Banks are in bad shape. In November 2025, newspapers reported that defaulted loans in the banking system had reached over 34 per cent of disbursed loans, or about Tk6 lakh crore.
That is an almost unimaginable amount of money, enough to pay for 19 Padma Bridges. Many banks will have to be bailed out with government money, otherwise they will not be able to repay their depositors.
How did we get here? Cronies of the previous AL government borrowed massively. They used borrowed money to pay for over-invoiced imports. Once large sums had been moved abroad, the borrowers defaulted on their loans.
It was a simple scam enacted on a massive scale. That led to the present banking crisis and caused the depreciation of the Taka between 2022 and 2024. Depreciation led to painful inflation.
How much will the bank bailout cost? This is not hard to estimate. Banks will probably need about Tk5 trillion from the government, enough to allow them to return deposits to the public. If deposits are not returned, there might be a run on banks, which would collapse the economy. If the government invests this money in sick banks as equity, those banks will become state-owned banks.
How will the newly elected government raise Tk5 trillion to bail out banks? Printing this amount of money would lead to further inflation and depreciation. The government will probably have to raise the money by selling bonds. Healthy banks will buy these bonds, as government bonds are less risky than lending to businesses.
However, if banks buy trillions of Taka worth of government bonds, they will have very little money left to lend to businesses. This will probably lead to slow economic growth over the next few years. The public should remember that the previous AL government created this mess and left the elected government with the task of cleaning it up.
Defaulting borrowers were allowed to borrow without mortgaging sufficient assets as security. If banks had followed their own rules, they would not have disbursed large loans without adequate security. Bangladesh Bank is responsible for regulating banks. Bangladesh Bank needs to be made independent so that it can stop cronies of future governments from looting banks again.
An independent central bank can prevent further inflation and depreciation of the Taka. The previous AL government maintained a large fiscal deficit while also forcing banks to lend at low interest rates. The combination of large fiscal deficits and low interest rates was bound to cause inflation and currency depreciation. In countries with independent central banks, inflation is better controlled. Central banks are supposed to raise interest rates to counter inflationary pressure created by a large fiscal deficit.
Under the Interim Government, the central bank stopped further depreciation and inflation by raising interest rates. If this action had been taken during the previous AL government, the painful inflation and depreciation of the last few years could have been prevented.
The author is a Director of Kazi Farms Limited. He has a BA in economics from Oberlin College and a master’s degree from Columbia University.
