Financial Institutions Division: The promise BNP forgot after coming to power

BNP had promised that, upon coming to power, it would abolish the Financial Institutions Division and return control of the banking sector to Bangladesh Bank. The current Finance Minister made this commitment last October.

However, after assuming power, the government has forgotten this promise, just as it has forgotten many others. The BNP government is breaking its commitments on almost every fundamental reform. It has continued the dual-control system between Bangladesh Bank and the Financial Institutions Division that existed during Sheikh Hasina's tenure. Just as during the Hasina era, appointments and removals at state-owned banks are being made arbitrarily.

One example is enough. On the 19th of last month, the Financial Institutions Division removed the Managing Director (MD) of Sonali Bank. Seven days later, the same division issued another order announcing that the removed MD would remain at Sonali Bank.

Two opposite decisions within seven days concerning the top position at a state-owned bank. This is how the Financial Institutions Division operates.

Nobody except BNP knows what qualifications are required for appointments

It is unclear what criteria are being used to appoint officials from private banks to state-owned banks.

After coming to power, the BNP government has appointed a party leader to a constitutional institution such as the Election Commission. Yet political neutrality is one of the fundamental requirements for appointments to that institution. When a government politicises the Election Commission and places party officeholders in state institutions, there is little reason to believe that it will consider qualifications other than political loyalty when making appointments to state-owned banks.

The Financial Institutions Division has appointed an official from private-sector Southeast Bank as the Managing Director of state-owned Janata Bank. After July 2024, information emerged about large-scale looting in the name of lending at Southeast Bank. Following the removal of the board of directors from that period though, the bank has recently been performing well, that much is true.

But questions remain. On what grounds was someone with experience as an Additional Managing Director at a medium-sized private bank appointed to lead a huge and troubled institution like Janata Bank? The government has still not explained its decision.

Another state-owned bank has appointed a Deputy Managing Director from private-sector Jamuna Bank as its Managing Director. A person with experience in a government-owned bank should be appointed to the MD position at a state-owned bank, and the appointment should certainly be made through Bangladesh Bank.

What happens when the government keeps control?

Even though the government owns the banks, it should not directly control the banking sector. That responsibility should rest with Bangladesh Bank as the regulator.

We have seen what happens when the government controls appointments during the Awami League’s time in power. Party leaders were appointed as directors and party loyalists were made managing directors, resulting in widespread looting of state-owned banks.

Look at the figures. And remember, these are not figures produced by the opposition.

On September 6, during the third session of the National Parliament, in response to a question from the Member of Parliament for Bagerhat-4, Finance Minister Amir Khasru Mahmud Chowdhury himself disclosed that, as of June 30, 2026, the six state-owned banks had a combined total of Tk 1,47,776.36 crore in non-performing loans (NPLs).

Of this amount, Janata Bank alone accounted for Tk 75,396.67 crore, or 51% of the total NPLs of the six banks. The figures for the other banks were: Agrani Bank: Tk 29,029 crore, Rupali Bank: Tk 19,281 crore, Sonali Bank: Tk 15,048 crore, BASIC Bank: Tk 8,131 crore, Bangladesh Development Bank Limited (BDBL): Tk 8,088 crore.

For additional context, the NPL ratio across the entire banking sector stood at 32.26% at the end of March 2026. During the three months from March to June, NPLs increased by another Tk 17,851 crore.

Behind Janata Bank's enormous pile of bad loans are a handful of business groups: Beximco, owned by Awami League leader Salman F Rahman; the S Alam Group; AnonTex; and Crescent. Before August 5, the MDs and boards of directors appointed by the Awami League government provided loans to these companies through irregular practices.

The money belonging to ordinary depositors was taken away by looters in the form of loans. The government was complicit in this.

And this was inevitable. Directors appointed by the government will naturally favour people connected to that government. This is not a question of individual character; it is a structural problem.

What are the roots of the dual-control system?

The Financial Institutions Division was established under the Ministry of Finance on January 6, 2010, to oversee state-owned banks and financial institutions, including Sonali, Janata, Rupali, Agrani, BASIC, Karmasangsthan Bank, and the Samabaya Bank.

One important point needs to be remembered: this was not an entirely new creation. A similar division had existed before and had been abolished at one point. After a gap of more than a decade, the Awami League government brought it back under a new name. Following its re-establishment, widespread irregularities, corruption, nepotism, and politicisation began in appointments to the MD and director positions at state-owned banks. This was accompanied by the proliferation of massive loan scams and fraudulent lending practices at government banks during the Awami League era.

In other words, abolishing the Financial Institutions Division would not be an unprecedented step for Bangladesh. There is already a precedent in our own history.

This division appoints and nominates MDs and directors to state-owned banks. Yet Bangladesh Bank is the regulatory authority for the banking sector. As a result, a system of dual control has emerged in state-owned banking. Gradually, the Financial Institutions Division has even begun to exercise control over Bangladesh Bank itself. Through this arrangement, the division effectively pushes politically motivated appointments, policies, and corruption into the financial sector.

Bangladesh Bank’s responsibility is to inspect and supervise banks. But under the interference of the Financial Institutions Division, it cannot even properly perform that role. Yet its principal responsibilities should be to establish transparency in the financial sector and formulate monetary policy. Unless Bangladesh Bank is independent, monetary policy cannot be independent. Policies will instead be formulated according to the government’s wishes. Those close to the government will receive large loans according to their wishes. And there will be no meaningful accountability for the directors appointed by the government to state-owned banks.

This demand does not only come from the opposition

One point needs to be made clear here, because the government may try to dismiss these arguments as partisan. Prominent economists in Bangladesh have been calling for the abolition of the Financial Institutions Division for a long time. Dr Fahmida Khatun, Executive Director of the Centre for Policy Dialogue (CPD), has publicly stated at a press conference that this division conflicts with the independence of Bangladesh Bank and that lobbying and influence-peddling originate from this division.

The Bangladesh Bank Officers’ Council has also made the same demand, arguing that it is necessary to prevent dual control in the banking sector and restore discipline to the financial system.

In other words, officials of the central bank itself and one of the country’s leading economic research institutions are saying the same thing. When BNP was in opposition, it agreed with this demand. Having come to power and then forgotten it amounts to outright deception.

What are the best international practices?

The internationally recognised principle for managing state-owned banks is straightforward: ownership and regulatory control should not rest in the same hands.

The central principle of the OECD Guidelines on Corporate Governance of State-Owned Enterprises is that the state’s ownership responsibilities and the regulator’s responsibilities must be institutionally separated. The IMF and World Bank have also repeatedly emphasised this separation through their Financial Sector Assessment Program (FSAP).

In India, the Ministry of Finance does not directly appoint the top executives of state-owned banks. Instead, appointments are made on the recommendation of an independent recruitment body that includes representation from the Reserve Bank of India.

Under the European Central Bank’s institutional framework, the terms of office of Governing Council members are protected. They can be removed only for serious misconduct, and such removal falls under judicial jurisdiction rather than the executive branch.

In Poland, Indonesia, and Vietnam, ownership of state-owned banks has been placed under professional holding companies rather than ministries. Open competition is mandatory for appointing their boards of directors.

In almost all advanced systems, central banks conduct a fit and proper test before senior executives are appointed, and the assessment criteria are publicly available.

Bangladesh has none of these arrangements. Instead, it has a division within a ministry that issues two contradictory orders within seven days. This means that financial governance is effectively determined not by rules, regulations, the regulator, or promised policies, but by the whims of the Finance Minister.

What needs to be done?

The Financial Institutions Division must be abolished. Responsibility for regulating and supervising state-owned banks and financial institutions must rest with Bangladesh Bank.

Bangladesh Bank must be transformed into a genuinely autonomous institution. The Governor’s term of office, conditions for removal, and removal procedures must be clearly specified by law so that they cannot be determined at the discretion of the executive branch.

The appointment process for Managing Directors (MDs) and Deputy Managing Directors (DMDs) at state-owned banks must be transparent and open. Banks should publish recruitment notices. Candidates with extensive experience and the necessary qualifications should be allowed to apply. An appointment committee comprising representatives from Bangladesh Bank and the relevant institutions should make the appointments. The qualification criteria must be published in advance.

The government owns these banks, so there is no objection to the government nominating directors in its capacity as the owner. However, proper selection criteria and competitive recruitment are essential. Furthermore, just as in private banks, Bangladesh Bank should appoint independent directors to state-owned banks to monitor whether nominated directors are properly performing their responsibilities. There should also be performance-based KPIs (Key Performance Indicators).

Bank chairpersons do not have sufficient executive authority. Therefore, the government may appoint political figures or its preferred individuals to ceremonial positions, including the chairperson’s position, if it wishes. However, the Managing Directors and boards of directors hold the actual authority to operate banks and the responsibility to protect depositors’ money. Therefore, appointments and nominations to these positions must be transparent, open, and competitive.

And to make this possible, the Financial Institutions Division must be abolished.

The nearly Tk 1.5 lakh crore in non-performing loans accumulated by state-owned banks is not an accident. It is the natural consequence of a politically motivated institutional structure. Unless this corrupt structure is changed, merely replacing individuals will not change the outcome.

(This article has been translated from the Bangla original)

Hasnat Abdullah is a Member of Parliament, and Chief Organizer of NCP.