TDS Desk:

The financial sector in the country is grappling with one of its most turbulent periods in recent years, as rising loan defaults, irregularities in banks, declining returns on savings instruments, and a volatile stock market leave depositors and investors in growing uncertainty.

With traditional avenues of savings and investment failing to deliver security or profit, ordinary citizens are struggling to find safe options for their money, while economists warn of wider economic repercussions.

Mounting pressures on banks have been accompanied by falling returns on government savings certificates and persistent volatility in the stock market.

Bank interest rates lag behind inflation, eroding depositor confidence, while returns on savings certificates, once a trusted option for middle-class households and retirees, now fall below the inflation rate.

The stock market continues to experience crashes and manipulation, further shaking investor trust.

Economists say urgent reforms are required to stabilise the economy.

Mustafa K Mujeri, executive director of the Institute for Inclusive Finance and Development (InM) and former chief economist of the Bangladesh Bank, told journalist that ordinary people are caught in an “investment crisis.”

Uncertainty in the banking sector, low returns on savings certificates, and turmoil in the stock market have left them anxious, he noted, adding, “If this crisis persists, it could become a major threat not only for individuals but also for overall economic stability. Without timely reforms, the country may face severe shortfalls in savings, drastically reducing investment flows.”

Zahid Hussain, former lead economist of the World Bank’s Dhaka office, noted that while the banking sector’s distress has eased somewhat, depositors have already been harmed.

“Since investments are not happening, demand for loans has dropped. As a result, banks are sitting on excess liquidity. We must find alternative sources of investment. Strengthening the bond market and creating investment opportunities there is essential. The stock market must also be revitalised,” he said.

CRISIS OF TRUST IN THE BANKING SECTOR

Depositors’ confidence in banks is at a historic low. Belal Miah, a Union Bank customer, said he had Deposited Tk10 lakh but, despite repeated attempts, even after the change in government, he has been unable to withdraw the full amount.

Similarly, Apurbo Kumar, a client of Global Islami Bank, said, “I’ve heard the bank is in trouble, which is why the central bank has decided to merge it. But I still can’t withdraw my deposit. How will I get my money back?”

According to the Bangladesh Bank, non-performing loans (NPLs) in the banking sector have now exceeded 27%. Rising defaults are straining liquidity, while the prospect of forced mergers and potential bankruptcies has deepened public anxiety.

On 5 August, following the fall of the previous fascist Awami League government, the central bank restructured the boards of 14 banks. Six of these, previously owned by the S Alam Group, whose chairman Mohammed Saiful Alam is a close collaborator of the deposed prime minister Sheikh Hasina, have yet to return customers’ deposits.

During the previous Awami League administration, widespread interference by bank directors was reported, with several executives bypassing central bank regulations for personal gain.

After the change of power, some executives lost their jobs, faced lawsuits, or even attacks, yet many structural problems remain.

Over the past seven to eight months, six managing directors of private banks have resigned, citing an inability to work with integrity amid unethical board demands or security concerns.

Despite high interest rate offers, deposit growth has remained sluggish, standing at below 8% by June this year.

Most banks now offer 9%-11% interest, with those under severe liquidity pressure offering up to 13%.

Yet, as economist Zahid Hussain noted, “People’s trust in banks is eroding. Many feel that keeping money in banks means taking a risk. Yet, in a stable economy, banks should be the safest reliance for people.”

MOST FINANCIAL INSTITUTIONS AT RISK

Bangladesh Bank has moved to cancel the licences of 20 non-bank financial institutions (NBFIs) burdened with high NPLs and failing to repay depositors.

Notices were issued in May, and final decisions have been made to revoke the licences of nine institutions.

Reports suggest that liquidating these entities may require around Tk9,000 crore from the government, as many lack sufficient collateral to cover outstanding loans.

Prof Abu Ahmed, chairman of the Investment Corporation of Bangladesh (ICB), described the situation as “very fragile.”

He said, “They are neither able to repay depositors nor improve their own condition. In an economy like ours, we must now ask why 35 NBFIs are even necessary. Most are no longer in a position to function.”

Abu Ahmed warned that the continued collapse of weak institutions could force the government to bear depositor losses.

DECLINE IN SAVINGS CERTIFICATE RETURNS

Once considered a safe haven, government savings certificates now provide returns below 10%, while real inflation hovers around 12%.

A customer explained, “Previously, savings certificates allowed us to manage household expenses comfortably. Now the returns are insufficient. But we’re also afraid to keep money in banks.”

UNCERTAINTY IN THE STOCK MARKET

The Dhaka Stock Exchange, once a “paradise for investment,” has lost credibility in recent years due to market manipulation, weak regulatory oversight, and dominance by institutional investors.

The index has been on a continuous decline since the start of the year, leaving small investors with heavy losses despite a recent uptick.

Abu Ahmed said, “As long as transparency and strict monitoring are not ensured in the market, ordinary people cannot feel secure investing here.”