World Bank approves $450m financing to strengthen Bangladesh’s banking sector

The World Bank (WB) has approved $450 million in financing to help Bangladesh strengthen the foundations for a stronger banking sector, a prerequisite for the revival of the country’s economic growth and job creation.

The board of executive directors of the multilateral agency approved the financing under Phase II of the Financial Sector Support Project. It aims to bolster the deposit protection system to protect small depositors and build Bangladesh Bank’s supervisory capacity and systems.

“It lays the groundwork for bank resolution and reform of state-owned banks,” the WB said in a press release today.

The project will also support the deposit protection fund by increasing its capital and advancing key reform priorities, including enhancing the deposit protection system, establishing an effective Emergency Liquidity Assistance framework, developing bank restructuring strategies, and supporting reforms in state-owned banks, it added.

The WB said the banking sector faces significant challenges caused by weak corporate governance, regulatory capture, and related-party lending.

The non-performing loan (NPL) ratio stood at 32.6 percent as of the end of March 2026, well above the average for South Asian banks of 7.9 percent, and the system-wide capital-to-risk-weighted-assets ratio was negative 2.6 percent as of the end of December 2025.

“Bangladesh’s vision of attaining a trillion-dollar economy requires a stable and inclusive financial sector. But the banking sector, which accounts for about 90 percent of total financial sector assets, faces mounting stress,” said WB Division Director for Bangladesh and Bhutan Jean Pesme.

“This project will help Bangladesh put in place a set of essential tools, systems, and safeguards needed to protect small depositors and support confidence, restore stability in the banking sector, and allow it to support economic growth and job creation.”

Under the project, Bangladesh Bank’s Information and Communications Technology (ICT) infrastructure will be upgraded and modernised, helping address rising cybersecurity risks and close critical gaps in sector-wide data and analytics.

This will improve Bangladesh Bank’s ability to monitor risks, enhance data-driven and risk-based supervision, and improve the resilience of the financial sector, the WB said.

“The project, which forms part of a coordinated approach by development partners including the IMF and the Asian Development Bank, supports measures to bolster crisis preparedness and build the authorities’ capacity to manage banking sector stress,” said Toshiaki Ono, senior financial sector specialist and task team leader for the project at the WB.