World Bank funds major overhaul of Bangladesh's banking sector
The government of Bangladesh has launched a significant reform initiative for its banking sector, backed by substantial international funding. The Financial Sector Support Project-2 (FSSP-2), with an estimated cost of Tk 12.76 billion, aims to modernise the financial system, strengthen supervisory capacity, and enhance safeguards for depositors.
The project, which will be implemented by Bangladesh Bank over a five-year period, is scheduled for approval by the Executive Committee of the National Economic Council. The World Bank's International Development Association will provide the bulk of the funding, with Bangladesh Bank contributing the remainder from its own resources.
What are the main objectives of the banking reform project?
The project has been designed to address long-standing challenges in the country's financial sector, including high levels of non-performing loans, governance deficiencies, and weak technological capacity. Planning Division Secretary SM Shakil Akhter confirmed that the initiative seeks to modernise procurement activities and implement policy-level reforms to improve transparency.
How will the project strengthen banking supervision and technology?
A major portion of the budget, approximately Tk 7.11 billion, has been allocated for information and communication technology equipment, with a further Tk 3.55 billion designated for computer software. The project will invest in upgrading Bangladesh Bank's supervisory capacity through improved ICT infrastructure, including necessary computers, databases, and technological equipment.
Training forms a key component of the initiative, with Tk 700 million set aside to train 3,565 individuals. Additional funds have been allocated for hiring individual and institutional consultants to strengthen institutional capacity.
What measures will protect depositors and reform state-owned banks?
The project outlines a three-phase implementation strategy. The first phase focuses on supervisory capacity and technological development. The second phase will strengthen financial-sector safeguards, support bank restructuring, and reform state-owned banks. The third phase will provide administrative and technical support.
One of the key objectives is to enhance the financial capacity of the Deposit Insurance Trust Fund and reduce the time required to repay depositors during bank resolution. The project also plans to introduce performance-based conditions to advance reforms based on specified actions and outcomes.
Why is this reform necessary for Bangladesh's financial sector?
The project proposal highlights that some banks, particularly state-owned and Islamic banks, have faced liquidity and capital shortages, with several falling into negative capital positions. Outdated ICT infrastructure and the lack of integrated information management systems have limited effective supervision and created challenges in addressing cyberattacks and cross-border financial risks.
Former Bangladesh Bank Chief Economist Mustafa K Mujeri cautioned that while technology is essential, it alone will not solve the sector's problems. He emphasised the need to develop skilled personnel and ensure transparency and accountability at every stage of implementation.
The first phase of the Financial Sector Support Project was approved in 2015 and ran until March 2021, with actual expenditure of US$262 million against an initial estimate of US$300 million. The new project continues these efforts, with implementation scheduled from July this year to June 2031.