Overview of the Banking Industry in Bangladesh

The banking industry in Bangladesh represents the foundation of the country’s financial system and plays a pivotal role in macroeconomic stability, capital formation and trade facilitation. Over the decades, the sector has transitioned from a state-controlled structure to a diversified and competitive financial ecosystem comprising public, private, foreign, Islamic and specialized banking institutions.

The industry operates under the regulatory supervision of Bangladesh Bank, the central monetary authority responsible for financial stability, monetary policy formulation and prudential regulation.

Historical Evolution of the Banking Sector

The origins of institutional banking in the region date back to the British colonial era with the establishment of the Bank of Bengal in 1806, primarily to support trade financing and colonial commerce.

Following the partition of British India in 1947, the banking framework became integrated with Pakistan's financial system. Upon independence in 1971, Bangladesh inherited a limited and fragile banking infrastructure. In 1972, the government nationalized major banks to stabilize the economy and restore public confidence.

During the 1990s, financial sector liberalization introduced structural reforms, private banking licenses, foreign bank participation and improved regulatory standards. These reforms enhanced competition, innovation and operational efficiency.

Today, Bangladesh's banking industry is characterized by digital banking services, mobile financial integration, ATM networks and enhanced risk management practices.

Operational Framework of the Banking System

The banking industry in Bangladesh operates under the oversight of Bangladesh Bank, which is the central bank of the country. Its primary responsibilities include formulating monetary policy, regulating financial institutions, managing currency reserves and ensuring overall financial stability.

Banks in Bangladesh are involved in a wide range of activities aimed at providing financial services to individuals, corporations and the government. The primary functions of banks include:

• Accepting Deposits: Banks provide a safe place for individuals and businesses to deposit their money. In return, they offer various types of deposit accounts, such as savings, current and fixed deposits, to cater to different customer needs.
• Providing Loans and Advances: One of the key roles of banks is to lend money to individuals, businesses and the government for productive purposes, such as purchasing homes, expanding businesses, or financing infrastructure projects. Banks provide different types of loans, including personal loans, business loans and agricultural loans.
• Payment Services: Banks also facilitate payments through various channels, including checks, electronic fund transfers and mobile banking. This helps individuals and businesses conduct transactions smoothly and securely.
• Foreign Exchange: Banks play a crucial role in managing foreign exchange transactions, allowing businesses to trade internationally. They facilitate the conversion of currencies and manage remittances sent by overseas workers to their families in Bangladesh.
• Investment Services: Many banks offer investment services, such as mutual funds, treasury bills and government securities, to help individuals and institutional investors grow their wealth.
• Risk Management: Banks are also involved in managing risks through services like insurance and derivative products to protect businesses and individuals from financial uncertainties.

Categories of Banks in Bangladesh

The banking industry in Bangladesh is diverse, with different types of banks catering to different sectors of the economy. These banks can be broadly categorized into:

• Commercial Banks: Commercial banks are the most common type of banks in Bangladesh and they include both private and public banks. These banks primarily deal with deposits and loans for individuals and businesses. They provide a wide range of services, including savings accounts, business loans and trade finance.
• State-Owned Banks (SOCBs): These are banks owned and operated by the government and these kinds of banks are known as Public Banks in Bangladesh. They were initially established to support economic development, particularly in rural areas and agriculture. These banks often focus on financing agriculture, small businesses and government-related transactions.
• Private Commercial Banks (PCBs): After the liberalization of the banking sector in the 1990s, a number of private commercial banks emerged. These banks are privately owned and aim to maximize profit by serving both corporate and individual customers. They are known for their competitive services and innovations, such as mobile banking and ATM networks.
• Foreign Commercial Banks (FCBs): Foreign banks in Bangladesh are branches of international banking institutions that operate in the country to cater to multinational companies and individuals with foreign trade needs. They offer services such as foreign exchange, international trade financing and investment banking.
• Specialized Banks (SDBs): Specialized banks were established for specific objectives like agricultural or industrial development. These banks are also fully or majorly owned by the Government of Bangladesh.
• Islamic Banks: Islamic banks in Bangladesh operate under Shariah principles, which prohibit interest (riba) and promote ethical, asset-backed financing. Instead of conventional interest-based loans, these banks use profit-and-loss sharing and trade-based contracts. Common structures include Mudarabah (profit-sharing partnership), Murabaha (cost-plus sale financing), Musharakah (joint venture partnership) and Ijarah (leasing). All transactions must be linked to tangible assets and approved by a Shariah Supervisory Board to ensure compliance. Islamic banks have expanded significantly in Bangladesh, offering retail, SME and corporate banking services while meeting strong demand for faith-based financial solutions.
• Non-Scheduled Banks: The banks which are established for special and definite objective and operate under the acts that are enacted for meeting up those objectives, are termed as Non-Scheduled Banks. These banks are licensed to operate for specific purposes and objectives and they don't offer the same services as scheduled banks. Right now, following 5 non-scheduled banks are serving in Bangladesh:
  • Ansar VDP Unnayan Bank
  • Karmashangosthan Bank
  • Grameen Bank
  • Jubilee Bank
  • Palli Sanchay Bank