This chapter provides an analysis of the structure of the banking sector in Bangladesh, different performance indicators of the banking sector, the trend in NPLs, and efficiency levels of private banks. It also explores the politics of the banking sector and avenues of governance failures in relation to private commercial banks in Bangladesh. This poor performance of the banking sector is related to the low quality of the sector’s lending operations. Through regulatory and policy capture, political patronage often leads to unproductive loans, or simply loans that bankers know will never be repaid. Also, cases of embezzlement through legal insider lending – that is to the bank’s owners or their family – have been reported. NPLs, and the frequent need for monetary injection in state-owned banks or bailouts of private banks, are the manifestation of these governance failures of the whole sector. This chapter emphasises key reforms needed in the governance of the sector which include autonomy of the central bank, modification of the Banking Companies Act and strict adherence to it, and political commitment to penalise loan defaulters.

This chapter provides an analysis of the structure of the banking sector in Bangladesh, different performance indicators of the banking sector, the trend in NPLs, and efficiency levels of private banks. It also explores the politics of the banking sector and avenues of governance failures in relation to private commercial banks in Bangladesh. This poor performance of the banking sector is related to the low quality of the sector’s lending operations. Through regulatory and policy capture, political patronage often leads to unproductive loans, or simply loans that bankers know will never be repaid. Also, cases of embezzlement through legal insider lending – that is to the bank’s owners or their family – have been reported. NPLs, and the frequent need for monetary injection in state-owned banks or bailouts of private banks, are the manifestation of these governance failures of the whole sector. This chapter emphasises key reforms needed in the governance of the sector which include autonomy of the central bank, modification of the Banking Companies Act and strict adherence to it, and political commitment to penalise loan defaulters.