Tk 1,276cr Plan to Overhaul Banking Supervision, Tackle Weak Banks

A Tk1,276.30 crore overhaul of Bangladesh’s banking-sector oversight is set to be placed before the ECNEC, with the ambitious five-year programme targeting weak financial institutions, mounting bad loans, governance failures and outdated technology systems threatening financial stability.

The Financial Sector Support Project-2 (FSSP-2), backed overwhelmingly by the World Bank, seeks to give Bangladesh Bank stronger supervisory and bank-resolution powers while transforming the technology infrastructure needed to monitor an increasingly complex financial system.

The project is among 15 new and revised schemes scheduled to be placed before the Executive Committee of the National Economic Council (ECNEC) for approval at its meeting at 10:00am Tuesday at the NEC conference room in Sher-e-Bangla Nagar.

Prime Minister and ECNEC Chairperson Tarique Rahman will preside over the meeting.

The five-year project will be implemented by Bangladesh Bank from July 2026 to June 2031, with Tk1,261.54 crore coming from the World Bank’s International Development Association (IDA) and Tk14.76 crore from Bangladesh Bank. There will be no direct government financing.

The Planning Commission has recommended the project for ECNEC approval, underscoring the urgency of strengthening financial-sector safeguards and modernising the supervisory machinery at a time when the banking industry is grappling with deep-rooted weaknesses.

The project document paints a grim picture of the sector, identifying high non-performing loans, governance deficiencies, administrative inefficiency and obsolete information technology systems as major impediments to financial stability.

Several banks, particularly some state-owned and Islamic banks, have also come under pressure from liquidity and capital shortages, according to the document.
Against this backdrop, the project will seek to strengthen Bangladesh Bank’s capacity to supervise banks, restructure troubled institutions and undertake effective bank resolution when necessary.

It will also target stronger governance and financial stability in state-owned banks, while reinforcing the Deposit Insurance Trust Fund to facilitate faster repayment of depositors when required.

A striking feature of the project is its massive technology component, reflecting the growing dependence of financial-sector supervision on real-time data, integrated systems and cybersecurity.

Of the total project cost, Tk711.72 crore will go to ICT equipment, Tk355.36 crore to computer software and Tk7.64 crore to database development. Another Tk1.05 crore is earmarked for computers and related equipment.

Together, the capital component amounts to Tk1,077.24 crore, accounting for the overwhelming share of the project.

The scale of the technology investment highlights a fundamental weakness confronting the regulator: outdated systems are increasingly limiting its ability to see, analyse and respond to risks across the banking system.

The project document warns that deficiencies in ICT infrastructure and integrated information management are hampering the authorities’ ability to respond effectively to cyberattacks, cross-border financial risks and other emerging threats.

Such vulnerabilities could ultimately undermine depositor confidence and financial stability.

The project also places considerable emphasis on human capacity. Some 3,565 people will receive training, with Tk70.77 crore allocated for the programme. Of this, Tk67.77 crore will be financed by IDA and Tk3 crore by Bangladesh Bank.

Another Tk94.44 crore has been earmarked for individual and institutional consultancy services, including Tk29.10 crore for individual consultants and Tk65.34 crore for institutional consultancy.

The broader objective is to move Bangladesh’s financial-sector regulation from a largely reactive approach towards a more modern, technology-driven supervisory framework capable of identifying weaknesses before they become systemic crises.

The project’s focus on bank resolution is particularly significant as regulators face the difficult task of dealing with financially distressed institutions while protecting depositors and containing risks to the wider financial system.

Strengthening the Deposit Insurance Trust Fund is also expected to provide a more effective mechanism for protecting depositors when a bank is unable to meet its obligations.
The FSSP-2 comes as Bangladesh’s banking industry faces a combination of bad loans, weak capital positions, liquidity stress, governance problems and technological vulnerabilities, making stronger supervision increasingly critical.

The project therefore represents more than a technology upgrade for Bangladesh Bank. It is designed as a structural intervention in the machinery that safeguards the country’s financial system.

Finance ministry sources said the 15 projects scheduled for the ECNEC meeting cover health, agriculture, water resources, local government, roads, land, airports, power, industry and other sectors.