Bangladesh’s financial sector runs on two tracks at once. The external side is strong: a record ~$30 billion in remittances, world-leading mobile-money inclusion, and rebuilt foreign-exchange reserves. The domestic side is mid-repair: after years of hidden bad loans, the banking system is undergoing the largest restructuring in its history — painful, IMF-backed, and a precondition for everything the wider economy is trying to diversify into.
Start with the strength. Remittances reached a record $30.33 billion in FY2024–25, up 26.8% on the year and well above the previous peak, with a single-month record of $3.29 billion in March 2025. The momentum has carried into FY2026 — about $13 billion in the first five months, up more than 17% — helped by a crackdown on informal hundi channels that pushed flows into the formal banking system. That surge rebuilt gross foreign-exchange reserves to roughly $32.6 billion by late 2025, reversing a sharp earlier decline. Layered on top is one of the world’s deepest mobile-money networks, with around 239 million registered accounts bringing financial services to people the formal banks never reached.
Now the harder track. Through 2025 the central bank stopped allowing lenders to mask bad loans, and the true picture emerged: the reported non-performing-loan ratio rose from about 10% in mid-2023 to 20% by end-2024 and to 35.7% by September 2025, with more than a dozen banks reporting default ratios above 50%. The response has been the largest restructuring in the country’s history — a landmark multi-bank merger, a new Bank Resolution Ordinance, risk-based supervision from January 2026, and a move toward Basel III and IFRS 9 provisioning — all under an IMF-backed programme.
Commercial Observation — The two tracks are connected. Remittances, reserves, and mobile-money inclusion give Bangladesh a genuinely strong external and retail-finance position. But a banking system that hid insolvency cannot efficiently finance a diversifying economy — capital has to be able to flow to the new sectors on honest terms. The cleanup is therefore not a side-story to diversification; it is one of its preconditions. The open question is durability: the reform began under an interim administration, and sustaining it through the transition to an elected government — expected in early 2026 — is what determines whether the fixes hold.
Beyond banking, the system is still bank-dominated and fiscally constrained. Capital markets remain relatively shallow, leaving room to deepen equity and bond financing; a new framework for licensing private asset-management companies is intended to create a platform for trading non-performing loans and clearing bad debt off bank balance sheets. The fiscal backdrop is tight — a tax-to-GDP ratio of only about 6.8% limits the government’s room to spend — which puts more weight on private capital, formal financial services, and a credible banking sector to fund growth.
For the wider economy, financial services is the plumbing of diversification. Remittances fund macroeconomic stability; mobile money lowers the cost and friction of payments, savings, and SME formalisation; and a transparently supervised banking sector is what allows credit to reach garments’ successors — pharmaceuticals, digital services, agro-processing, and the rest. Get the financial sector right and the other six become easier to finance.
The cleanup runs on deadlines. State-owned banks are required to cut their NPL ratio to 10% by June 2026 and private banks below 5%, with risk-based supervision live from January 2026 and IFRS 9 provisioning targeted for 2027. The decisive variable is political: the reform must survive the move to an elected government in early 2026, and the IMF has withheld part of its disbursement pending that transition. A credible banking sector is the foundation the rest of the diversification depends on.
State banks must cut their NPL ratio to 10% by June 2026 (private banks below 5%). The cleanup’s durability hinges on reform surviving the early-2026 political transition.
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