Governor’s strategic leadership restoring discipline to troubled banking sector

The appointment of economist Dr Ahsan H Mansur as the new Governor of Bangladesh Bank has brought a renewed sense of hope for a financial sector that has long been plagued by mismanagement, politicisation, and a deep erosion of public trust.

With his experience at the International Monetary Fund and his leadership at the Policy Research Institute (PRI), Dr Mansur is widely regarded as a capable and competent figure – one who may finally be able to steer the banking sector back toward stability and accountability.

But the challenges before him are immense.

Bangladesh Bank has not only propped up weak banks with capital injections, it has also extended dollar-denominated loans to powerful business groups through the Export Development Fund – drawn directly from the country’s foreign currency reserves. Many of these loans have now defaulted. One internal document from the central bank reveals that nearly $70 million is stuck with just 20 borrowers.

As of the end of last July, Bangladesh Bank’s total foreign exchange reserves stood at $25.92 billion, of which $2.6 billion had been disbursed through the Export Development Fund. A large share of that is now tied up in government entities. Some banks are surviving purely on central bank support, while others have borrowed from the reserves and failed to repay. This is the true picture of our banking system – and there is reason to fear the reality could be even worse.

A white paper must be published detailing the actual state of the banking sector. Only with transparency can we set clear priorities and decide which reforms must begin immediately. The time for action is now. Delays could lead to a full-blown financial disaster.

The recent political transition has brought new turbulence to an already unstable sector. Following pressure from bank staff and employees, the central bank governor and nearly the entire senior leadership team have stepped down. There are also growing calls to reconstitute the boards of several private banks.

Efforts – both domestic and foreign – are underway to change ownership structures in some banks, creating further uncertainty and unrest. This is not a situation we can afford to ignore. It demands immediate and decisive intervention.

A comprehensive roadmap is urgently needed to stabilise the sector and define its long-term direction. If necessary, the government must even consider temporary state takeovers of troubled banks.

The current crisis originated with Islami Bank. The day after the fall of the Sheikh Hasina government, some of the bank’s officials and staff demanded the removal of those appointed after its controversial ownership change in 2017, when the Chattogram-based S. Alam Group effectively took control of the institution.

On 7 August, an unprecedented scene unfolded at Bangladesh Bank: a group of staff members marched to the Governor’s floor, demanding the resignations of the governor, all four deputy governors, the central bank’s adviser, and the head of the Financial Intelligence Unit. Under pressure, six top officials stepped down. One Deputy Governor was later allowed – by the protesting staff – to remain in a temporary capacity.

Violence soon followed. As S. Alam Group appointees tried to enter Islami Bank premises, they were blocked, sparking clashes and even gunfire. Meanwhile, protests at IFIC Bank called for the resignation of Chairman Salman F Rahman – adviser to former Prime Minister Sheikh Hasina – and others representing his company Beximco. Dismissed IFIC employees have publicly demanded their removal from the board.

Unrest also continues at Social Islami Bank and Bangladesh Commerce Bank. In the midst of this, Governor Abdur Rouf Talukder, whose tenure was marked by persistent controversy, has resigned – leaving the sector without effective regulatory leadership.

Bangladesh’s economic crisis, driven by a series of flawed policies under the Awami League, has now been worsened by this financial sector turmoil. The fragility of the banking system is reaching a breaking point.

To recover, the leadership vacuum at Bangladesh Bank must be filled without delay. A full audit is needed to assess the financial health of institutions under the control of S. Alam Group, particularly Islami Bank. Based on these findings, decisions must be made on how to restructure these banks – and ultimately, who should be held accountable.

The Finance Adviser must make it clear that Islami Bank, and others under S. Alam Group’s control, will not remain in their hands indefinitely. Such decisions should be guided by ethics and economic logic – not political convenience.

If a bank is well-run by someone aligned with the Awami League, that should not be a problem. The real issue lies in how the banks are managed. The sector must be freed from capital shortfalls and the grip of corrupt interests.

A Banking Reform Commission should be established, with the power to recommend long-term structural changes, including a potential reduction in the number of banks. But in the short term, the focus must be on restoring discipline, ensuring good governance, enforcing lending regulations, and rebuilding public trust. If these steps are taken seriously, a turnaround is possible.

The banking sector is the lifeblood of the economy – but it is now dangerously close to paralysis. A Banking Commission is not optional; it is essential. We must uncover the true extent of non-performing loans.

We also need clear answers: How much can one business group borrow from the entire banking system? How many family members can sit on a bank’s board? What are the criteria for removing defaulters’ names or writing off loans? Why are asset management companies failing to deliver?

Our banks need both diagnosis and treatment.

One urgent step is to dissolve the Financial Institutions Division under the Ministry of Finance. Created solely to exert political control, this body has long outlived its usefulness. A special task force should be established to oversee banking sector recovery.

We must also ask ourselves a deeper question: Have we lived up to the values of the Liberation War? Millions fought in 1971 for a just, exploitation-free society. Have those dreams been realised?

When we see scandal after scandal in the financial sector – where billion-taka defaulters enjoy impunity under political protection while poor farmers are humiliated and dragged to police stations over microloans – how can we not feel betrayed?

This is the strange paradox of independent Bangladesh. Is this the freedom we celebrated on 16 December 1971? This question weighs heavily on our collective conscience. Will anyone answer, or will it remain an unspoken grief?

During Sheikh Hasina’s 16-year rule, many institutions were systematically weakened. Corruption became institutionalised. Piecemeal reforms are no longer enough – the banking sector needs structural change. That requires bold political will.

Through nepotistic capitalism, the country’s elite have looted banks for personal gain. Although banks may have multiple shareholders, control has often rested in the hands of one powerful individual. This concentration of power has hollowed out the sector.

Today, oligarchs dominate not just banking, but every corner of the economy. Corruption and collusion – between businessmen, bankers, and powerful politicians – have eaten away at the sector like cancer.

Without confronting these realities head-on, no real solution is possible. Reform demands political sincerity. All political parties must reach consensus on key economic issues. This is no time for political point-scoring.

The new government inherits enormous challenges. Among them, reforming the banking sector must take priority. Under the skilled stewardship of Dr Ahsan H. Mansur, we may finally see a return to discipline and a banking sector that earns back the trust of the people.

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The writer is a former Tax Commissioner and the founding chairman of the National FF Foundation.