The Banking Sector Crisis: Who Is Paying the Social Cost?

We tend to assess the crisis in Bangladesh's banking sector through statistics on non-performing loans, liquidity shortages, capital inadequacy, weak management, and financial irregularities. Undoubtedly, these indicators are important. However, a critical dimension of the banking crisis often remains overlooked: Who is bearing its social cost?

A bank is much more than an institution that accepts deposits and extends loans. It is deeply connected to people's lifelong savings, families' future plans, business ventures, employment opportunities, and overall economic confidence. Ordinary people deposit their money in banks not merely to earn interest or profit; they do so because they believe their hard-earned money will be safe and accessible whenever they need it. When that trust is undermined, the consequences extend far beyond a bank's balance sheet, affecting families, society, and different layers of the economy.

Similarly, while those responsible for decisions, irregularities, and mismanagement may have contributed to the banking crisis, its repercussions are also being borne by thousands of ordinary bank employees who work every day to keep banking operations running. Their salaries, allowances, employment benefits, and, most importantly, their right to fair and timely promotion have increasingly come under uncertainty. Therefore, the question is not merely how the banking sector can recover, but also how much of the cost of that recovery should be imposed on innocent depositors and employees.

According to Bangladesh Bank data, the non-performing loan (NPL) ratio increased from 20.20 percent in December 2024 to 35.73 percent in September 2025. During the same period of comparison, the banking sector's Capital Adequacy Ratio (CRAR) declined from 3.08 percent in December 2024 to negative 2.64 percent in December 2025, indicating a severe shortfall against the regulatory minimum requirement of 10 percent. The International Monetary Fund's 2025 Article IV Consultation report placed the NPL ratio at approximately 34 percent at the end of June 2025, identifying unsuitable bank ownership structures, excessive lending to related parties, weak supervision, and a lack of good governance as some of the principal causes of the crisis. The World Bank, in its assessment published in June 2026, also reported that the NPL ratio stood at 32.6 percent at the end of March 2026, while the banking sector's capital-to-risk-weighted-assets ratio was negative 2.6 percent at the end of December 2025.

These figures from both domestic and international institutions demonstrate that Bangladesh's financial sector crisis is no longer confined to loan defaults or liquidity problems in a few banks. Rather, it has evolved into a structural risk to macroeconomic stability, investment, employment, depositors' confidence, and the country's overall development process. Most concerningly, the financial burden and social cost of this crisis are ultimately being borne by ordinary depositors, honest borrowers, taxpayers, bank employees, and society at large.

Structural Weaknesses: Behind the Crisis

The banking sector crisis does not emerge from a single cause. Inadequate due diligence in loan approvals, disbursement of loans without sufficient collateral, preferential treatment of influential borrowers, and a lack of accountability on the part of boards of directors and management can all undermine the financial foundations of banks.

The regulatory role of Bangladesh Bank is equally important in this regard. The responsibility of an effective and independent regulatory authority is not limited to formulating rules and regulations. It must also ensure their proper implementation, identify emerging risks, intervene in a timely manner, and take appropriate corrective measures. The effectiveness of past supervision, the areas where shortcomings existed, and the measures required to address them in the future must be evaluated on the basis of facts and evidence.

The Cost to Depositors: More Than Just Money, It Is Their Life Plans

Ordinary depositors bear the most direct social consequences of a banking crisis. People save small amounts of money over many years. Behind these savings lie their hard work, frugality, personal sacrifices, and long-term aspirations for the future.

Some save for their daughters' weddings, others for their children's higher education, medical expenses, purchasing land or a home, or financial security after retirement. But when they cannot withdraw their own savings at the time of need, their carefully made plans begin to collapse. The loss is not merely financial; it also brings psychological distress, family instability, and uncertainty about the future.

Declining Trust in Banks Increases the Risks of Alternative Financial Channels

When public confidence in banks declines, some people begin considering alternatives to conventional banking. Some choose to keep cash at home, while others invest in unregulated or inadequately regulated cooperatives and private institutions in the hope of earning higher returns. Still others make risky decisions by entrusting their money to private lenders or informal moneylenders.

Bangladesh has witnessed several incidents over the years in which people's savings were misappropriated through cooperative societies and private institutions. On the other hand, keeping excessive amounts of cash at home exposes people to theft, robbery, and other security risks. Holding large amounts of cash outside the formal financial system may also alter people's spending behaviour, potentially disrupting deposit mobilisation, investment, and the normal process of financial intermediation in the economy.

Bank Employees: The Silent Victims of the Crisis

Discussions surrounding the banking sector crisis often focus on depositors and borrowers, while the hardships faced by ordinary bank employees receive comparatively little attention. Yet they are the principal driving force behind a bank's day-to-day operations.

Deposit mobilisation at branches, customer service, loan processing, foreign trade, remittance services, account maintenance, financial transactions, loan recovery, and countless other routine activities depend on the dedication, hard work, and professionalism of ordinary bank employees.

However, when a bank becomes financially distressed, the consequences often fall upon those very employees who had no involvement in the decisions that contributed to the crisis. In some institutions, problems may include delays in salary and allowance payments, delayed annual increments, difficulties in obtaining staff loans for house construction or other purposes, and restrictions on existing welfare benefits.

Among the most significant and long-term forms of deprivation faced by bank employees is being denied fair and deserved promotions year after year.

An officer joins a bank on the basis of specific educational qualifications, a formal recruitment process, professional training, experience, and demonstrated competence. Throughout their career, they reasonably expect to progress to the next position within a reasonable timeframe, in accordance with established policies and merit-based criteria.

Promotion is not simply an increase in salary or a change in designation. It represents recognition of an employee's years of hard work, experience, professional skills, and contribution to the institution.

However, when an officer continues to be denied promotion for years despite having fulfilled the required qualifications and acquired the necessary experience, their professional growth is seriously obstructed. This also negatively affects their self-esteem, motivation, future planning, and confidence in the institution.

No reform can achieve sustainable success if the professional lives of employees who were not involved in irregularities are left in a state of prolonged uncertainty.

Impact on Investment, Entrepreneurship, and Employment

The consequences of the banking crisis are not limited to depositors and bank employees. Small and medium-sized entrepreneurs, industrial enterprises, business owners, and employment opportunities are also affected.

A large number of businesses and industries in Bangladesh depend on bank financing to sustain their operations. Working capital, imports of raw materials, workers' wages, production expansion, and new investments all rely, to varying degrees, on the banking system.

When banks become excessively cautious in an effort to avoid risks, or when the flow of credit is disrupted, even genuine and financially capable entrepreneurs may struggle to secure the financing they need.

As a result, new investment may decline, production may be disrupted, business expansion plans may be postponed, and the pace of employment generation may slow down.

Policymakers must therefore maintain a careful balance. On the one hand, risky and irresponsible lending must be prevented; on the other, a transparent and effective flow of credit must be maintained to support genuine entrepreneurs.

The Way Forward: Accountability, Trust, and Fairness

Addressing the banking sector crisis requires serious attention to several fundamental issues.

First, the actual extent of non-performing loans must be accurately determined. Information regarding loan classification, rescheduling, write-offs, and recoveries should be disclosed transparently so that the true financial condition of banks can be assessed.

Second, transparency and accountability must be ensured in loan approval and disbursement. A borrower's actual financial capacity, adequacy of collateral, intended use of funds, and repayment ability must be properly evaluated.

Third, professional qualifications, integrity, experience, and the ability to make independent decisions must be prioritised in the selection of bank board members and senior management. Undue influence and conflicts of interest in important banking decisions must be prevented.

Fourth, Bangladesh Bank's regulatory and supervisory functions must become more effective, independent, and accountable.

Fifth, the interests of ordinary depositors must be protected. The deposit protection framework needs to be strengthened so that people's lifelong savings are not exposed to uncertainty because of the financial distress of banks.

Sixth, the legitimate rights of bank employees must be protected. Transparency and consistency must be ensured in salaries, allowances, staff loan facilities, employee welfare benefits, and, above all, merit-based promotions.

Seventh, fairness must guide the allocation of responsibility during financial restructuring and banking sector reforms. Those who have engaged in irregularities or caused institutional losses through wrongful decisions must be held accountable. At the same time, employees who had no involvement in such decisions must not be indiscriminately burdened with financial and professional losses.

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The Burden of the Crisis Must Not Fall on Innocent People

The uncertain future of a depositor, an entrepreneur's stalled investment, a worker's threatened employment, and a bank officer's long-delayed rightful promotion are different social manifestations of the same crisis.

Building a sound banking system requires much more than reducing non-performing loans or addressing capital shortfalls. It requires accountability, good governance, depositor protection, competent leadership, the protection of employees' legitimate rights, and, above all, the restoration of public confidence in financial institutions.

Those responsible for the crisis must be held accountable. The greatest burden of the crisis must not fall upon ordinary people and employees who have placed their trust in the banking system and whose daily efforts keep it functioning.

Author: A bank officer

Email: [email protected]