Internal Corruption and Non-Performing Loans in Bangladesh's Banking Sector

The banking system of Bangladesh is passing through an unprecedented crisis today. The unrestrained surge in non-performing loans (NPLs) is not merely the outcome of a normal economic slowdown; it represents an institutionalized form of internal corruption within the banking sector. By June 2026, the volume of non-performing loans surpassed Tk 6 trillion, accounting for 32.78 percent of total disbursed loans. This represents nearly a threefold increase from Tk 1.63 trillion in June 2024 to Tk 4.68 trillion in 2026. According to the World Bank, this structural rise is the cumulative result of long-standing weak corporate governance, unchecked regulatory capture, and insider/related-party lending. It reflects a structural failure of financial governance.

The government and Bangladesh Bank must dismiss dishonest and corrupt officers. The Finance Minister himself must arrange to appoint a genuinely qualified individual—hailing from the teaching profession with deep expertise in monetary economy and financial economy—as the Governor of Bangladesh Bank.

The Bangladesh Institute of Bank Management (BIBM) and The Institute of Bankers, Bangladesh (IBB) have failed to foster ethics and morality among bankers and to take responsibility for their failure. Simply hosting talks has never helped improve ethics. The banking sector lacks iconic figures like Lutfur Rahman Sarkar, Khandaker Ibrahim Khaled, and Prof. Habibur Rahman (former Chairman, Sonali Bank). However, the expertise and wisdom of Prof. Shanti Narayan Ghosh and National Professor Dr. Mahbub Ullah can be utilized for its development.

At the core of this crisis lies a deep moral collapse. Cornered by the dominance of corrupt officials, honest and professional bank officers struggle to survive today. Misguided directives from dishonest superiors, collusion with vested interest groups, and a pervasive culture of fraud have created a toxic environment where honest officers face severe impediments to upholding integrity. The adage holds true: "For dishonest bankers, honest bankers cannot work."

Insiders within banks—ranging from Deputy General Managers (DGMs) to Managing Directors (MDs)—frequently use their official designations as instruments for personal and family wealth accumulation. A strong parallel relationship (a correlation of nearly 0.98) exists between the growth of bank employees' personal/familial wealth and the increase in their institution's non-performing loans.

When dishonest officials occupy decision-making roles, immense pressure is exerted on honest personnel. When upright officers in charge of credit appraisal or collateral verification reject fraudulent or high-risk loan applications, they face threats of forced transfers, denial of promotion, or harassment. As a result, a "culture of criminalization" has taken root across the banking sector.

Lack of Legal Tools Is Not the Problem in Bangladesh:

• The Anti-Corruption Commission (ACC) Act, 2004: Under Sections 26(2) and 27(1), acquiring illicit wealth and concealing assets are punishable offenses, requiring the accused to provide a "satisfactory explanation" for accumulated assets.
• The Money Laundering Prevention Act, 2012: Empowers the Bangladesh Financial Intelligence Unit (BFIU) to impose monetary fines or cancel licenses of institutions that fail to report suspicious transaction reports (STRs).
• The Bank Company Act, 1991: Contains strict provisions regarding related-party transactions and prohibiting unethical benefits.

However, the main bottleneck in enforcement is that these mechanisms rely heavily on the bank's internal compliance department. When the bank's own DGM or MD is involved in irregularities, a acute Conflict of Interest arises. Despite BFIU rules, filing an STR against superiors remains professionally risky for subordinates.

Furthermore, while Bangladesh Bank’s policy of mandatory 3-year transfers and compulsory leave applies to branch managers, MDs and DMDs remain exempt. Additionally, personal transactions of bank executives are not subject to the same rigorous due diligence as standard customers.

Asset registration in the names of spouses, children, or siblings is a standard pattern of corruption:

• Former DGM Shiper Ahmed: Even after evidence emerged of laundering illicit income through siblings, it took 8 years to finalize the investigation and prosecution from the initial irregularity.
• Former BASIC Bank Chairman Sheikh Abdul Hye Bachchu: Massive discrepancies in family asset holdings came to light.

It is evident that the enforcement apparatus is primarily event-driven, rather than rule-driven.

Required Reform Measures:

1. Independent Asset Verification Unit: Establish an independent unit under Bangladesh Bank to conduct spot-checks on asset declarations of officials ranked AVP/AGM and above (and their families), with automated crossmatching against NBR and Land Registry databases.
2. Direct Confidential BFIU Channel: Launch a secure, direct whistleblowing channel that bypasses internal bank compliance.
3. Automated Asset Tracing: Trigger automated audits of real wealth and lifestyle standards whenever an official is flagged in an STR.
4. Mandatory Leave and Rotation: Bring all senior executives from DGM upward under mandatory transfer and leave policies.
5. Criminal Liability for Compliance Failure: Subject compliance heads and MDs to personal criminal liability if they fail to curb internal fraud.

Beyond basic paperwork submissions, actual ownership and lifestyle discrepancies must be actively investigated. A unified, integrated database linking Banks, ACC, BFIU, NBR, and Land Registry offices is imperative.

Officials involved in loan approval and disbursement must be held directly accountable for recovery failures. A "Lender’s Liability" policy must be enforced to confiscate assets and initiate criminal proceedings against those who disburse loans through negligence or dishonest intent.

Because major default loans result not just from isolated bank employees, but from collusion between bank officials, political figures, and influential business groups, a "Shared Accountability Framework" must be implemented. Forensic investigations should determine the respective roles of both borrowers and officials. Additionally, deploying a digital "Credit Accountability Tracking System" would make it simple to track liability at every step of the loan approval process.

A Case Example of Abuse of Power:

A Deputy General Manager (DGM) of a commercial bank, whose wife is a public college teacher, attempted to purchase two flats worth Tk 1.75 crore in the Bhatara area. Concurrently, they attempted to unlawfully occupy a house in the Mirpur area and threatened to cancel their registered car parking space. They demanded to inspect registered deeds and sought to misuse their official influence.

Such acts constitute severe violations of existing Bangladeshi laws and Bangladesh Bank's compliance guidelines. Under government service rules and the banking sector's 'Off-site Governance' frameworks, misusing rank or authority for personal gain and acquiring disproportionate wealth are fully punishable offenses.

• Asset Discrepancy: Bangladesh Bank holds full authority to verify whether the acquisition of properties worth crores aligns with the joint legitimate income of a bank official and a government college teacher.
• Reporting to BFIU: The Bangladesh Financial Intelligence Unit (BFIU) monitors transactions and asset accumulation inconsistent with official salaries. Written complaints can be submitted directly to the bank's MD and Bangladesh Bank's Financial Integrity and Customer Service Department (FICSD).
• Illicit Wealth Accumulation: Under Sections 26 and 27 of the ACC Act, 2004, written complaints or phone reports via hotline 106 can be filed with the Anti-Corruption Commission regarding power misuse and assets disproportionate to known income sources.
• Violation of Government Service Rules: As a cadre officer in the BCS (General Education), the source of wealth and conduct code violations of the teacher also fall under ACC jurisdiction.
• General Diary (GD) or Legal Case: For issuing threats to cancel registered parking spaces, attempting illegal occupation, and demanding deeds by force, an immediate General Diary (GD) should be lodged with the local police station.
• Ministry of Education: Public college teachers are bound by the Government Servants (Conduct) Rules, 1979. Written complaints regarding property occupation or intimidation can be lodged with the Principal of the college, the Directorate of Secondary and Higher Education (DSHE), and the Ministry of Education.

Key Systemic Insights:

• If PK Halder had not emerged as an international fugitive and a symbol of Bangladesh's financial sector collapse, the irregularities of SK Sur Chowdhury might have remained undetected to this day. When a former Deputy Governor of the central bank can comfortably evade scrutiny, it is hardly surprising that irregularities committed by General Managers or Deputy General Managers in commercial banks go systematically unnoticed.
• The legal enforcement system against internal corruption in Bangladesh's banking sector is largely "event-based" rather than an automated "rule-based" structure. Administrative and legal procedures typically remain dormant until a massive financial scandal occurs, political shifts take place, or international pressure mounts.
• Currently, criminal tendencies and corruption levels are escalating alarmingly at the grassroots level of Bangladesh's banking sector—specifically among Senior Officers, Principal Officers, Senior Principal Officers, and Branch Managers. While major financial scams were previously confined to top management, corruption has now spread institutionally to the grassroots level.

Primary Causes and Modus Operandi of Grassroots Corruption:

• Fake Loans and Document Forgery: Facilitating the approval and disbursement of fraudulent loans worth millions without verifying genuine loan documents or by utilizing fake papers and NIDs.
• Property Overvaluation: Colluding with borrowers to overvalue cheap or non-existent land/property as loan collateral.
• Kickbacks and Commissions: Approving risky and unqualified loans in exchange for fixed percentage kickbacks or bribes.
• Embezzlement of Customer Funds: Diverting regular deposits or FDR funds without logging them into the main banking system, or by generating fraudulent receipts.

Driving Factors behind Grassroots Criminalization:

• Pressure from Superiors: When top management or the Board of Directors exerts severe pressure to pass fictitious or corrupt loans, mid- and entry-level officials comply out of fear of losing their jobs.
• Unrealistic Targets: Deposit and loan targets are often imposed aggressively, leading to loan disbursements without proper background checks.
• Get-Rich-Quick Culture and Impunity: The desire for quick wealth coupled with slow judicial proceedings in the banking sector has erased fear among perpetrators.
• Lack of Internal Oversight: Bank internal audit and compliance departments frequently fail to detect daily local-level irregularities in a timely manner.

Conclusion

While the existing legal framework is adequate, the lack of political and institutional will remains the primary barrier to enforcement. Without ending the culture of impunity for corrupt officials, honest bankers will never be able to function independently. To establish good governance, safeguard upright bankers, and untangle the Tk 6 trillion default loan crisis, prioritizing the eradication of internal corruption through stern administrative action is the need of the hour.

To restore order in the banking sector, the Government and Bangladesh Bank must dismiss corrupt officials and take rigorous punitive measures. The current Finance Minister is an upright personality; it is therefore his responsibility to take effective steps to appoint a well-versed, independent economist with a background in teaching and research in monetary and financial economics as the Governor of Bangladesh Bank.

Writer: Macro and Financial Economist, Entrepreneurship Management and ICT Specialist

(Dhakatimes/10 October/RZ)