Why is the government allowing rehabilitation of seasoned bank looters?

One of the main reasons why the Awami League government was dethroned is the mishandling of the banking sector. After plundering the capital market, all the oligarchs eventually ambushed various banks and converted them into family-owned businesses, a degradation that helped the tycoons loot the banks at their whim. The interim government, despite failing in real major economic scores such as investment, employment, inflation control, and growth, made at least one correct decision.

The interim government’s appointment of Dr Ahsan H. Mansur was a respectable step. Governor Mansur, being a veteran monetarist, initiated a series of reforms aimed at reshaping the banking and financial industry. His step for the merger of nearly half a dozen Shariah-based banks was a welcome move to correct three things: i) lack of confidence of depositors; ii) poor capital base of the banks, and finally, iii) erosion of trust for Islami Shariah-based banking because of the irregularities that took place. The former governor’s move also supported textbook corrective measures, such as mergers, acquisitions, or takeovers for the limping banks that neared bankruptcy or capital dehydration.

This move, however, deeply troubled the former owners of the banks, who believed in using these institutions as a vehicle to syphon off domestic funds into foreign asset markets. They failed to take the governor on their side. However, later, the governor, who remained resolute in his direction, was abruptly replaced by a businessman within days after BNP took office. The financial hooligans appear to have won the game somehow under the current regime, although the finance minister is giving some lullaby explanations for passing the contentious Banking Resolution Act 2026, enabling wrongdoers to repurchase their lost banks at a discount. Not only is it a bad precedent, but it sends an unethical message to the financial industry as well.

That is how the country’s private banking industry has been developing in a defective way—bagging banking licenses by managing people in power. But the sector does not know how to close the deal professionally in case of probable bankruptcy. By this compromise, the BNP government is allowing the old bank owners to stage the same drama they orchestrated under the Awami regime, with no recovery of the banking sector in sight.

Under the Act, the former directors or owners of the troubled banks can pay 7.5 percent upfront of the amount already injected by Bangladesh Bank on behalf of the interim government to reclaim the banks. The remaining 92.5 percent will be repaid within two years at 10 percent simple interest. During the pandemic, I witnessed many clearance sales in American shopping malls. Bangladesh’s government is holding a similar discount sale for nonperforming banks. This is an indirect incentive for wrongdoers who will gain more goodies in the days ahead. It is a discount sale paired with lottery tickets that are destined to win prizes. How?

Here’s the answer: it will be difficult for the government to recover the remaining 92.5 percent of the bailout fund because these banks are already in shambles. The government is also likely to waive the interest, a practice often exercised during the Awami regime. Next, the government will extend the time from two years to, maybe, another three to five years, making the receivables largely impossible. This compromise is akin to the style of loan restructuring where defaulters were allowed to regularise their loans by adjusting as low as even five percent of their defaulted amount. These are accommodating tactics for the financial delinquents devised by politicians in power, and people did not expect their repetition by the BNP government, which came to power after a mass uprising.

If the economy is akin to a bird, the capital market and the banking sector are the two wings that help it fly. The Dhaka Stock Exchange (DSE) broad index, as Trading Economics reports, fell drastically in the Covid year of 2020. However, the index displayed its resilience by rising from around 3,900 in April 2020 to as high as nearly 7,300 in 2021, which generated abundant hopes that the share market would thrive to pull the economy upwards. But the index has consistently remained in a downtrend since then. It came down to 5,229 on August 4, 2024, just before the Sheikh Hasina government fell. When the interim government took office on August 8, 2024, the index was 5,924.81.

The Yunus government’s strategy, which was thought to be the last reviving mantra contributed by a group of experts, soon nosedived. Mobocracy and industrial vandalism reached their historic highs during the Yunus era, while the index remained low—close to 5,200 in early February 2026—when the interim tenure neared its end. The index closed at 5,271 on April 12, 2026, suggesting no “booster ignition” for the market even after the new government took office following a landslide.             

 Thus, the last resort of hope is the banking sector, which must act prudently by not only ensuring the resurgence of deposit mobilisation and credit expansion but also enabling the sector’s rebirth by observing stricter rules and governance. However, the compromise that allows the old wrongdoers to repurchase their banks has cast a shadow on both the recovery and dynamism of the banking sector. The BNP government has just reverted the process of correction by passing the Bank Resolution Act, 2026, signalling no cure for the cancer of the sector.

More important was the Bangladesh Bank Ordinance (Amendment), 2025, aimed at enhancing the autonomy of the central bank. However, it did not reach the desk of parliament due to the insincerity of the Yunus government. Its finance adviser, who otherwise advocated for Bangladesh Bank’s autonomy during the Awami regime, did not let the ordinance pass, although the total number of ordinances by the Yunus government reached as high as 133 in 18 months—a record for any interim/ caretaker government in this country.

One reason the central bank autonomy ordinance did not get approved is probably that it could potentially restrict the government’s borrowing from the banking sector. This raises the question whether the BNP government suffers from a similar fear that BB autonomy might restrict the government’s desperate borrowings, as well as the rehabilitation of the seasoned bank looters. The government must explain its real intent, so people can have confidence in the banking sector.

Dr Birupaksha Paul is professor of economics at the State University of New York in Cortland, US.

Views expressed in this article are the author's own. 

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