A promise on paper without depositor protection: PRI

The Bank Resolution Ordinance will remain merely a promise on paper unless the authorities can conduct orderly resolutions, manage failing banks effectively, and protect depositors while minimising systemic risks, according to the Policy Research Institute of Bangladesh (PRI).

"Implementing and executing banking resolution regimes -- though conceptually strong -- involves major institutional, political, and technical challenges, especially in emerging markets," read a PRI paper presented at a roundtable titled "Bank Failures and Resolution Regime: Understanding the Challenges for Bangladesh."

The discussion, organised by PRI with support from the Foreign, Commonwealth & Development Office (FCDO), took place yesterday at Hotel Amari in Dhaka. Ashikur Rahman, principal economist at PRI, presented the paper, stressing that passing the ordinance is only half the work.

"What must come next is major investment in the processes, systems, and institutional capacity that will enable Bangladesh Bank and the financial sector to actually implement the resolution regime," Rahman said.

"The real task now is building operational strength — supervisory tools, valuation skills, recovery mechanisms, and clear decision-making protocols that can rebuild confidence and revive Bangladesh's financial system. Only then will the ordinance achieve its goal of protecting stability and creating the foundation for a stronger, more resilient banking sector," he added.

CALLS FOR URGENT REFORM

Lutfey Siddiqi, special envoy to the chief adviser for international affairs and chief guest at the event, highlighted the urgency of reform.

"If the banking sector continues with business as usual, nothing will change. Ensuring good governance — no matter which political party is in power — is essential," Siddiqi said.

He also suggested forming a truth and reconciliation commission for the banking sector.

"We need a truth and reconciliation commission for economic crime and NPLs, and to understand how these NPLs were created.

We have to develop a taxonomy because that is the only way to avoid repeating past mistakes," Siddiqi said.

"We need to get to the core of conduct," he added. "Why did we end up with NPLs at this level? Let us create a taxonomy. I would love to see some research on the different ways NPLs accumulated."

Zaidi Sattar, chairman of PRI and chair of the event, said the recent rise in non-performing loans (NPLs) to nearly 35 percent is unprecedented and requires careful analysis.

"In advanced economies, we talk about institutions being 'too big to fail'. In Bangladesh, many distressed banks are instead 'too toxic to fail', because letting them collapse would trigger severe contagion across the economy," Sattar said.

He added that Bangladesh's unique environment demands its own framework for resolving banking sector problems.

ECONOMIC IMPACT OF HIGH NPLS

Mohammad Akhtar Hossain, chief economist at Bangladesh Bank and a special guest, highlighted the broader economic impact. "Our FDI-to-GDP ratio is already very low, and the combination of high NPLs and ongoing political uncertainty is making it extremely difficult to attract foreign direct investment," he said.

Tanjil Chowdhury, chairman of Prime Bank, stressed that willful defaulters should not be allowed back into the economy.

"They should not receive any fresh financing. The 2 percent shareholding requirement for becoming a director should be abolished and replaced with a cap on family shareholding," he said.

Mashrur Arefin, chairman of the Association of Bankers Bangladesh (ABB) and managing director of City Bank, said no bank in Bangladesh should be allowed to fail.

"The initiative to merge the five banks is appropriate. As the economy grows, it needs more banks. Many banks that once struggled are now strong institutions. City Bank is one such example. Bismillah Group had badly affected Prime Bank, yet the bank is on track to make Tk 1,000 crore in profit this year," he said.

Ahmed Rashid Joy, deputy managing director of BRAC Bank, highlighted the importance of clarity in restructuring plans.

"The success will depend on what percentage of customers will get their money back and what percentage will receive shares," he said.

Mohammad Zahir Hussain, executive director of the Bank Resolution Department at Bangladesh Bank, also spoke at the discussion.