Honest Accounting

Executive Summary

Bangladesh's banking sector non-performing loan ratio reached a record 35.7 percent of total loans by late 2025, once Basel III reclassification ended years of understated reporting. The Sammilito Islami Bank merger, absorbing five failed banks with Tk 35,000 crore in paid-up capital, is the largest single banking-sector intervention in the country's modern history. Governor Ahsan H Mansur's forced departure in February 2026 and the appointment of a BGMEA official as his successor introduce a new political-economy risk to a cleanup that remains structurally incomplete.

A textile-trim importer in Narayanganj walked into the branch that used to be his Social Islami Bank in early May 2026 and asked to withdraw Tk 8 lakh from his savings account, an account he had held continuously since 2014. The branch is now signposted "Sammilito Islami Bank PLC", the state-owned entity into which his old bank and four others were merged in late 2025 under the Bank Resolution Ordinance. The counter officer ran the request through the new withdrawal regime: Tk 2 lakh as an initial release, then Tk 1 lakh every three months over a 21-month phased schedule, full access restored by the early months of 2028. There was a window for medical emergencies (up to Tk 10 lakh on documentation; unlimited for certified critical illness) and a one-time exception schedule the bank's depositor desk could review. He took the Tk 2 lakh.

This is not a story about a single bank failing. It is a story about five banks failing simultaneously, being declared failed by their regulator, being taken over, being merged, and the depositor being asked to wait two years for his own savings while the state writes off the political-loan portfolio that destroyed the franchise value of the accounts the savings sat in. The five were EXIM Bank (controlled until 2024 by Nazrul Islam Mazumder, former chairman of the Bangladesh Association of Banks), First Security Islami, Global Islami, Social Islami, and Union, the last four substantially captured by family members of Mohammed Saiful Alam, chairman of S Alam Group. Administrators arrived on November 5, 2025. The letter of intent for the merged entity was issued November 9. Final licence followed in early 2026. The deposit base is paid back, in pieces, on the schedule the importer just heard at the counter.

The cleanup happened. The political-economy question now is whether the new government in office will preserve it or unwind it.

What the published numbers now say

Bangladesh's banking-sector accounts changed shape in late 2024. Bangladesh Bank, then under Governor Ahsan H Mansur, adopted Basel III loan classification rules that ended the long-standing practice by which a loan rescheduled three or four times could continue to sit on the books as performing. The mechanical effect was immediate. The headline non-performing loan ratio, which had been reported at 10.11 percent in June 2023, was 20.20 percent by the end of 2024. By March 2025 it was 24.1 percent. By late 2025 it had reached a record 35.73 percent of total disbursed loans, equivalent to more than Tk 6.4 trillion in bad credit. Nothing about the underlying portfolio changed in those eighteen months; the classification finally caught up with the underlying portfolio.

The decomposition by bank type shows where the bad debt actually sits. State-owned commercial banks hold under thirty percent of system assets but account for more than forty-five percent of problem loans. Bangladesh Bank has imposed reduction targets: state-owned banks must cut their NPL ratio to 10 percent by June 2026, private banks to under 5 percent. Whether either deadline is met depends on enforcement choices that fall to the new central-bank leadership, not to the leadership that wrote the targets.

The scale of the problem becomes clearer against regional peers. On the reported 9.6 percent figure, Bangladesh already sat above Pakistan (6.6 percent), Thailand (2.8 percent), Vietnam (2.3 percent), Indonesia (2.0 percent), and India (1.7 percent). On the Basel III-honest March 2025 figure of 24.1 percent, the gap is not marginal: Bangladesh is operating at more than thirteen times India's NPL ratio and more than ten times Vietnam's. The depositor who accepted a phased withdrawal schedule and the importer who needs a trade-finance line that prices in counterparty risk are both priced on the honest number, not the reported one.

The external-sector picture has improved more sharply than most observers expected. Foreign exchange reserves had fallen to roughly USD 21.4 billion at the end of 2024. As of May 10, 2026, gross reserves stand at USD 34.14 billion and the BPM6-standard measure at USD 29.47 billion, both held up by sustained remittances (record USD 27.5 billion in 2024 and higher in the first months of 2026) and the temporary respite from import compression. Four-and-a-half months of import cover is not generous but it is not the crisis-margin position it was eighteen months ago.

The story in those two paragraphs is the operational reform under the post-August 2024 interim government. Five banks declared failed. NPL classification honest. Reserves restored. Sammilito Islami Bank PLC capitalised at Tk 35,000 crore (Tk 20,000 crore from the state, Tk 15,000 crore from depositor balances converted to shares, two years of interest accrual scrapped, depositors losing roughly Tk 15,000 crore in interest income across the merged entities). It is the largest single banking-sector intervention in the country's modern history.

Then the architect was fired

On February 16, 2026, the central bank's own Officers' Welfare Council publicly denounced the governor. By February 25 a gazette notification appointed Md Mostaqur Rahman, managing director and chief executive of Hera Sweaters Limited and standing-committee chairman of the Bangladesh Garment Manufacturers and Exporters Association, as the new Bangladesh Bank governor for a four-year term. He had served on the BNP's election steering committee during the parliamentary vote earlier that month. The Daily Star editorialised that the dismissal was "shocking". The Asia Times headline read "Why Bangladesh just fired the man who saved its economy". This was the first time in the country's history that a businessman, with current ties to the export industry the central bank regulates, has held the office.

In his first weeks the new governor made public commitments that were almost the opposite of what his appointment had been read to signal. The Sammilito Islami Bank merger would continue, he said, with no rollback of the resolution framework. He would not bow to political pressure. He would protect Shariah board independence at Islamic banks. He floated an eleven-point reform agenda. He proposed lowering interest rates to revive private credit growth. He instructed the system to introduce service-level agreements on application-decision timelines.

The reading inside the banking community is that the Sammilito merger is now too far advanced to reverse without a depositor crisis the new government cannot afford to trigger. The harder question is what happens at the next decision: which surviving private bank gets resolution next, which captured exposure gets written down, which BGMEA-member borrower gets a debt forbearance the regulator's previous leadership would have refused. The architecture is intact; the discretion has changed hands.

The depositor in Narayanganj does not see this argument at the counter. What he sees is that his Tk 8 lakh will return in pieces over twenty-one months, that he is owed two years of interest he will not receive, and that the bank he held an account at for eleven years has been replaced by a state-owned entity with a different signpost.

The cost paid, the cost still to pay

What the post-2024 banking reform cost the system is now reasonably calculable. The Sammilito merger's Tk 35,000 crore in paid-up capital is roughly 0.7 percent of GDP. The forgone depositor interest of approximately Tk 15,000 crore is another 0.3 percent. The total NPL stock of approximately Tk 6.4 trillion implies system-wide capital shortfalls (against Basel III minimums, on honest provisioning) on the order of three to four percent of GDP if every loan classified non-performing is provisioned at standard rates. The fiscal carry of state-owned bank recapitalisation through bond injection (the path Bangladesh has used in prior cycles) is on top of that.

The cost still to pay falls into three categories. First, the residual NPL clean-up at the remaining captured private banks and the six state-owned commercial banks. The 10 percent state-owned NPL target by June 2026 is approximately Tk 1 trillion of provisioning and write-down beyond what has already happened. Second, the conversion of the Sammilito depositor liability into a sustainable balance sheet, which will require ongoing capital support and the absorption of remaining bad assets into an asset-management vehicle. Third, the prosecution and asset recovery against the named beneficiaries of the original political-loan portfolio, which will determine whether the recapitalisation is a transfer from taxpayers to looters or a transfer from looters back to the public balance sheet.

The third track is the one that determines whether the bank cleanup compounds into the rest of the reform agenda or stops at recapitalisation. Without asset recovery, the precedent is set that capture has no cost beyond the loss of operational control of the franchise. With asset recovery, the precedent is that the state can take the assets back, which materially changes the calculation for the next would-be captor.

The Tarique Rahman government has spoken about asset recovery in general terms in its 180-day priority plan. It has not yet named the first beneficiary against whom a recovery case will be filed. The window in which prosecution is politically possible is narrowing as new business relationships form.

The connected balance sheet

The bank capital hole is connected to the energy-sector capital hole. The Bangladesh Power Development Board collected Tk 693.8 billion from electricity sales in FY25 against expenditures of approximately Tk 1.25 trillion on fuel, capacity charges, and operations. After a record Tk 386.4 billion government subsidy injection, BPDB still posted a Tk 170.2 billion loss for the year. The capacity-charge bill alone was Tk 420 billion in FY25, up Tk 100 billion year-on-year, paid largely to private power producers whose plants were not dispatched. The new government has signalled that it will renegotiate these contracts. The unpaid bill to India's Adani Power for Jharkhand-imported electricity stands at approximately USD 850 million.

The energy-sector capital problem is therefore on the same balance sheet as the banking-sector capital problem. The IPP capacity charges flow through state-owned bank loan portfolios. The unpaid Adani liabilities sit on BPDB's balance sheet, which the state stands behind. The decisions Bangladesh Bank's new leadership makes on private-credit policy interact with the decisions the new power-sector leadership makes on IPP renegotiation, which interact with the fiscal envelope set by the next budget the Tarique Rahman government tables. None of these can be optimised separately.

What honest accounting looks like, from here

A continuation of the post-2024 cleanup that does not roll back the resolution framework requires three things from the new governor and the new finance ministry, none of which are technically novel and all of which depend on political will.

First, complete the publication of bank-level forensic audit findings for every commercial bank with a non-performing loan ratio above twenty percent on Basel III classification. The Sammilito merger was preceded by these audits at the five failed banks; the same exercise is necessary at the surviving captured private banks and at the six state-owned commercials. Without the underlying numbers in the public domain, the recapitalisation discussion at the next budget is uninformed and the political-economy pressure to soften the terms is unconstrained.

Second, name the asset-recovery cases. The S Alam group is the obvious starting point. The political signal of the first filed case will determine whether the prosecution track is real or theatrical. The new BB Governor has the statutory authority to refer cases; the finance ministry and the law ministry have the prosecutorial authority. The 180-day window is roughly half-gone.

Third, lock in central-bank independence in statute, not in the personal undertakings of a serving governor. The new governor's verbal commitment not to bow to political pressure is welcome; the institutional protection that survives his successor is what matters. The 2026 reform window is the moment to amend the Bangladesh Bank Order to make the operational independence of the rule-enforcement function irreversible, not contingent.

The depositor in Narayanganj will receive his Tk 8 lakh by the early months of 2028. Whether the bank he hands his next deposit to is one he can trust depends on what is decided in the next six months. The infrastructure of the cleanup exists. The question is whether the new political leadership chooses to preserve, extend, or quietly hollow it out.

The reform that the next reform sits on

The banking cleanup, costed honestly, sits at approximately three to four percent of GDP across recapitalisation, asset write-down, and the residual fiscal carry of the resolution framework. That is roughly the same magnitude as the entire tax-expenditure leakage discussed in the first piece in this series. The two reforms are interlinked: the state cannot finance the banking cleanup without the tax revenue, and the productive economy cannot absorb the capital deployed without a banking system that intermediates honestly.

The five banks that failed did so because the regulator was not allowed to enforce its own rules during the 2010 to 2024 period. The five could be merged because the rules were briefly enforced in late 2024 and through 2025. Whether the next round of failed banks gets the same treatment is the question the new BB Governor has not yet been asked to decide on. When he is asked, the depositor in Narayanganj, the importer in Mirpur, and the boro farmer in Sunamganj will be on the answer.

Sources

• Sammilito Islami Bank final licence: thedailystar.net/business/news/sammilito-islami-bank-gets-final-licence-4047446
• Five merging banks Bangladesh Bank preliminary licence: tbsnews.net/economy/banking/sammilito-islami-bank-gets-preliminary-license-bangladesh-bank-1281276
• Bangladesh NPL record 35.73% (2025): bbf.digital/why-2025-marked-a-turning-point-for-bangladeshs-banks
• Ahsan H Mansur ouster, February 2026: thedailystar.net/news/bangladesh/news/shock-ouster-bb-governor-4115256
• Mostaqur Rahman appointment: tbsnews.net/bangladesh/process-underway-appoint-new-bb-governor-replacing-ahsan-h-mansur-sources-1370886
• New BB Governor reform pledge: dhakatribune.com/business/banks/404486
• Forex reserves USD 34.14bn, May 10, 2026: bssnews.net/news-flash/380959
• BPDB FY25 financial figures (revenue Tk 693.8bn, subsidy Tk 386.4bn, loss Tk 170.2bn, capacity charges Tk 420bn): BDPolicyLab banking sector model, precomputed scenario outputs