposed reducing non-performing loans (NPLs), strengthening regulatory capacity, accelerating digital transformation, restructuring and merging weak banks, and providing capital support where necessary.
While these measures are economically necessary, an important question remains: Who should bear the cost of financial stability?
If banks weakened by poor governance, political influence, regulatory failure, and rising defaulted loans are ultimately rescued with taxpayers' money, does this represent financial stability?
Bank bailouts: Stability or impunity?
The most serious weakness of Bangladesh's banking sector is the growing volume of non-performing loans.
Official figures place the NPL ratio at 35.73 per cent, meaning that nearly BDT 36 out of every BDT 100 lent by banks is at risk.
This weakens banks' capital base, restricts new lending, and discourages investment. By comparison, a healthy banking system generally maintains an NPL ratio of 3 to 5 per cent.
According to Bangladesh Bank, distressed banks have received more than BDT 760 billion in liquidity support. Of this, BDT 172.5 billion was provided during the Awami League government and BDT 510 billion under the interim government through repo facilities, special liquidity assistance, interbank support, and other policy measures. However, liquidity support alone cannot resolve a structural crisis.
Internationally, bank bailouts have remained controversial since the 2008 Global Financial Crisis, when governments in the United States, the United Kingdom, and Europe spent enormous public resources to prevent the collapse of major financial institutions. Although these measures restored short-term stability, they reinforced the notion of institutions being 'Too Big to Fail.'
Consider a bank that extends thousands of crores of taka in loans to influential groups. When those loans are not repaid, they are repeatedly rescheduled instead of being classified as non-performing, while new loans are issued to service old debts.
Although the bank appears solvent on paper, its capital continues to erode. Eventually, the government is forced to intervene. In effect, profits remain private, while losses are transferred to the public.
This illustrates the distinction between bailouts and bail-ins. A bailout rescues banks with taxpayers' money, whereas a bail-in requires shareholders, major investors, and subordinated creditors to absorb losses first.
Following the 2008 financial crisis, many countries adopted bail-in mechanisms to reduce the burden on taxpayers and strengthen financial accountability.
Bangladesh, however, has made only limited progress in this direction. The expectation persists that large financial institutions will ultimately receive government support.
Such expectations create moral hazard. If banks believe they will always be rescued, they have fewer incentives to maintain prudent lending practices, ensure sound corporate governance, or resist politically motivated lending.
Over the past decade, Bangladesh has witnessed a steady rise in non-performing loans. At the same time, repeated loan rescheduling, regulatory forbearance, and policy concessions have concealed the true extent of financial risk.
The banking crisis is therefore not merely a financial problem but also a crisis of political economy, shaped by the interaction of political power, business interests, and regulatory institutions.
The banking crisis cannot be understood solely as a failure of financial management.
Governments generally have two options: restructure, merge, or close weak banks, or sustain them with public funds.
While the first option may be difficult, the second imposes a long-term burden on society.
Public revenue is collected to finance education, healthcare, infrastructure, and social protection. Repeatedly using these resources to rescue poorly governed banks raises both economic and ethical concerns.
Liquidity crisis or insolvency?
For years, Bangladesh's banking problems have largely been described as a liquidity crisis. In many cases, however, the challenge is one of insolvency rather than liquidity.
A liquidity crisis refers to a temporary shortage of cash. In contrast, insolvency means that the real value of a bank's assets has deteriorated to the point where it can no longer meet its obligations.
The two situations require different policy responses.
Liquidity shortages may be addressed through short-term central bank support.
Insolvency, however, requires transparent asset quality assessments, recapitalisation, governance reforms, changes in ownership, and, where necessary, the merger or closure of distressed banks.
Recapitalisation should never substitute for structural reform.
Before providing any public capital support, an independent Asset Quality Review (AQR) should be conducted to determine the true scale of non-performing loans, capital deficiencies, and managerial responsibility.
Banks are indispensable to the economy, but citizens are more important than financial institutions.
Financial stability must therefore be built on transparency, accountability, and fairness. While using public funds to rescue banks may sometimes be necessary to prevent systemic collapse, taxpayers' money should never be used to shield those responsible for institutional failure from accountability.
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