The problems in Bangladesh’s banking sector are hardly new. One might argue that irregularities began almost in step with the advent of private banks in the 1980s. Over the past four decades, the sector has expanded in size, but alongside that expansion, mismanagement and malpractice have deepened to an alarming degree. Disregard for regulations and arbitrary lending practices became commonplace, fuelling today’s crisis of non-performing loans.
The current turmoil in banking is the direct outcome of decades of mismanagement. Yet, no matter how severe past crises have been, banks have never openly failed to return depositors’ money. Even when Al-Baraka Bank once faced worse circumstances, it still honoured its commitments to depositors, changed names several times, and continues to exist today.
Now, however, several banks are unable or unwilling to release deposits. Late last year and in the early months of this year, some even issued public statements declaring their inability to pay depositors, sparking despair, anger, and criticism. Following intervention by Bangladesh Bank, a few institutions backtracked, but others continue to resist paying out funds as demanded.
Depositors are being subjected to bureaucratic hurdles. Banks first check whether funds are in savings, current or fixed-term accounts, and whether the term has matured. If not, they flatly refuse withdrawal. Even in cases of maturity, customers are often compelled to renew deposits instead of withdrawing them, with the vague assurance that repayment will come when “the bank’s situation improves”. Confidence in even receiving interest payments on time has eroded.
This is not a problem of one group alone. Ordinary people, lured by slightly higher interest, as well as wealthy clients with connections, have deposits stuck in these banks. Small and medium entrepreneurs are equally affected, with working capital locked up at a time when their businesses most need it. The poor and the middle class suffer most, since they deposit savings for healthcare, children’s education, weddings, or land purchases. When banks refuse to return their money, lives are thrown into crisis. Unsurprisingly, panic withdrawals follow—an outcome that can only be avoided if depositors’ demands are met.
The gravest danger is that this situation has set a precedent. That a bank can continue operating while refusing to repay depositors was previously unimaginable. In the past, such conduct would have invited penalties from regulators or the courts. Fear of punishment once ensured banks’ compliance. Now, however, banks are refusing repayment under the excuse of “poor financial condition” without consequence. If left unchecked, this practice could spread, paving the way for systemic collapse.
In truth, a bank cannot survive if it fails to return deposits. Either deposits must be repaid, or the bank must be shut down. Since closure is not a practical option in Bangladesh’s socio-economic context, alternatives must be pursued. Ownership should be stripped from those responsible for the current mess. Shares can be sold at higher value once the institutions recover. But as new investors are unlikely under current conditions, a temporary solution may be for government-supervised consortia—made up of professional bankers, auditors, and lawyers—to manage failing banks. With sound business planning and support, such banks could recover in three to five years and later be sold at a premium.
Sceptics will argue that non-performing loans are too high to make recovery possible. Yet this problem is not confined to a few struggling banks; it pervades the entire sector. Some banks have higher rates of default than others, but none are immune. Special measures are therefore needed to address this chronic problem across the system.
The bottom line is clear: banks failing to return deposits cannot be tolerated, not even for a single day. Bangladesh Bank must take a firm stance, and the Ministry of Finance must treat this issue with utmost urgency. The future of the country’s banking sector—and public trust in it—depends on decisive action.
The writer is a Certified Anti-Money Laundering Specialist and banker in Toronto, Canada
