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The managing directors (MDs) of six state-owned banks may be replaced as the government considers changes to the top management of the lenders struggling with irregularities, loan defaults and financial weaknesses.
Decisions on the reshuffle could be taken within the next few days, according to multiple sources at Bangladesh Bank and the Ministry of Finance.
The six banks under consideration are Sonali Bank, Janata Bank, Agrani Bank, Rupali Bank, Bangladesh Development Bank Ltd (BDBL) and BASIC Bank.
Sources said discussions over changes to the management and boards of state-owned banks have been continuing for several months. The prolonged uncertainty over possible changes has affected decision-making at the senior level, slowing normal banking operations, including lending.
Sonali Bank, the country’s largest state-owned bank, is also facing a leadership vacuum. Its chairman, former finance secretary Mohammad Muslim Chowdhury, resigned on March 2. More than five months later, the bank is yet to get a full-time chairman. Former bureaucrat Mohammad Mahbubur Rahman is currently leading the board in an acting capacity.
The uncertainty over the chairman’s appointment and the possibility of an MD change have also affected Sonali Bank’s operations. Its outstanding loans fell by nearly Tk 11,000 crore during the first six months of the year, instead of increasing.
The bank’s outstanding loans stood at around Tk 107,000 crore at the end of December but fell to about Tk 96,000 crore by June. During the same period, its deposits stood at nearly Tk 200,000 crore, taking its loan-to-deposit ratio below 50 per cent.
Officials of state-owned banks said discussions on appointing new MDs have been continuing for about six months. There are also expectations of changes to chairmen and boards of directors.
With no final decision from the government, current MDs and senior officials have become cautious about taking major decisions, fearing that their tenure could be affected by a leadership reshuffle.
As a result, banking activities have increasingly become routine-oriented. Deposit mobilisation, remittance collection, opening letters of credit, investment in government securities and providing various government services now account for a major portion of their activities. Lending to private-sector businesses has slowed considerably.
Questions have also been raised over whether rules and procedures were properly followed in appointing MDs and boards of state-owned banks after the fall of the Awami League government on August 5, 2024.
There have also been discussions about the political connections and preferential treatment allegedly enjoyed by some MDs appointed during the previous government. During that period, Sonali Bank’s MD Mohammad Shawkat Ali Khan had previously served as MD of Bangladesh Krishi Bank, while Janata Bank’s MD Mohammad Mujibur Rahman had earlier headed Probashi Kallyan Bank.
Changes have also been made at the central bank since the new government took office. Mohammad Mostaqur Rahman replaced Dr Ahsan H Mansur as Bangladesh Bank governor, while changes were subsequently made at the deputy governor level.
Loan defaults remain one of the biggest weaknesses of state-owned banks. According to Bangladesh Bank data, nine state-owned commercial and specialised banks had Tk 168,960 crore in default loans as of March this year. These loans accounted for 45.20 per cent of their total outstanding loans.
Long-standing irregularities, corruption, political influence and lending without proper assessment have left several state-owned banks in a fragile financial position. Janata Bank and BASIC Bank are considered to be among the worst affected.
Agrani Bank, Rupali Bank, Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank are also facing various financial pressures. Sonali Bank’s position is comparatively stronger, although its lending activity has slowed sharply.
Rupali Bank’s lending figures also reflect the slowdown. According to its half-yearly report, its outstanding loans increased by only Tk 892 crore between January and June, rising from Tk 51,314 crore at the end of December to Tk 52,206 crore at the end of June.
During the same period, the bank’s investments increased from Tk 22,752 crore to Tk 24,185 crore, with a significant portion invested in government treasury bills and bonds.
The bank’s increased investment in government securities rather than lending to entrepreneurs and the private sector has coincided with an operating loss of Tk 611 crore in the first six months of the year.
Agrani Bank has experienced a similar trend. Its outstanding loans stood at Tk 80,573 crore at the end of December but fell to Tk 80,083 crore by the end of June, a decline of about Tk 490 crore in six months.
Agrani Bank Chairman Syed Abu Naser Bakhtiar Ahmed said the decline in outstanding loans was mainly due to successful recovery of existing loans.
He said nearly Tk 1,000 crore in cash loans had been recovered, while a similar amount had been written off.
“Banks are now very conservative when extending new loans. Lending without proper due diligence and KYC has been stopped. At present, we are focusing on recovering and managing existing loans rather than financing new projects,” he said.
He said lending to cottage, micro and small enterprises would be increased if the overall situation improved.
Bangladesh Bank spokesperson Arif Hossain Khan said the decline in lending by the six state-owned banks was not unusual, as bankers had become more cautious.
“In many cases, banking rules and policies were not followed before August 5, 2024. Bankers are now carrying out necessary scrutiny before approving and disbursing loans. Lending has slowed because they do not want to face accountability in the future over loans they approve,” he said.
Regarding the possible replacement of the MDs of the six state-owned banks, he said the decision was not under Bangladesh Bank’s authority.
“The Financial Institutions Division of the Ministry of Finance deals with the appointment and replacement of MDs,” he said, adding that the broader objective of measures taken by Bangladesh Bank and the Finance Ministry was to restore discipline in the financial sector, particularly banking.
Bank officials said the prolonged discussion over changes to MDs and boards had created uncertainty in the decision-making process. Many officials are also unclear about the policies that would be followed if new leadership takes charge.
They said the government should quickly make clear decisions regarding the appointment of chairmen, MDs and boards. Selecting senior management based on qualifications, experience and professionalism could help restore good governance and accelerate recovery of defaulted loans, they added.
The biggest challenges for any new leadership will be recovering defaulted loans, preventing irregularities, improving loan quality and increasing productive lending to the private sector.
Therefore, if the government decides to replace the MDs in the coming days, the move could mark more than a leadership reshuffle. It could become an important step towards the long-term restructuring of the country’s state-owned banking sector.
Attempts were made several times to contact Financial Institutions Division Secretary Nazma Mubarak for comments on the proposed appointments and broader reforms, but she did not respond.
However, a senior government official associated with the Finance Ministry said promotions in state-owned banks during the previous 15-year rule were often influenced by bribery and political considerations.
As a result, many qualified officials could not rise above the deputy general manager level, making it difficult to identify suitable candidates for MD positions from among existing deputy managing directors, the official said.
The government may therefore consider experienced officials from private commercial banks for the MD positions of state-owned lenders, the official added, noting that there were precedents for such appointments in the past.