Bangladesh banking sector faces renewed loan misuse risk, economist warns
Amid fresh loan disbursements in Bangladesh's banking system, economist Wahiduddin Mahmud raises concerns over whether funds are reaching legitimate businesses and being used as intended. He says weak safeguards could allow a repeat of past misappropriation, adding to long-running stress from non-performing loans and governance failures.
Highlights
- Wahiduddin Mahmud at the 11th Annual Banking Conference 2026 warned that inadequate lending safeguards risk renewed misuse of new bank loans in Bangladesh.
- Relaxations in banking regulations may increase the diversion of funds away from productive businesses, potentially undermining confidence in the sector.
- Private banks in Bangladesh are improving, but state-owned banks remain weak due to political influence and require direct government intervention for reform.
Warnings over lending controls
As reported by The Business Standard, Wahiduddin Mahmud says at the 11th Annual Banking Conference 2026 on October 28 that new bank lending requires stronger safeguards to prevent misuse and ensure funds go to genuine businesses.He questions what guarantees exist that newly disbursed loans are being used properly and whether past patterns of fund misappropriation are resurfacing. He says Bangladesh's private banks were once brought closer to international standards, but the sector was first weakened by non-performing loans.
He also warns that various relaxations now being introduced in the banking sector could deepen risks if credit is diverted away from productive businesses. In his view, any repeat of earlier abuses would further damage confidence in the system.
Pressure on state-owned banks
Wahiduddin says private banks are gradually improving, but state-owned banks remain in worse condition. He describes state-owned lenders as heavily shaped by political influence, arguing that successive governments have allowed different forms of abuse in the name of expanding opportunities.He says Bangladesh Bank alone cannot solve the problems at state-owned banks and that the government must take responsibility for fixing them. He also stresses that the corporate and banking sectors need to uphold minimum ethical standards, warning that laws alone are not enough for a country to perform well without ethics.
Our earlier coverage of sovereign borrowing risks in a higher-rate environment explained how persistent geopolitical shocks and elevated fiscal spending can tighten funding conditions and strain public finances. We noted that emerging and frontier markets are particularly exposed because debt-service costs consume a larger share of limited revenues, leaving less room to absorb inflation and refinancing pressures.
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