Banking stress

Bangladesh’s banking system is living through its most severe stress test since independence. The numbers alone tell a grim story ~ nearly a quarter of all loans are in default, billions in assets have turned unrecoverable, and liquidity has thinned despite an official tightening of policy. Yet the problem runs far deeper than the current figures. It is the culmination of a long-standing pattern in which politics, rather than prudence, dictated credit decisions and eroded public confidence in institutions meant to safeguard savings and investments.

The roots of this crisis stretch back decades. For years, powerful business interests and politicians treated commercial banks as private vaults, borrowing large sums against inflated collateral and using political connections to avoid repayment. The result was a slow hollowing out of the financial system, a build-up of bad loans masked by cosmetic accounting and a culture of impunity that rewarded defaulters and punished discipline. Even when the economy was growing rapidly, this rot remained hidden beneath the surface, waiting for a political upheaval or external shock to expose its scale. That reckoning has now arrived. The interim government, led by economists rather than career politicians, has undertaken painful but necessary reforms.

Advertisement

Central bank autonomy, mergers of weak institutions, stricter provisioning norms, and a move towards risk-based supervision represent a belated but credible effort to clean up the system. Transparency has replaced denial, and the exposure of concealed defaults is an essential first step toward rebuilding credibility. However, the task ahead is formidable. Bangladesh is attempting to stabilise an economy amid political uncertainty and declining investor confidence. Inflation has eased but remains high, private credit growth has hit record lows, and the business community is reluctant to expand under volatile conditions. The social cost of austerity ~ slower job creation, weak consumption, and diminished entrepreneurial energy ~ could easily reverse the tentative macroeconomic gains made so far. Foreign investors are watching closely, viewing the clean-up as a test of Bangladesh’s institutional maturity. Their confidence will depend not just on numbers, but on consistent policy and credible governance.

The country thus stands on a fragile tightrope. Reforms must continue with consistency and fairness, not with selective enforcement or political bias. For that to happen, political stability and institutional independence are indispensable. Without them, every gain could be temporary, every reform reversible. Bangladesh’s experience holds a larger lesson for the region. Financial systems cannot survive when politics routinely intrudes into credit allocation and regulatory oversight. True reform demands not just new laws but a new ethic, one that treats banking as a public trust rather than a political reward. The worst of the crisis may be over, but recovery will be measured not by quarterly indicators, but by whether the next government can resist the temptations that created the crisis in the first place. Stability, like credit, must now be earned ~ through transparency, accountability, and time.