For Bangladesh’s banking sector, the real challenge is no longer announcing reforms but proving that those reforms will actually be enforced.
Mutual Trust Bank Managing Director and CEO Syed Mahbubur Rahman said the credibility of the clean-up effort will depend on strong political backing, faster loan recovery and decisive steps to ensure that the failures of the past do not return.
Bangladesh’s banking system is still recovering from years of governance breakdowns, loan fraud and capital erosion that severely damaged public confidence.
Against that backdrop, Rahman believes the success of the new government and the new central bank leadership will ultimately be judged by one question: whether the same forces that once captured banks will be prevented from returning, or whether the same level of weak governance that created the current crisis will re-emerge.
In an interview with Takie Mohammad Jubayer of TIMES of Bangladesh, he outlined a reform agenda that includes protecting regulatory independence, ensuring that bank boards cannot again be dominated by controversial business groups and strengthening enforcement to restore discipline in the financial system.
At the centre of his argument is the need to prevent a repeat of past failures.
Rahman said the new central bank governor has already taken a positive step by meeting managing directors individually and signalling a commitment to improve regulatory service standards.
The governor has also met leading economists in the country to seek their views, a move Rahman described as important for building consensus and grounding reforms in sound economic thinking.
He said the governor also assured bank CEOs that they should not yield to political pressure in lending decisions and promised protection if such pressure arises.
According to Rahman, such assurances are critical because banking reforms cannot succeed without political backing.
Rahman also addressed the debate surrounding the appointment of the new governor, saying Bangladesh should give him time despite his business background.
Concerns about the governor’s limited experience in central banking should not be overstated, he said, because Bangladesh Bank’s specialised departments provide the institutional expertise required to guide policy.
The priority, he added, should be ensuring that the problems that weakened the banking sector in the past are not repeated.
Rahman said bankers found the new governor receptive in recent meetings and that some corrective measures have already begun.
However, he expressed concern over how the previous transition was handled, saying it could have been managed more professionally.
The episode, he noted, raised questions among international observers and dented Bangladesh’s image.
Rahman warned that speculation about controversial business groups returning to bank boards is deeply troubling.
Shares held by individuals linked to the looting of certain banks during the previous regime have still not been transferred or confiscated, he said, adding that addressing this issue is essential to restore public confidence in the reform process.
If the government supports the ongoing bank merger initiative, he suggested that the shares of the five banks currently under consolidation should be transferred to the state to stabilise the restructuring process.
However, he struck a positive note, saying the governor had indicated that reforms would continue.
During its earlier tenure, the government supported central bank reforms and avoided interference in its operations.
That period strengthened the banking sector and brought non-performing loans down to relatively low levels.
For Rahman, the credibility of reform depends not only on policy announcements but also on implementation.
“How reforms are carried out is just as important as the reforms themselves,” he said.
Beyond banking sector reforms, Rahman stressed that broader economic fundamentals must also be strengthened.
Controlling inflation should be the government’s first priority, he said.
Equally important is raising revenue collection. Bangladesh’s tax-to-GDP ratio has fallen below seven per cent, a level he described as unsustainable for long-term economic management.
Increasing tax rates alone will not solve the problem, he argued.
Instead, the government must expand the tax base, reduce inefficiencies and curb tax evasion.
Rahman said current global and domestic pressures make reforms even more urgent.
Rising import costs, currency depreciation and supply chain disruptions are increasing business expenses, while volatility in fuel and power markets is adding uncertainty for industries.
“When costs rise across the board, businesses become more cautious. That is why reforms must deliver confidence – otherwise investment will stall,” he said.
Energy security is another key requirement for economic recovery.
Rahman said the cost of borrowing is not the main obstacle for businesses.
More fundamental constraints such as infrastructure, utility connections and reliable energy supply often matter far more than interest rates.
Businesses first look for infrastructure and support services when planning investments, he said, adding that access to loans comes later.
Reflecting on the global situation, Rahman said energy has become a central challenge as the world economy faces increasing disruption.
He stressed the need to expand solar and other renewable energy while continuing both onshore and offshore exploration to strengthen domestic energy supply.
Rahman also highlighted the growing trust deficit in the financial system and said restoring discipline will require stronger institutional enforcement.
One key step is speeding up the recovery of non-performing loans through a more effective judicial process.
“If it takes eight or ten years to dispose of a loan recovery case, discipline cannot be restored,” he said.
Faster legal processes would help create a culture in which borrowers understand that bank loans must eventually be repaid.
Rahman also expressed concern about the law and order situation, warning that incidents of extortion and violence against business figures could undermine investor confidence.
Another challenge is the rapid growth of government debt, which he said can only be addressed sustainably by increasing revenue collection rather than relying on borrowing.
Turning to underperforming banks, Rahman noted that recovering funds siphoned abroad will be extremely difficult.
Once money enters foreign financial systems, proving ownership and repatriating it becomes legally complex, with few successful precedents worldwide.
While such efforts should continue, he said rebuilding troubled banks must remain the priority.
The process should begin with forensic audits followed by clear restructuring plans.
Rahman also suggested exploring strategic foreign investment to revive weak banks.
He added that discussions on forming an Asset Management Company to handle bad loans should continue, although the scale of non-performing assets would require substantial capital.
Ultimately, restoring discipline will depend on making loan default costly.
Measures such as publicly naming major defaulters, restricting their participation in trade bodies, denying them invitations to official functions and preventing them from contesting elections through legal loopholes should be enforced.
He also stressed the need to strengthen central bank autonomy through amendments to the Bangladesh Bank Order and the Bank Company Act.
Changing laws alone will not be enough, he added, unless enforcement capability and institutional capacity are strengthened.
“Only through credible reforms, effective enforcement and sustained political backing can Bangladesh’s banking system rebuild the confidence it has lost,” Rahman concluded.
“And in today’s crisis environment, where costs are rising and energy uncertainty weighs on businesses, that credibility is more vital than ever.”
