Md. Shahidul Haque

The World Bank has approved a $450 million financing package aimed at strengthening Bangladesh’s troubled banking sector, supporting reforms designed to restore stability, protect depositors, and improve financial sector governance.

The financing, approved by the World Bank’s Board of Executive Directors on June 23, will be provided under the Financial Sector Support Project II, according to a World Bank statement.

The project seeks to reinforce Bangladesh’s deposit protection system, enhance the supervisory capacity of Bangladesh Bank, and lay the groundwork for bank resolution mechanisms and reforms in state-owned banks. It will also provide support to the deposit protection fund by increasing its capital base and implementing key reform measures.

The approval comes at a time when Bangladesh’s banking sector is facing mounting challenges. According to the World Bank, the sector has been weakened by poor corporate governance, regulatory capture, and extensive related-party lending practices.

Data cited by the lender showed that the banking sector’s non-performing loan (NPL) ratio surged to 32.6 percent at the end of March 2026, significantly higher than the South Asian regional average of 7.9 percent. Meanwhile, the sector-wide capital-to-risk-weighted assets ratio remained in negative territory at minus 2.6 percent as of December 2025, highlighting deep vulnerabilities within the financial system.

“Bangladesh’s vision of attaining a trillion-dollar economy requires a stable and inclusive financial sector. But the banking sector—which accounts for about 90 percent of total financial sector assets—faces mounting stress,” said Jean Pesme, World Bank Division Director for Bangladesh and Bhutan.

He said the project would help establish essential tools, systems, and safeguards to protect small depositors, restore confidence in the banking system, and support economic growth and job creation.

A major component of the initiative involves modernising Bangladesh Bank’s information and communications technology infrastructure. The upgrade is expected to strengthen cybersecurity defenses, improve data collection and analytics, and enable more effective risk-based supervision of banks.

The project also aims to support the establishment of an Emergency Liquidity Assistance framework, develop bank restructuring strategies, and advance reforms in state-owned commercial banks.

Toshiaki Ono, Senior Financial Sector Specialist at the World Bank and Task Team Leader of the project, said the initiative forms part of a broader reform agenda being supported by international development partners, including the International Monetary Fund (IMF) and the Asian Development Bank (ADB).

“The project supports measures to bolster crisis preparedness and strengthen the authorities’ capacity to manage banking sector stress,” Ono said.

Economists view the latest World Bank support as a significant step toward addressing structural weaknesses in Bangladesh’s banking industry, which remains critical to financing investment, business expansion, and employment generation across the economy.