৪৯তম বিসিএস ⎯ ফিন্যান্স ও ব্যাংকিং [৭১১]

The BRRU’s primary role is to strengthen the framework for restructuring troubled banks by:
Supervising AQRs(Asset Quality Reviews) to identify actual non-performing loans (NPLs).
Implementing corrective strategies like mergers, recapitalization, liquidation.
Collaborating with IFIs like the IMF and World Bank to develop policies.
However, deposit insurance is handled separately by the Deposit Protection Fund, not the BRRU.

Source: 
Bangladesh Bank official website: bb.org.bd 
The Daily Star (2025): Inside the 3-year plan to fix banks.

The 3-year reform plan includes a gradual transition to IFRS-9, replacing the current “incurred loss” provisioning model with a forward-looking Expected Credit Loss (ECL) approach.

Full implementation is targeted for 2027, aligning Bangladesh with global best practices.

Source: 
Bangladesh Bank Monetary Policy Statement FY26: bb.org.bd 
The Daily Star: Inside the 3-year plan to fix banks

The Distressed Asset Management Act will create a structured market for banks to sell NPLs to licensed private Asset Management Companies.

This helps clean balance sheets and creates liquidity for resolution.

Other acts focus on governance, recovery, and resolution but do not directly enable NPL trading.

Source: The Daily Star: Inside the 3-year plan to fix banks

Phase 1: 6 private banks completed AQRs by May 2025.
Phase 2: Remaining 12 private banks will be reviewed by December 2025.
Phase 3: State-owned banks by March 2026 with independent consultants.

Source: The Daily Star: Inside the 3-year plan to fix banks

Poor governance was a key cause of NPLs and mismanagement.

The reform ensures qualified, conflict-free, and transparent board structures for both public and private banks.

Source: The Daily Star: Financial reforms show the way

Political influence has been a key driver of weak governance in Bangladesh’s banking sector, often leading to the creation of new banks without proper feasibility studies.

The reform plan proposes:

Banning multiple bank ownership by the same group to avoid concentration of power.

Stopping politically motivated bank licensing to reduce favoritism.

Ensuring Bangladesh Bank’s independence in regulatory and licensing matters.

This aligns with IMF recommendations under the banking sector reform agenda.

Source: 
The Daily Star: Inside the 3-year plan to fix banks 
Bangladesh Bank MPS: bb.org.bd

A new Bankruptcy Act is part of the legal reforms to streamline insolvency proceedings and enable faster corporate restructuring.

It works alongside the Money Loan Court Act amendments, which focus on quick case disposal.

Distressed Asset Management Act relates to NPL trading through private AMCs but is separate from bankruptcy law.

Source: The Daily Star: Inside the 3-year plan to fix banks

To ensure central bank independence, the Governor will be:

Appointed by an independent committee, reducing political influence.

Protected from arbitrary removal — termination will require court process, similar to practices in advanced economies.

Source: The Daily Star: Inside the 3-year plan to fix banks

Risk-based supervision (RBS) focuses on identifying high-risk areas such as poor governance, high NPL levels, or weak capital adequacy.

This approach allows regulators to prioritize resources and take preventive action before crises occur.

It will be rolled out in Bangladesh by 2026.

Source: Bangladesh Bank MPS FY26: bb.org.bd

Publishing defaulters lists will increase transparency, discourage willful default, and strengthen public trust.

It also holds banks accountable by revealing which institutions have high exposure to bad loans.

Source: The Daily Star: Financial reforms show the way

Rural credit initiatives will expand financial inclusion, giving small farmers, women entrepreneurs, and marginalized communities access to affordable credit.

This helps reduce poverty and promote inclusive economic growth.

Source: Bangladesh Bank MPS FY26: bb.org.bd

Bangladesh Bank believes that when weak banks remain operational, they can create systemic risk, threatening the stability of the entire financial sector.

By merging them with stronger banks, the risks are absorbed, and the stability of the overall economy is preserved.

This is also aligned with global practices such as those used after the 2008 financial crisis.

Source: 
Bangladesh Bank PCA Circular, 5 Feb 2023 
The Daily Star, Feb 2024: BB pushes mergers to fix banking sector

Bangladesh currently has 61 banks, consisting of state-owned, private, Islamic, and foreign banks.

However, many experts and Bangladesh Bank officials have stated that around 40 are financially sound, while the remaining are struggling due to poor governance and rising NPLs.

Source: 
Bangladesh Bank Annual Report 2024 
The Daily Star, 2025: Mergers planned for weak banks

Bangladesh Bank officially issued the PCA Circular on February 5, 2023.

It provides a systematic plan to identify weak banks and implement corrective steps, such as capital restructuring, merger planning, and governance reforms.

This framework is similar to the U.S. PCA model under the FDIC(The Federal Deposit Insurance Corporation).

Source: 
PCA Circular, Bangladesh Bank (2023) 
The Financial Express, Feb 2023

The PCA Framework focuses on early identification of financial distress through key indicators like:

Capital Adequacy Ratio (CAR) dropping below required levels.

High NPL ratios, indicating poor loan portfolio quality.

Persistent liquidity shortages.

When these occur, Bangladesh Bank steps in to prevent a full-blown crisis.

Source: 
Bangladesh Bank PCA Circular 2023 
IMF Report on Bangladesh Banking Sector 2024

If weak banks remain unchecked:

Depositors may lose confidence, leading to a bank run.

The entire sector can face liquidity problems, impacting economic stability.

This is why regulators worldwide, including Bangladesh Bank, prioritize early corrective action.

Source: 
World Bank Financial Stability Report 2024 
Bangladesh Bank PCA Circular 2023

PCA focuses on problem-solving, not expansion.

Its core objectives are to identify risks early, take corrective steps, and merge weak banks where necessary.

Issuing more licenses would worsen the problem by adding competition to an already weak sector.

Source: 
Bangladesh Bank PCA Circular 2023 
The Daily Star, Feb 2024

A high NPL ratio is the strongest sign of poor loan quality and bad governance.

In Bangladesh, some weak banks have NPL ratios above 25%, far exceeding the safe limit of 5% under Basel III standards.

PCA treats NPL ratios as a primary trigger for intervention.

Source: 
Bangladesh Bank Annual Financial Stability Report 2024 
The Financial Express, April 2024

When two banks merge, there are often duplicate branches in the same city or area.

By closing these overlapping branches, banks save on rent, maintenance, utilities, and staff salaries.

This significantly reduces operational and administrative expenses, improving profitability.

Source: 
Bangladesh Bank Annual Report 2024 
The Daily Star (2025): Mergers as a tool to reduce banking sector costs

A merged bank has a larger pool of assets, deposits, and customers.

This enables greater lending capacity, higher investments, and increased cross-selling of financial products.

The economies of scale lead to sustainable profit growth.

Source: 
IMF Financial Sector Stability Report 2024 
Bangladesh Bank PCA Circular 2023

Larger banks benefit from economies of scale, meaning lower per-unit costs for operations and services.

They can compete more aggressively with better pricing, advanced technology, and a wider range of services, strengthening their market position.

Source: 
IMF, Global Banking Efficiency Report 2024 
Bangladesh Bank Annual Report 2024

A merger is usually recommended when a bank faces serious financial distress, such as high NPL ratios and poor capital adequacy levels.

Combining with a strong bank helps restore solvency and protect depositors.

Source: 
Bangladesh Bank PCA Circular 2023 
IMF Banking Supervision Report 2024

When banks merge, duplicate roles and overlapping branches often lead to downsizing.

Many employees may lose their jobs, creating job insecurity and lowering staff morale.

This is a common short-term negative impact of mergers globally, including in Bangladesh.

Source: 
Bangladesh Bank Annual Report 2024 
IMF, Global Financial Sector Employment Report 2024

When mergers create a few dominant banks, market competition decreases.

This can result in monopolistic practices, higher fees, and less incentive to innovate.

Over time, this hurts consumers and the overall efficiency of the banking sector.

Source: 
IMF, Bank Consolidation and Competition Report 2024 
The Financial Express, 2025

Merging banks with different work cultures, management styles, and technology systems creates serious integration challenges.

Employees may resist new methods, causing delays, inefficiencies, and miscommunication.

This is a common problem in both local and international banking mergers.

Source: IMF, Mergers and Operational Risk Report 2023

If a merged bank struggles with liquidity or deposit growth, it may:

Reduce interest rates on deposits to cut costs.

Restrict withdrawals to prevent a bank run.

Such actions harm depositors’ trust and confidence in the banking system.

Source: 
Bangladesh Bank Deposit Protection Ordinance 2024 
The Daily Star, 2025

Cultural clashes occur when employees from different banks struggle to adapt to new rules, leadership styles, or work ethics.

This can lead to low morale, reduced productivity, and resistance to change, delaying merger success.

Source: Harvard Business Review, Cultural Issues in Mergers and Acquisitions, 2024

Merged banks often focus on urban, profitable markets, leading to closure of rural branches.

This reduces access to financial inclusion, harming rural communities and small businesses.

Source: World Bank, Financial Inclusion Report 2024

Bangladesh Bank was created in 1972 right after independence through the Bangladesh Bank Order, 1972.

This act empowered the central bank to regulate and supervise the entire banking sector, issue currency, and ensure financial stability.

Source: Bangladesh Bank Order, 1972 (Article 3)

Bangladesh Bank primarily acts as a regulator, not a commercial bank.

It issues licenses, supervises banks, controls monetary policy, and manages foreign exchange reserves but does not engage directly in profit-driven commercial lending.

Source: Bangladesh Bank Annual Report 2024

According to the Banking Companies Act, 1991, Section 31, only Bangladesh Bank has the legal authority to issue or revoke licenses for banking operations.

This helps maintain systemic stability by ensuring only qualified institutions operate.

Source: Banking Companies Act, 1991 (Section 31)

The Banking Companies Act, 1991 includes detailed provisions about mergers, amalgamations, and liquidations of banks to protect depositors and ensure financial stability.

Bangladesh Bank supervises the entire process under this law.

Source: Banking Companies Act, 1991 (Sections 44–46)

Bangladesh Bank, under the Bangladesh Bank Order, 1972, has the mandate to design and execute monetary policy to ensure price stability, economic growth, and proper credit allocation.

It acts independently, though in coordination with the government.

Source: Bangladesh Bank Order, 1972 (Article 7)

Banks must first register as companies under the Companies Act, 1994, and then obtain a banking license from Bangladesh Bank.

This dual legal compliance ensures proper corporate governance and accountability.

Source: Companies Act, 1994 (Sections 2–5)

The 2013 amendment was aimed at reducing political and family dominance in private banks, improving corporate governance, and increasing transparency.

Source: Banking Companies (Amendment) Act, 2013, Government of Bangladesh

The act governs licensing, capital adequacy, inspections, mergers, and liquidation of banks, ensuring a stable and transparent banking environment.

Source: Banking Companies Act, 1991 (Preamble)

Banks are corporate entities, so they must comply with general company laws under the Companies Act.

However, due to their special role in the financial system, they also follow banking-specific rules under the Banking Companies Act.

Source: 
Companies Act, 1994 
Banking Companies Act, 1991

Under the Financial Institutions Act, 1993, Bangladesh Bank has the authority to license, supervise, and regulate NBFIs, similar to how it supervises banks.

Source: Financial Institutions Act, 1993 (Section 4)

Basel II and Basel III are international banking standards focusing on capital adequacy, risk management, and liquidity control, reducing the chances of bank collapses.

Bangladesh adopted Basel III starting 2019 to strengthen financial resilience.

Source: Basel III Implementation Roadmap, Bangladesh Bank, 2024

The Bangladesh Financial Intelligence Unit (BFIU) is responsible for collecting and analyzing suspicious transaction reports (STRs) and combating AML/CFT risks.

Source: Money Laundering Prevention Act, 2012 (Section 23)

Banks that fail to report suspicious transactions or comply with AML rules face hefty fines and possible license suspension, protecting the financial system from illegal activities.

Source: Money Laundering Prevention Act, 2012 (Sections 23 & 25)

Banking regulations ensure stability by setting capital adequacy, liquidity requirements, and risk management standards. 

These measures prevent widespread bank collapses, which could lead to financial crises like the 2008 global meltdown. 

In Bangladesh, Basel III implementation strengthens this stability.

Source: 
Bangladesh Bank, Financial Stability Report 2024 
IMF, Global Financial Stability Report 2023

Smaller banks face disproportionate compliance costs, as they lack the technology and staff required for complex reporting.

This may force them to merge with larger banks or exit the market entirely.

Source: 
World Bank, Small Bank Compliance Report, 2024 
Bangladesh Bank, Basel III Implementation Guide

On-site inspections allow supervisors to examine bank records, internal controls, and practices to detect fraud or excessive risk-taking early.

Source: Basel Committee on Banking Supervision, Core Principles for Effective Banking Supervision, 2023

Off-site monitoring involves analyzing periodic financial reports, capital adequacy, liquidity ratios, and risk exposures to ensure compliance.

This complements on-site inspections.

Source: Bangladesh Bank Risk-Based Supervision Guidelines, 2024

BSEC regulates the securities market, ensuring transparency, investor protection, and legal compliance of listed companies and banks issuing capital instruments.

Source: BSEC Act, 1993

Stress tests simulate economic shocks (e.g., recession, market crash) to check if banks have sufficient capital and liquidity to survive.

This helps prevent systemic crises.

Source: IMF, Banking Supervision and Stress Testing Report, 2023

Investment management is the strategic deployment of a bank’s financial resources into various investment avenues such as loans, securities, and government bonds.

The goal is maximizing returns while ensuring liquidity to meet depositor demands and safety to protect the bank’s capital.

Source: 
Van Horne, J.C., Financial Management and Policy, 13th Edition, 2021 
Bangladesh Bank, Investment Policy Guidelines, 2023

Liquidity ensures banks can honor withdrawal requests and short-term obligations.

Investment portfolios are structured to include short-term, easily liquidated assets like treasury bills and government bonds, alongside long-term loans.

Source: 
Saunders, A., & Cornett, M.M., Financial Institutions Management, 10th Edition, 2022 
Bangladesh Bank, Liquidity Management Guidelines, 2023

Investments offering higher returns usually carry higher risk of loss.

Banks need to diversify portfolios and adhere to risk limits to balance profitability with safety.

Source: 
Van Horne, J.C., Financial Management and Policy, 2021 
Bangladesh Bank, Investment Risk Guidelines, 2023