The banking sector in Bangladesh has played a pivotal role in the country's economic progress, driving its transition from a lower-middle-income economy to an aspiring upper-middle-income one. Over the decades, the sector has undergone profound changes, evolving from traditional branch-based banking to a dynamic 24/7 digital service model. This modernisation is complemented by agent banking and the establishment of sub-branches in remote areas, enabling banks to extend their services to every corner of the country. These developments have allowed banks to position themselves not merely as service providers but as essential financial guides for their customers.

After independence, Bangladesh's banking industry began its journey with six nationalised commercial banks, three state-owned specialised banks, and nine foreign banks. The 1980s marked a period of expansion with the introduction of private banks and the emergence of Islamic banking, broadening the scope and diversity of financial services in the country.

"The 1990s brought further transformative changes, as reforms supported by the World Bank and the IMF introduced private banks and initiated structural adjustments within the sector. Initially, these measures enhanced the sector's performance. However, challenges arose after 2009 when the government began allowing the establishment of new banks driven by political motives rather than professional or economic considerations. Our concerns were ignored despite warnings that the economy did not need additional banks, especially when India operates with half as many," observes Mustafa K. Mujeri, Executive Director of the Institute for Inclusive Finance and Development (InM).

He elaborates that this expansion led to an unhealthy alliance between the government, the central bank, and bank management, culminating in widespread corruption and mismanagement. "If structural reforms and professional approaches had been prioritised, the expansion of banks could have brought far-reaching benefits. Instead, political interests have facilitated the plundering of public funds, with significant amounts being siphoned abroad," Mujeri notes.

To overcome the current crisis, he advises that banks must embrace professionalism and seek guidance from experts, while the central bank must adopt an impartial and transparent approach in steering the sector towards stability and growth.

II

According to the latest Bangladesh Bank Annual Report, 61 scheduled banks were operating in FY23. The total number of bank branches increased to 11,088 by the end of December 2022, compared to 10,937 at the end of December 2021. Based on their operational modes, banks are categorised into three types: fully conventional banks, fully Islamic Shariah-based banks, and banks that operate in both conventional and Shariah-based modes.

Among the 11,088 branches operated by the 61 scheduled banks, 46.5% (5,158 branches) were located in rural areas, while the remaining 53.5% (5,923 branches) were situated in urban regions. The state-owned commercial banks (SCBs) maintained 2,061 rural branches and 1,769 urban branches. Specialised banks operated 1,153 rural branches and 370 urban branches. Private commercial banks had 1,943 rural branches and 3,722 urban branches. In contrast, foreign commercial banks were confined to urban areas, operating exclusively through 62 branches.

According to the central bank's latest report, the banking sector recorded improved deposit growth during Q4FY24. Deposit growth rose to 9.60% by June 2024, up from 8.85% in March 2024, while excess liquidity reached BDT 1,958.24 billion. However, non-performing loans (NPLs) remained a critical challenge, reaching their highest levels in a decade. The rise in NPLs was widespread, with state-owned commercial banks being the primary contributors. The gross NPL ratio increased to 12.56% by the end of Q4FY24, compared to 11.11% in Q3FY24.

In alignment with the central bank's directives, banks have actively pursued various sustainable banking initiatives, including green finance, environmental and social risk management, climate risk funds, energy efficiency funds, mandatory SME financing, the Green Transformation Fund refinance, and corporate social responsibility (CSR) activities. These measures are pivotal for fostering long-term sustainability and reflect the evolving priorities of the banking sector.

PHOTO: Prabir Das

III

Industry insiders note that the significant evolution of Bangladesh's banking sector began roughly two decades after independence, coinciding with the expansion of the trade sector, driven primarily by the growth of the garments industry and other key sectors. Over the past decade, the introduction of innovative consumer products and advancements in digital banking have revolutionised traditional banking practices across the country.

"The banking sector in Bangladesh has undergone significant transformation, with key shifts driven by multiple factors. Enhanced regulations from the central bank have led to the enforcement of proper governance and risk management frameworks. Technological advancements have been instrumental in improving customer experiences, while efforts to expand banking services to underserved populations have strengthened financial inclusivity," says Ali Reza Iftekhar, Managing Director and CEO of Eastern Bank PLC.

He also mentioned that EBL has consistently prioritised service excellence by ensuring seamless integration between online and offline services, providing customers with an enhanced banking experience. Flagship offerings such as EBL Skybanking, EBL Connect, and EBL Self Service (ESS) enable customers to access all banking facilities digitally with ease.

The banking sector has evolved significantly, transitioning from traditional, branch-focused, and paperwork-intensive operations to embracing digital platforms and customer-centric innovations. Beyond physical expansion, banks now aim to position themselves as comprehensive financial advisers, offering holistic financial advice and lifestyle insights while proactively anticipating and addressing customer preferences.

"By offering holistic financial planning, tailoring products to individual needs, and leveraging data analytics, banks can transition into the role of financial advisors. At MTB, we prioritise customer engagement through advisory services, relationship managers, and innovative products that go beyond traditional banking," says Syed Mahbubur Rahman, Managing Director & CEO of Mutual Trust Bank.

"The banking landscape is becoming increasingly customer-centric, as customers now prefer comprehensive one-stop solutions for their banking and financial needs. To align with these evolving trends, BRAC Bank has implemented the Relationship Manager (RM) concept. Dedicated RMs provide personalised service, addressing all banking and lifestyle needs, including account opening, fixed deposits (FDR), deposit pension schemes (DPS), credit cards, personal loans, home loans, and auto loans," shares Md. Mahiul Islam, Deputy Managing Director & Head of Retail Banking at BRAC Bank PLC.

He further highlights BRAC Bank's digital app, Astha, as an exemplary customer-centric solution. Beyond offering comprehensive banking services, the app provides access to entertainment, education, travel, and information, creating a multifaceted platform for users.

The overall outlook of banks has transformed significantly, with a wide range of services now available. Digitalisation has played a pivotal role in this shift, enabling banking through mobile apps and ATMs.

"From the mid-1990s onward, the operational strategies of our banks were heavily influenced by multinational banks. Many professionals from multinational institutions took leadership roles in local commercial banks, introducing expertise in risk management, governance, and operational efficiency. This transformation placed an emphasis on the proper utilisation of resources and the management of operational and credit risks. Consequently, banks began adopting a more service-oriented approach, fostering competition to enhance service quality," explains Arup Haider, Deputy Managing Director & Head of Retail Banking at City Bank PLC.

City Bank, one of the first-generation banks, has been a pioneer in driving innovation within the banking sector. Highlighting the bank's recent advancements, Haider points to City Touch, its online transaction platform, which now serves 7.5 lakh customers. Among the bank's salary-disbursed clients, only 3% have visited a branch, as the vast majority access all services through City Touch. Notably, the platform facilitated transactions worth Tk 64,000 crore last year, and this year, the bank projects transactions to exceed Tk 1,10,000 crore.

"All our services, including loan applications, are accessible digitally. Even before COVID-19, we introduced the ability to send and receive money via bKash and Rocket through our banking app. At the retail level, consumer loans can now be availed through the app, except for corporate and SME loans," says Md. Rashed Akter, Head of Retail Distribution at Midland Bank.

As a fourth-generation bank, Midland Bank has prioritised digital banking from its inception, according to Akter.

The banking sector, however, is currently grappling with significant challenges, including a liquidity crisis and rising non-performing loan (NPL) rates. These issues underscore the need for professional management and stronger indicators of a healthy banking system.

"Although we do not offer the highest deposit rates, our deposits have exceeded Tk 26,000 crore. We consistently maintain a deposit surplus and have no record of dishonouring checks. Shahjalal Islami Bank is one of the few banks providing financial support to underperforming institutions. Additionally, our NPL rate is below 4%, and in the retail segment, it is only 1.62%. This is largely because our board of directors refrains from interfering in the bank's internal operations," notes S.M. Mohiuddin, Head of Retail Banking at Shahjalal Islami Bank PLC.

As a dedicated Islamic bank, Shahjalal Islami Bank places significant emphasis on expanding financial inclusion. "Through digitalisation, we aim to integrate more unbanked individuals into the formal banking sector. Most importantly, we have successfully avoided trust-related issues, which remain a significant concern for many institutions today," he adds.

Importantly, banks now act as dependable receivers of remittances, which are vital for strengthening the nation's foreign currency reserves through formal channels. Mobile financial services (MFS) also play a crucial role in facilitating these transactions.

"The sector has seen a significant boost from increasing remittance inflows, primarily through formal banking channels, thanks to streamlined processes and better incentives. Government initiatives such as refinancing schemes, subsidised loans, and financial literacy programs have been instrumental in encouraging people to join the formal banking network. Mobile financial services have further accelerated this growth by enabling faster and more secure transactions for both individuals and businesses," says Samiul Kabir, Head of Agent Banking, Digital Banking and Products, AB Bank.

He adds that AB Bank has consistently invested in digital transformation, exemplified by its revamped internet banking app, AB Direct, which offers enhanced features and a more user-friendly experience.

Despite these advancements, the latest Bangladesh Bureau of Statistics (BBS) survey, Bangladesh Sample Vital Statistics 2023, reveals that only 28.3% of individuals aged 15 and above have accounts in banks or non-bank financial institutions (NBFIs). Among them, 32.1% are men, while only 24.8% are women. While these figures reflect steady growth from 26.2% in 2022 and 27.9% in 2021, the persistent gender disparity highlights the need for banks to further promote financial wellbeing through inclusive and effective economic channels.