Bangladesh Bank has acknowledged that nearly one-third of the country’s banking system money has effectively been “stolen.”
At the same time, it has admitted that a large portion of defaulted loans in Bangladesh is not the result of business failure but of funds being siphoned out of banks.
Yet amid that admission, the central bank has now launched a massive Tk60,000 crore stimulus package through the same weak, default-ridden and politically influenced banking system to revive closed factories, generate employment and restart the economy.
Economists and banking sector insiders say the package amounts to a rare acknowledgement of how deep Bangladesh’s economic crisis has become.
At the same time, it exposes one of the biggest policy contradictions in the country’s financial system – the entire recovery plan is now being built on the same banking structure that the central bank itself says has been hit by financial looting and money laundering.
Bangladesh Bank Governor Md Mostaqur Rahman announced the package during a press briefing at the central bank headquarters in the capital.
“We have reached a situation where Tk5 lakh crore has been stolen. One-third of the banking system’s money no longer exists. We are calling these NPLs in a sophisticated way. But a large part of it is actually stolen money,” he added.
Sector insiders described the statement as one of the strongest and most significant admissions in the history of Bangladesh’s central banking system.
Economists have long argued that a major share of the country’s huge defaulted loans was not caused by business failure but by political influence, bank takeovers, paper-based lending, trade-based money laundering and siphoning money abroad.
Against this backdrop, Bangladesh Bank has announced the massive stimulus package, of which Tk41,000 crore will come from refinancing funds while Tk19,000 crore will come from the central bank’s own resources.
According to central bank documents, the package aims to generate more than 25 lakh jobs. Bangladesh Bank’s documents say GDP growth has continued to decline, industrial production has been disrupted, liquidity stress has emerged in the banking sector, depositor confidence has weakened and high borrowing costs have discouraged expansion by small and medium enterprises.
The largest single allocation under the package has been earmarked for closed industrial and service sector units.
A total of Tk20,000 crore will be used for raw material imports, workers’ wages, utility bills, export orders and operational expenses. Another Tk10,000 crore has been allocated for agriculture and rural activities, Tk5,000 crore for CMSMEs, Tk3,000 crore for export diversification and Tk3,000 crore for the northern agricultural hub.
Under Bangladesh Bank’s own funding schemes, financing will also be provided for pre-shipment credit, cottage and small entrepreneurs, leather and footwear exports, overseas employment, rural economic activities, startups and a new “creative economy” sector.
“We expect more than 25 lakh jobs to be created if the credit reaches the right places properly,” the governor said.
However, sector insiders are questioning how such a large amount of money can remain secure when it is being distributed through a banking system that the central bank itself describes as being hit by stolen funds.
Former Bangladesh Bank chief economist Birupaksha Paul told TIMES, “Since the overall economy remains in a sensitive position, every step must be taken carefully. Authorities must ensure that this fund is not misused the way previous packages were.”
Welcoming the initiative to revive factories, he said, “How risk-free this huge fund remains will depend on the government’s macroeconomic management. The future depends on whether politically connected institutions receive the financing selectively or genuinely affected businesses receive it.”
The economist also advised prioritising loans for factories capable of generating the highest employment. “If loans are not distributed carefully, the financial sector will again fall into danger,” he warned.
Meanwhile, Bangladesh Bank has recently increased loan exposure limits for large corporate groups, reduced penal interest rates for defaulters, expanded rescheduling opportunities and introduced several relaxations in trade financing.
The governor said at the briefing that the single borrower exposure limit had been increased following requests from large business groups because of currency depreciation and rising raw material costs.
“Businesses can no longer operate with their previous borrowing capacity. Requests came from that position and it appeared rational to us to increase the limit,” he said at the press briefing.
Bankers and analysts, however, say the move effectively allows large industrial groups to borrow even more at a time when the banking sector is already suffering from huge defaulted loans and capital shortages.
Under Bangladesh Bank’s latest decision, a bank can now provide funded loans of up to 25 per cent of its capital to a single group, up from the previous 15 per cent ceiling. At the same time, the risk weight on non-funded facilities has been reduced, allowing banks to issue larger volumes of letters of credit and guarantees using the same capital base.
Questions have also emerged over the source of financing for the package. The governor claimed no new money would be printed to support the fund.
“This is banking sector money. There is no scope for printing additional money. Funds are being recycled within the banking system from institutions with excess liquidity,” he said.
The reality, however, is that many banks are already facing liquidity stress.
Economists say large-scale refinancing funds and interest subsidies under such conditions could weaken the central bank’s tight monetary policy stance.
Bangladesh Bank itself says the package is intended to counter the economic slowdown and stimulate domestic demand. But analysts warn that injecting large amounts of liquidity at a time of high inflation, weak foreign exchange reserves and dollar shortages could create fresh inflationary pressure.
Another major question is who will ultimately benefit from the package.
The governor said Bangladesh Bank would maintain a “very strong” stance against wilful defaulters and banks would verify borrowers before disbursing loans.
However, neither the package documents nor the press briefing outlined any clear framework for beneficiary disclosure, independent audits, screening politically exposed borrowers or assessing money laundering risks.
Analysis of past experiences shows that a large portion of previous refinancing schemes, including Covid-era stimulus packages, eventually became concentrated among influential business groups. In many cases, defaulted loans were shown as regular through restructuring, policy support and nominal down payments.
According to Bangladesh Bank data, defaulted loans in the country have now exceeded Tk5.57 lakh crore.
