Resolving the Banking Sector’s Distressed Portfolio Problem

Banking sector reforms between 1997 and 2012 vastly improved the banking landscape of Bangladesh, converting the sector from an unhealthy public sector dominated enterprise to a more healthy, private sector-dominated competitive industry. This transformation played a key role in enhancing private investment, exports and GDP growth, which helped Bangladesh to climb from a low-income economy to a lower-middle-income country and set the stages for an aspiration to attain upper-middle-income country (UMIC) status by 2031. 

The feasibility of this optimistic 2031 milestone hinges on the ability to implement reforms throughout the economy. Instead, progress is being challenged by ongoing serious macroeconomic instability. In banking, drift in policy making since 2012 has created substantial negative pressure on the health of the banking sector. This in turn is complicating the restoration of macroeconomic stability and jeopardising the restoration of the UMIC growth path.