The World Bank has approved $450 million in financing to help Bangladesh strengthen its banking sector, as authorities seek to restore confidence in a financial system weighed down by record levels of bad loans, weak governance and years of regulatory shortcomings.
The funding, approved by the World Bank’s Board of Executive Directors, will support reforms aimed at protecting depositors, strengthening banking supervision and laying the groundwork for resolving troubled banks and restructuring state-owned lenders.
The Financial Sector Support Project II comes at a critical juncture for Bangladesh’s banking industry, which has emerged as one of the country’s most pressing economic challenges following a sharp deterioration in asset quality and capital positions.
According to the World Bank, the sector’s non-performing loan ratio reached 32.6 per cent at the end of March 2026, more than four times the South Asian average of 7.9 per cent. The banking system’s capital-to-risk-weighted assets ratio stood at negative 2.6 per cent at the end of 2025, underscoring the scale of stress facing lenders.
Focus on depositor protection and crisis management
The project will strengthen the country’s deposit protection framework by increasing the capital base of the deposit protection fund and enhancing mechanisms designed to safeguard small depositors.
It will also support the development of a bank resolution framework, an area Bangladesh has historically lacked despite repeated episodes of financial distress.
The World Bank said the programme would help establish an effective Emergency Liquidity Assistance framework, develop bank restructuring strategies and advance reforms in state-owned banks.
The measures are intended to equip regulators with tools to respond more effectively to banking sector stress while reducing the risk of broader financial instability.
“Bangladesh’s vision of attaining a trillion-dollar economy requires a stable and inclusive financial sector,” said World Bank Division Director for Bangladesh and Bhutan Jean Pesme.
“But the banking sector, which accounts for about 90 per cent of total financial sector assets, faces mounting stress.”
He said the project would help put in place essential safeguards needed to protect small depositors, restore confidence and support economic growth and job creation.
Bangladesh Bank to upgrade supervision systems
A significant portion of the programme will focus on strengthening Bangladesh Bank’s supervisory capacity through investments in technology and data systems.
The project will modernise the central bank’s information and communications technology infrastructure to address growing cybersecurity risks and improve the quality of sector-wide data collection and analysis.
The World Bank said stronger digital infrastructure would enhance Bangladesh Bank’s ability to conduct risk-based supervision, identify emerging vulnerabilities and improve oversight of financial institutions.
The initiative reflects a broader shift towards data-driven regulation as authorities attempt to rebuild confidence in a sector that has faced criticism over weak corporate governance, regulatory capture and extensive related-party lending.
Part of broader reform agenda
The financing forms part of a coordinated reform effort involving multiple development partners, including the International Monetary Fund and the Asian Development Bank.
World Bank Senior Financial Sector Specialist Toshiaki Ono said the project would strengthen crisis preparedness and build the authorities’ capacity to manage banking sector stress.
The programme aligns with ongoing efforts by Bangladesh Bank and the government to stabilise the financial system following a period of heightened scrutiny over asset quality, governance standards and capital adequacy across the sector.
Economists have long argued that restoring the health of the banking system is essential for sustaining investment and economic growth, given banks’ dominant role in financing businesses and households in Bangladesh.
ith banks accounting for about 90 per cent of total financial sector assets, reforms aimed at improving governance, depositor protection and regulatory oversight are expected to play a central role in determining the pace of the country’s broader economic recovery.
