Published: 12:00 AM, 05 November 2026
Sound Economy Cannot Prevail Without Firm and Resilient Banking System
A sound economy is built on a strong financial foundation, and a well-functioning banking system is at the heart of that foundation. In Bangladesh, where economic growth depends heavily on industrial development, agricultural production, trade, remittances, and private investment, the importance of a firm and resilient banking sector cannot be overstated. Banks are not merely institutions that accept deposits and provide loans; they are the lifeblood of the economy, connecting savers with investors, mobilizing resources, facilitating transactions, and supporting economic activities. Without a strong banking system, the country's aspirations for sustainable development, employment generation, and improved living standards will remain difficult to achieve.
Bangladesh has made remarkable economic progress over the past several decades. The expansion of the readymade garment industry, the growth of small and medium-sized enterprises, the development of infrastructure, and the steady inflow of remittances have contributed significantly to the country's economic transformation. However, these achievements cannot be sustained without a banking sector capable of financing productive activities and maintaining financial stability. A weak banking system can undermine economic confidence, discourage investment, increase financial uncertainty, and eventually slow down national development.
One of the most important functions of banks is to mobilize public savings and channel them into productive investments. Millions of people in Bangladesh deposit their hard-earned money in banks, expecting safety, security, and reasonable returns. Banks use these deposits to finance businesses, industries, agriculture, and other economic activities. When this process works efficiently, savings become capital, capital creates employment, and employment contributes to higher incomes and economic growth. But when banks suffer from poor governance, excessive lending, or financial mismanagement, this essential cycle is disrupted.
The problem of nonperforming loans remains one of the most serious challenges facing Bangladesh's banking sector. When borrowers fail to repay loans, banks lose the ability to recycle their funds into new investments. The consequences extend beyond individual institutions. Businesses that need working capital may struggle to obtain financing, entrepreneurs may abandon expansion plans, and depositors may lose confidence in the financial system. The burden of bad loans can also weaken banks' capital positions and increase pressure on public resources.
The accumulation of nonperforming loans is often associated with weak credit assessment, inadequate monitoring, political influence, insider lending, and a culture of impunity. These problems cannot be solved through temporary measures or cosmetic adjustments to financial statements. Bangladesh needs a comprehensive approach that ensures responsible lending, effective loan recovery, transparent reporting, and accountability for those who misuse financial resources. Borrowers who deliberately default should face the consequences of their actions, while genuine businesses affected by economic difficulties should receive appropriate and carefully monitored support.
Good governance is indispensable to a strong banking system. Bank directors, executives, regulators, and other stakeholders must recognize that banking is a public-trust business. Depositors' money cannot be treated as the personal property of influential individuals or business groups. The appointment of competent and independent directors, the establishment of effective internal controls, and the enforcement of strict rules against conflicts of interest are essential for restoring confidence. Banking decisions should be based on commercial judgment, financial soundness, and national economic priorities rather than political connections or personal relationships.
Bangladesh Bank, as the country's central bank and principal banking regulator, has a crucial responsibility in this regard. It must exercise its supervisory authority independently and consistently. Effective regulation requires accurate financial information, timely inspections, early identification of risks, and appropriate corrective action against institutions that violate prudential standards. Regulatory forbearance may sometimes appear to protect individual banks in the short term, but it can create larger problems for the entire financial system. A credible regulator must ensure that rules apply equally to all banks, regardless of their ownership or influence.
The banking sector also plays a vital role in supporting Bangladesh's industrialization. The readymade garment industry, which is a major source of export earnings and employment, depends on banking services for working capital, letters of credit, export financing, and international payments. Other export-oriented industries, including pharmaceuticals, leather goods, and light engineering, require reliable access to credit to expand their production and compete in global markets. If banks cannot provide financing efficiently, industrial growth will suffer, export diversification will slow, and the country may find it difficult to strengthen its position in international trade.
Agriculture, too, depends on a sound banking system. Although Bangladesh is gradually diversifying its economy, agriculture remains essential for food security, rural employment, and social stability. Farmers need affordable credit to purchase seeds, fertilizers, machinery, and other agricultural inputs. Timely financing can help them improve productivity, adopt modern technologies, and reduce vulnerability to seasonal difficulties. A banking system that neglects rural communities and small farmers risks widening economic inequalities and weakening the foundations of national development.
Small and medium-sized enterprises deserve particular attention. These businesses create employment opportunities, support local markets, and contribute to economic diversification. Yet many entrepreneurs face difficulties obtaining formal bank loans because they lack collateral, extensive financial records, or established business relationships. Banks should develop more inclusive lending policies, improve credit assessment methods, and expand financing for viable small businesses. Such efforts can reduce dependence on informal lenders, promote entrepreneurship, and create jobs for the country's growing workforce.
Financial inclusion is another important pillar of a strong banking system. Bangladesh has made progress through mobile financial services, agent banking, digital payments, and other technology-driven initiatives. These services have brought financial transactions closer to people in rural and underserved areas. However, inclusion must go beyond opening accounts. People need access to affordable credit, secure savings facilities, insurance, and reliable payment systems. Banks must also strengthen cybersecurity, protect customer information, and ensure that digital financial services remain accessible to people with limited technological knowledge.
The relationship between banking stability and inflation also deserves attention. Excessive or poorly directed credit can contribute to inflationary pressure, asset-price distortions, and financial instability. On the other hand, a well-regulated banking system can support effective monetary policy by ensuring that changes in interest rates and liquidity conditions are transmitted through the economy. In Bangladesh, maintaining price stability while ensuring adequate financing for productive investment is a delicate task. Sound banking practices can help policymakers strike this balance without unnecessarily restricting economic activity.
The country's banking sector must also prepare for the challenges of global economic integration. Bangladesh's graduation from the least developed country category is expected to bring new opportunities as well as greater competition and compliance requirements. Exporters will need stronger financial services, improved trade financing, and more efficient international transactions. Banks must upgrade their risk-management systems, strengthen capital adequacy, improve transparency, and meet international standards. A financially weak banking sector could become a serious obstacle to the country's transition toward a more competitive and diversified economy.
Ultimately, reforming Bangladesh's banking system is not simply a matter of improving the financial performance of individual institutions. It is a national economic necessity. A strong banking sector can encourage investment, protect depositors, support businesses, create employment, and strengthen confidence in the economy. Conversely, a fragile banking system can magnify economic shocks, waste public resources, and undermine development gains.
The government, Bangladesh Bank, commercial banks, businesses, and civil society must work together to establish a culture of financial discipline and accountability. Political interference in lending decisions must end, loan classification must reflect reality, and recovery mechanisms must function effectively. At the same time, banks should embrace innovation, improve customer service, and expand financing for productive sectors.
Bangladesh's economic future depends on the strength of its financial institutions. Sustainable growth cannot be achieved through ambitious development plans alone; it requires a banking system that is transparent, accountable, resilient, and capable of serving the real economy. A sound economy and a strong banking system are inseparable. If Bangladesh wants to secure lasting prosperity, it must make banking reform a central priority of national development.
Nasir Uddin Shah is Chief
Reporter at The Asian Age.
