Bangladesh’s banking sector has been scarred by governance failures, politically driven lending and repeated regulatory concessions that have weakened discipline and eroded public confidence.
Against that backdrop, Association of Bankers, Bangladesh Chairman and City Bank Managing Director and CEO Mashrur Arefin has urged an end to policy unpredictability, warning that mixed and sudden signals now threaten financial stability.
In an interview with Takie Mohammad Jubayer of TIMES of Bangladesh, he outlined a reform roadmap built around tighter leadership screening, transparent loan ownership, conditional recapitalisation and faster bad loan resolution.
At the centre of his prescription is a blunt priority.
“The core slogan for banking reform should be two words: governance first,” Arefin said.
He argued that soaring non-performing loans, repeated fraud and entrenched related-party lending have pushed public trust to dangerously low levels.
Reform must begin at the top, he said, calling for a strictly enforced fit and proper regime for directors and chief executives. Leadership quality, he stressed, will determine whether deeper reforms succeed.
He also urged mandatory, legally enforceable disclosure of the true beneficial ownership of loans to prevent hidden exposures from accumulating within balance sheets.
Directors’ tenure limits, cross-bank investment caps and the effectiveness of independent directors should be reassessed, he added, noting that even the legal definition of “family” requires tightening to make related-party lending restrictions meaningful.
The Bank Company Act, in his view, should be aligned more closely with Basel core principles to ensure supervision becomes risk-based rather than reactive.
Bangladesh has too often responded to financial scandals with sweeping punitive measures that fail to distinguish between weak and sound institutions, he said, ultimately damaging the system as a whole.
Arefin also flagged the erosion of capital buffers in parts of the sector, bringing latent insolvency risks closer to the surface and fuelling recurring recapitalisation pressure.
He proposed an independent asset quality review followed by a time-bound recapitalisation plan, cautioning that any public or regulatory capital support must be conditional.
Banks receiving backing should commit to restructuring, loan write-offs, governance reforms and firm recovery targets, he said. Those unwilling to comply should face the central bank’s full resolution toolkit, including bridge banks, purchase-and-assumption arrangements and management changes. The framework largely exists; execution is the real test.
State-owned banks, he added, require urgent structural reform. Consolidation alongside governance overhaul is unavoidable to stem fiscal drain, but mergers alone will fail without accountability, professional boards and enforceable recovery mandates.
Policy consistency is another weak point. Persistent inflation, coupled with mixed policy signals, has undermined confidence in the monetary framework.
He cited contractionary messaging alongside liquidity support and frequent adjustments to the interest rate corridor as examples that risk confusing markets and weakening policy transmission.
Arefin called for credible central bank independence and a clear inflation roadmap, arguing that the interest rate corridor must function without external interference in setting deposit and lending rates.
He also urged continued, ego-free engagement between the regulator and ABB.
On the recent decision allowing loan rescheduling with only a 1 per cent down payment, he struck a cautious tone. Temporary relief may be warranted in exceptional cases, but repeated regulatory forbearance weakens credit discipline.
“Capital has a real cost,” he said, warning that repeated extensions without strong borrower commitment and equity participation create moral hazard and distort market behaviour.
He also opposed the past practice of collecting large donations from banks for prime ministerial funds through industry platforms.
“This culture should not continue and should not be allowed to return,” he said, calling for clearer boundaries between banking and political financing.
Restoring trust, he argued, hinges on stronger institutional enforcement. Faster money loan court processes, a robust credit bureau, firm anti-money laundering enforcement and transparent disclosure of bank health indicators are essential.
The objective, he said, is simple but urgent: make the banking system predictable again. Only when markets are no longer jolted by policy shifts will confidence and investment return on a durable footing.
