The interim government’s tenure is almost at an end, with the country counting down to the transfer of power. At this point, the question can no longer be avoided: how much of its biggest promise—banking sector reform—was actually delivered?
Following the mass uprising of July 2024, the interim government announced a reform agenda that placed the banking sector at its core.
Restructuring a sector burdened by non-performing loans, political influence, and concentrated ownership was presented as a prerequisite for economic stability. Yet, more than a year and a half later, the main pillars of structural reform have yet to see the light of day.
Big promises, limited implementation
The government’s reform roadmap identified two laws as the backbone of banking reform:
In reality, both laws remain pending approval as the government’s term draws to a close. The reform process has stalled precisely where it was supposed to begin.
So far, the interim government has issued only two ordinances related to the banking sector: the Bank Resolution Ordinance, and the Deposit Insurance Ordinance.
According to Bangladesh Bank and economists, these are tools for crisis management, not reform.
They address how to handle a bank failure and provide partial protection to depositors, but they leave unanswered the fundamental questions: why banks become weak, who is responsible, and where authority and accountability should be limited.
Officials of Bangladesh Bank privately and publicly acknowledge that, without the necessary legislation, central bank independence remains largely nominal.
A draft amendment to the Bangladesh Bank Order, 1972 was sent to the Ministry of Finance nearly four months ago. Its objectives include ensuring policy independence, reducing political influence, and strengthening the governor’s constitutional standing.
The initial draft proposed removing three government officials from the Bangladesh Bank board, granting the governor ministerial rank, and introducing an oath administered by the Chief Justice.
Although the draft was softened in response to objections from the Ministry of Finance, it still failed to receive approval—making it clear that the issue is not wording, but control over power.
The International Monetary Fund (IMF) has long supported greater autonomy for Bangladesh Bank.
Under the $5.5 billion loan program, the IMF provided direct technical assistance in drafting the reform law.
In its latest Article IV review, the IMF warned that delays in banking and revenue reforms could jeopardize growth, intensify inflationary pressures, and deepen macroeconomic risks.
Yet the statement concluded by noting that key decisions would be taken by the next government—effectively shifting responsibility for reform to the future.
Curbing ownership concentration
The draft amendment to the Bank Companies Act proposes 45 changes aimed at improving governance.
Key proposals include reducing board size from 20 to 15 members, making at least half of the board independent directors, appointing independent directors from a vetted list prepared by expert committees, and preventing any individual, family, or institution from holding more than 5 percent shares in multiple banks.
Bangladesh Bank argues that without these measures, it will be impossible to curb non-performing loans, internal misappropriation, and the dominance of powerful owners.
The Bangladesh Association of Banks (BAB) has opposed the draft, describing ownership limits as “investment deterrents.” Economists counter that the issue is not investment, but control.
Former World Bank chief economist Zahid Hussain says this is not a technical delay but a question of authority. Reducing the Ministry of Finance’s influence over Bangladesh Bank and limiting the power of bank owners are the real points of contention. In his view, deferring legislation to the next government amounts to avoiding responsibility.
Five-bank merger: reform or buying time?
As a major reform step, the government merged five weak banks with the stated goals of restoring depositor confidence, reducing state risk, and signalling stability.
The number of banks fell, administrative costs came somewhat under control, immediate panic was contained, and the message was sent that “no bank will be allowed to fail.”
However, the mergers did not address core problems: the mountain of bad loans, politically influenced lending, weak and conflicted boards, ownership concentration, and the central bank’s limited supervisory power.
Economists warn that the process risks turning “bad banks into a bigger bad bank.”
Keeping the merged banks afloat has increased reliance on central bank liquidity support and state guarantees. Ultimately, the burden of losses is shifting to taxpayers and ordinary depositors.
Experts argue that effective consolidation required strict amendments to the Bank Companies Act, full autonomy for Bangladesh Bank, visible action against responsible directors and loan defaulters, and professional boards and management.
