Recognising the central role of local banks in Bangladesh’s economy is a necessity now. Strengthening them through governance reforms and better risk management will determine the country’s economic trajectory
05 September, 2025, 07:50 pm
Last modified: 05 September, 2025, 08:01 pm
Illustration: TBS
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Illustration: TBS
The story of Bangladesh’s economic journey is usually told through three dominant narratives: the rise of ready-made garments (RMG) as the country’s largest export earner, the steady inflow of remittances from millions of expatriates, and the entrepreneurial spirit of small business owners.
These are indeed vital engines of growth, but there is another actor, often left out of the mainstream narrative, without which this transformation could not have been sustained — the domestic commercial banks.
While the RMG industry, remittance inflows and small entrepreneurs grab the spotlight, it is our local banks that have consistently financed the lifeblood of the economy. They have quietly extended credit to the factories, farms, workshops, and service providers that form the backbone of everyday Bangladesh.
Two banking worlds
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The country’s banking landscape is split into two very different worlds.
Foreign commercial banks, including Standard Chartered, HSBC and Citi, cater mostly to multinational companies (MNCs), large corporations and low-risk, high-return transactions. Their operations are rooted in global trade finance, compliance-heavy corporate banking, and connections to international payment systems.
Domestic banks — both private and state-owned — play an entirely different role.
They finance the “real Bangladesh”: the small garment factories in Narayanganj, the rice fields in Rangpur, the poultry farms in Mymensingh, and the light engineering workshops in Jashore.
These institutions serve the grassroots and middle layers of the economy, where most Bangladeshis live, work and earn. They are equally progressive in supporting large-scale businesses.
Foreign banks certainly add value, but their footprint in critical areas such as project finance, agriculture, CMSME lending and rural finance is negligible. The contrast is striking. As of late 2024, domestic private banks accounted for nearly 74% of all CMSME loans disbursed nationwide, while foreign banks’ share was less than 1%.
Agricultural credit is almost entirely delivered by domestic banks under Bangladesh Bank’s annual targets. In industrial and project finance too, domestic institutions provide the bulk of long-tenor loans, funding private-sector expansion, new factories and working capital for large projects — areas foreign banks typically avoid.
Inward remittances tell the same story: in Q1 FY2025, foreign banks handled just 0.23% of inflows, with domestic banks and their agent banking networks facilitating the overwhelming majority.
Powering the RMG miracle
The RMG sector, the pride of Bangladesh and its largest export earner, stands as a clear example of how domestic banks drive growth.
The RMG sector, the pride of Bangladesh and its largest export earner, stands as a clear example of how domestic banks drive growth. Behind the glittering numbers lies a web of financial support: back-to-back LCs, packing credit and bill discounting provided by local institutions.
Behind the glittering numbers lies a web of financial support: back-to-back letters of credit, packing credit and bill discounting provided by local institutions.
Crucially, they have lent to entrepreneurs with limited collateral — something foreign banks typically avoid. Without such flexible and risk-bearing facilities, Bangladesh’s RMG miracle could have faltered long ago.
At the grassroots
Beyond garments, domestic banks power the enterprises that sustain livelihoods and create employment. Seasonal crop loans in rural areas, working capital for small workshops, and credit for livestock or poultry ventures are extended daily by domestic institutions.
Such lending, while risky and often under fragile governance systems, has nonetheless sustained grassroots livelihoods and generated broad-based demand in the economy. These interventions may seem modest in isolation, but together they diversify economic activity and spread prosperity far more widely than the narrow, corporate-focused role of foreign banks.
Strengths and flaws
To be fair, domestic banks are not without problems. High non-performing loan (NPL) ratios, governance weaknesses and uneven risk management practices remain serious concerns — largely fuelled by the ill motives and reckless policies of the ousted Sheikh Hasina regime.
Yet, even under such pressure, they carried the burden of inclusive finance, keeping industries, SMEs and rural sectors afloat.
Recognising this, the present interim government has launched comprehensive reform initiatives — strengthening regulatory oversight, accelerating NPL recovery, improving corporate governance, and enhancing risk management capacity — measures vital for restoring stability and sustaining growth.
Foreign banks deserve credit for their own strengths: strong compliance, robust trade finance for MNCs, and seamless global linkages. But their role is specialist rather than foundational. They complement the economy; they do not drive it.
The policy imperative
As Bangladesh prepares for graduation from the Least Developed Country (LDC) category, policymakers must recognise the central role of domestic banks. Strengthening them is not optional — it is essential. The interim government’s current reform agenda — focusing on NPL recovery, governance discipline and digital adoption — is a crucial first step.
These must be expanded with stronger risk assessment tools, more efficient legal mechanisms for loan recovery, and greater technological adoption for outreach and efficiency. Only then can local banks continue to serve as the financial backbone of inclusive development.
If we continue to over-credit foreign institutions in our national narrative while downplaying the contributions of domestic banks, we risk misaligning policy priorities. The reality is clear: our export industries, remittance inflows, SME growth and rural credit expansion have overwhelmingly depended on the resilience of local banks.
Rewriting the narrative
It is time to state the truth without hesitation. Bangladesh’s economic journey was not built on the shoulders of foreign banks, but on the commitment of domestic banks willing to take risks others avoided.
They supported farmers, traders and small entrepreneurs at the foundation of the economy, while also financing the large-scale industries that reshaped the nation’s development path.
Today, domestic banks are far more than financial intermediaries — they are the arteries through which capital, resilience and opportunity circulate. They have propelled growth from the grassroots to the industrial frontiers, shaping livelihoods and driving national prosperity.
With ongoing reforms strengthening their base, their role will only expand. Among all contributors to Bangladesh’s economic story, domestic banks deserve the highest recognition. They are not just witnesses to progress — they are the force that sustains and accelerates it.
Md Tauhidul Alam, CICC, is a Senior Faculty and Head of the Learning Facilitation Unit, MTB Training Institute (MTBTI).
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.