The banking sector in Bangladesh is governed by a comprehensive regulatory framework anchored by several principal laws and overseen by distinct regulatory bodies as follows.

The supervision of the banking sector is primarily performed by the Bangladesh Bank (BB), the central bank, established under the Bangladesh Bank Order, 1972. The BB serves as the all-encompassing regulator, responsible for the following.

• Monetary authority – Formulating and executing the nation’s monetary policy.
• Prudential regulation and supervision – Granting and revoking banking licences, issuing prudential regulations (such as those for capital adequacy, liquidity and risk management), and conducting both on-site and off-site supervision of all scheduled banks and foreign bank branches.
• Resolution – Acting as the statutory resolution authority for failing banks, a power recently reinforced by the Bank Resolution Ordinance, 2025.
• Payment systems – Regulating all payment system operators and digital financial services.

Secondary regulatory bodies provide specialised oversight.

• Financial Institutions Division (FID) – A division of the Ministry of Finance that exercises the ownership and administrative oversight of state-owned commercial banks (SOCBs) to ensure their compliance and monitor their performance.
• Bangladesh Securities and Exchange Commission (BSEC) – Regulates the capital market activities and public disclosures of banks that are listed on the stock exchanges.
• Microcredit Regulatory Authority (MRA) – Supervises and licenses Microfinance Institutions (MFIs), which operate parallel to the formal banking system.

In terms of principal laws and regulations, the legal backbone of the sector is the Bank Company Act, 1991 (BCA 1991). This foundational law covers the following areas.

• Defines banking – Explicitly defines “banking business” as accepting deposits from the public for the purpose of lending or investment, which are repayable on demand.
• Mandates licensing – Stipulates that no entity can conduct banking business without a licence from the Bangladesh Bank (Section 31).
• Prudential rules – Lays down core rules on capital adequacy, cash reserves, liquidity maintenance, corporate governance, director tenure limits, and restrictions on related-party lending.

This core legislation is supplemented by several other principal Acts and Regulations.

• The Finance Company Act, 2023 (recently repealing the Financial Institutions Act, 1993) – Introduced to strengthen the regulatory oversight of Non-Banking Financial Institutions (NBFIs).
• The Foreign Exchange Regulation Act (FERA), 1947 – Governs all foreign exchange transactions.
• The Anti-Money Laundering Act, 2012 – Mandates stringent Know Your Customer (KYC) and transaction monitoring measures to combat financial crime.
• The Offshore Banking Act, 2024 – Provides a dedicated legal and tax-incentivised framework for Offshore Banking Units (OBUs) to attract foreign capital.
• The Payment and Settlement System Act, 2024, along with the Guidelines to Establish Digital Bank – Governs digital finance, creating a new category of non-branch, tech-focused banks with a high minimum capital requirement (BDT300 crore) (1 crore equals 10 million).
• Payment Systems Regulations – This includes the Bangladesh Payment and Settlement Systems Regulations (BPSSR), 2014, which, alongside the Bangladesh Mobile Financial Services (MFS) Regulations, 2022, govern digital finance. Crucially, the BPSSR mandates the licensing of Payment System Operators (PSOs) and Payment Service Providers (PSPs), bringing non-bank digital platforms under direct central bank control.
• The Secured Transactions (Movable Property) Act, 2023 – Facilitates credit access for SMEs by allowing movable assets (eg, inventory, receivables) to be legally used as collateral.

Key enforcement laws also support the framework, including the following.

• The Money Loan Court Act, 2003 (Artha Rin Adalat Ain) – Establishes specialised courts for the speedy recovery and resolution of non-performing loans (NPLs).
• The Negotiable Instruments Act, 1881 – Governs instruments central to a bank’s daily functions, such as cheques and bills of exchange.
• The Bankers’ Books Evidence Act, 2021 – Modernises the use of digital records as admissible evidence in legal proceedings, replacing The Bankers’ Books Evidence Act, 1891.

The authorisation regime for financial institutions in Bangladesh differs significantly based on the entity type (eg, banks, NBFIs, MFIs), each being governed by a distinct legal framework. This chapter of the guide is tailored exclusively to the licensing process for Scheduled Banks (Commercial Banks) as regulated under the Bank Company Act, 1991.

The authority to grant bank licences is strictly controlled by Bangladesh Bank, the central bank. The process is centralised, highly discretionary, and focuses heavily on the integrity and financial stability of the applicants.

The Authorisation Requirement

Authorisation is fundamentally required for any entity wishing to conduct the core “banking business” in Bangladesh, which is defined as the accepting of deposits of money from the public for the purpose of lending or investment, which are repayable on demand and withdrawable by instruments like cheques or drafts.

To be eligible for a licence, the applicant must be a public limited company incorporated in Bangladesh under the Companies Act, 1994. The most critical financial requirement is the minimum paid-up capital, which is currently BDT500 crore (BDT5 billion). This capital must be deposited in a liquid, unencumbered form and placed under the lien of Bangladesh Bank. Furthermore, all sponsors, directors and top management must satisfy a rigorous Fit and Proper Test to ensure their competence, integrity, and sound judgment.

The Application Process

The process for obtaining a banking licence in Bangladesh is multi-stage, lengthy and involves substantial engagement with the central bank.

Engagement and stages

• Incorporation – The initial step involves obtaining name clearance and a Certificate of Incorporation as a Public Limited Company from the Registrar of Joint Stock Companies and Firms (RJSC).
• Application to Bangladesh Bank – The applicant then submits a formal application to the BB, accompanied by the proposed Memorandum and Articles of Association, a comprehensive feasibility study detailing the bank’s operational plan, financial projections and the economic rationale for its establishment. A non-refundable application processing fee, historically around BDT1 million, must be included.
• Evaluation and due diligence – The BB conducts an extensive, non-public review of the application. This involves performing thorough background checks on all proposed sponsors and management to verify their suitability (the Fit and Proper Test) and scrutinising the capital sources and future earnings prospects.
• Licence grant and scheduling – If the BB is satisfied that all terms and conditions are met and that the establishment is in the public interest, it grants the final banking licence under Section 31 of the BCA 1991. The new bank is then formally listed, or “scheduled”, under the Bangladesh Bank Order, 1972, granting it full operational status.

Timelines and costs

The process does not follow a statutory timeline; it is highly dependent on the BB’s internal review and discretion. Typically, the entire procedure from initial application to final licence grant can take 18 to 24 months or more. Costs primarily include the minimum BDT500 crore paid-up capital (1 crore equals 10 million), the application fee, and professional and legal advisory fees.

Activities Covered and Restrictions

Activities covered

A licensed bank is authorised to conduct the core business of accepting deposits and issuing credit. Ancillary activities explicitly permitted by the BCA 1991 include lending money, dealing in various negotiable instruments (bills of exchange, promissory notes), issuing letters of credit (L/Cs), buying and selling foreign exchange (if specifically authorised), and acting as an agent for government or third parties.

Restrictions on activities

The BCA 1991 imposes clear restrictions to maintain the sector’s focus and stability.

• Non-banking business prohibition – Banks are strictly prohibited from engaging in any commercial, industrial or trade business outside the list of permissible activities defined in the BCA 1991.
• Immovable property limit – Banks cannot hold any immovable property, even those acquired through loan recovery, for a period exceeding seven years from the date of acquisition, except for the property required for its own immediate use.
• Corporate governance – Strict limits are placed on ownership, including a maximum 10% shareholding cap for any individual, company or family group. The number of family members serving on the Board of Directors is also restricted. Recent regulation mandates one nominee per corporate shareholder.

Common Ancillary Activities and Additional Approval/Requirements

Banks in Bangladesh routinely undertake several additional activities, each requiring separate regulatory consent.

• Foreign exchange operations – A bank must obtain a specific Authorised Dealer (AD) licence from Bangladesh Bank under the Foreign Exchange Regulation Act, 1947, to buy, sell and deal in foreign currencies.
• Capital market activities – For broker-dealer or merchant banking services, the bank needs a separate licence (such as a Trading Right Entitlement Certificate) from the Bangladesh Securities and Exchange Commission.
• Mobile financial services (MFS) – Providing MFS requires a specific licence from Bangladesh Bank, often structured as a subsidiary where the bank must maintain majority shareholding and control.
• MiFID II and MiCAR – The regulations like the European Union’s MiFID II (covering financial instrument markets) and MiCAR (covering crypto-assets) are not applicable in Bangladesh. Domestic regulation covers these areas, where digital financial services and market conduct fall under the BB’s specialised guidelines.

Obtaining a European Passport (Branches, Cross-Border Services)

The European concept of a “passport” that allows a licensed financial institution to operate freely across the EU is not relevant to the Bangladeshi jurisdiction. For foreign banks seeking to establish a physical presence in Bangladesh, there are the following two primary routes.

Branch office

The foreign bank must secure dual approval: (i) initial permission from the Bangladesh Investment Development Authority (BIDA) and (ii) a banking licence from Bangladesh Bank. The parent company must demonstrate significant financial strength, including consistent profitability and minimum net assets (typically USD100,000 or more). The branch is then fully subject to local regulatory oversight and compliance.

Locally incorporated subsidiary

The foreign bank can choose to establish a new subsidiary, which must be incorporated as a Bangladeshi public limited company and meet all the same capital (BDT5 billion) and licensing requirements as any domestic bank.

The acquisition of, or increase in, control over a bank in Bangladesh is strictly governed by the Bank Company Act, 1991, and subsequent directives issued by Bangladesh Bank, the central bank. The regulatory focus is on maintaining financial stability, preventing monopolistic control and ensuring the suitability of controlling persons.

Requirements Governing Change in Control

Shareholding thresholds and restrictions

Regulatory permission from Bangladesh Bank is required for any transaction that leads to the acquisition or transfer of shares that affects control. The primary restrictions and thresholds are as follows.

• Maximum shareholding cap – A fundamental restriction under the BCA 1991 is that an individual, company or family group (defined to include spouse, children, parents and siblings) can hold a maximum of 10% of a bank’s total share capital, either personally, jointly or through affiliates.
• Trigger for filing – The act of acquiring or transferring any share in a bank, particularly those held by sponsors/directors, requires the prior permission of Bangladesh Bank, as the transfer of a significant block of shares inherently triggers a “change in control” assessment. The sponsors’ shares are typically locked up and cannot be transferred for a period of three years without BB’s explicit permission.
• Foreign shareholdings – The 10% maximum shareholding cap is often relaxed for strategic foreign investors or foreign financial institutions (FFIs) entering into a joint venture, allowing them to acquire larger stakes, potentially up to 100% in certain approved restructuring/merger cases. This is decided on a case-by-case basis by BB to attract institutional investment and bolster capital bases.

Other restrictions

Directors from a single family are typically restricted to a maximum of three members serving concurrently on the board. Furthermore, all incoming directors and substantial shareholders must satisfy BB’s stringent Fit and Proper Test concerning their competence, integrity and lack of loan defaults with any bank or financial institution.

Nature of Regulatory Filings and Obligations

The regulatory obligation for a change in control is the application for prior approval from Bangladesh Bank.

• Filing requirement – The acquiring entity and/or the transferring shareholder(s) must submit a formal application to the Banking Regulation and Policy Department (BRPD) of Bangladesh Bank.
• Content of filings – The application package typically includes:
1. detailed personal information and declarations of the transferee(s) (Fit and Proper Test documentation);
2. source of funds and evidence of the financial capacity of the acquirer;
3. the resolution of the Board of Directors of the target bank approving the transfer;
4. the proposed instrument of share transfer (Form 117) and a valuation report for unlisted shares (if applicable and if the deal value exceeds BDT1 million) prepared by a BSEC-licensed valuer; and
5. confirmation that the acquisition will not violate the maximum shareholding or board composition limits.

The BB conducts comprehensive due diligence on the acquiring party before granting the No-Objection Certificate (NOC) necessary for the transfer to be registered.

Nature of the Ongoing Requirements

Once the acquisition is approved and the transfer is effected, the bank and its controlling shareholders face several ongoing regulatory requirements.

• Annual reporting – Banks must provide BB with an updated list of directors and shareholders holding significant stakes (usually 5% or more) as part of their annual compliance submissions.
• Corporate governance compliance – The bank must continuously ensure that its board composition and internal governance structures remain compliant with BB’s directives, including limits on family members on the board and the required number of independent directors.
• CIB reporting – The bank is obligated to regularly report its investments and the liability status of its significant shareholders and affiliated entities to the Credit Information Bureau (CIB) of Bangladesh Bank.
• Director disclosure – Directors are required to provide declarations on an ongoing basis regarding their shareholdings, external affiliations and any potential conflicts of interest to the bank’s board and, upon request, to the BB.

The corporate governance and systems and controls framework for banks in Bangladesh is primarily rooted in the Bank Company Act, 1991, supplemented by numerous circulars and guidelines issued by the central bank, Bangladesh Bank.

Relevant Statutory and Regulatory Requirements

The main requirements are driven by the BCA 1991, and subsequent BB directives, which enforce prudent banking practices and oversight.

• Fit and proper criteria – The BCA 1991 mandates that directors and key executives (like the CEO/MD) must pass a rigorous Fit and Proper Test before appointment, requiring prior approval from Bangladesh Bank. Criteria cover moral integrity, professional experience (typically 10–15 years), and a clean record regarding loan default or criminal conviction (BCA 1991, Section 15).
• Board structure – BB guidelines prescribe minimum and maximum board size and composition. They require the appointment of Independent Directors (IDs), typically at least one fifth of the total board members for listed banks (per BSEC’s Code, which applies to listed banks).
• Risk management and controls – Banks are required to establish robust internal control and compliance (ICC) systems. This includes mandatory formation of key board-level subcommittees, such as the Audit Committee and the Risk Management Committee, to oversee financial reporting, internal controls and overall risk appetite.

Voluntary Codes and Industry Initiatives

While voluntary codes have been foundational, the most significant governance standards in Bangladesh have transitioned from voluntary guidance to mandatory regulation for listed banks.

• Mandatory BSEC Code – The Corporate Governance Code (CGC 2018) issued by the Bangladesh Securities and Exchange Commission is compulsory for all listed banks. This code dictates best practices regarding board independence, committee formation (including Nomination and Remuneration Committee (NRC)) and reporting requirements.
• Industry Role – Industry bodies like the Bangladesh Association of Banks (BAB) often engage in dialogue with the BB regarding regulatory amendments and industry best practices.

Diversity Requirements

Bangladesh Bank encourages board and workforce diversity, primarily through mandatory reporting, rather than specific hard quotas in the BCA 1991.

Gender reporting

Bangladesh Bank’s Corporate Social Responsibility (CSR) guidelines require banks to undertake mandatory, half-yearly gender equality performance reporting. This report tracks:

• gender diversity among board members and across all levels of permanent employees (entry, mid and senior); and
• the existence and provisions of the bank’s maternity leave policy and facilities for female employees.

This regulatory monitoring acts as a strong incentive for banks to promote gender diversity and inclusion.

Bankers’ Oath or Equivalent Binding Rules of Conduct

There is no formal Bankers’ Oath defined in the BCA 1991. However, Bangladesh Bank mandates an equivalent set of binding rules of conduct for all bank employees.

• Mandatory code of conduct – BB Circular BRPD No 16 (2017) mandates all banks to adopt a comprehensive Code of Conduct for Banks and Non-Bank Financial Institutions.
• Scope of the code of conduct – The code establishes the highest standards of integrity, ethics, due skill, care and diligence for all directors, employees and management. It explicitly requires staff to comply with all laws, avoid conflicts of interest (including restrictions on gifts and personal gain), and safeguard customer and bank confidentiality.
• Declaration of secrecy – Senior officials, including the CEO/MD, must sign a formal declaration of secrecy as a binding commitment to not disclose any confidential information acquired during their duties.

The oversight of senior management and directors in banks under the Bank Company Act, 1991 of Bangladesh is strictly governed by the Bangladesh Bank through a mandatory prior approval system based on the Fit and Proper Test.

Directors’ and Senior Managers’ Designation and Regulatory Approval

Designation and prior approval

The appointment, reappointment or removal of all directors and the chief executive officer (CEO)/managing director (MD) (Section 15) of a bank is contingent upon the prior written approval of the Bangladesh Bank.

Approval process and scrutiny

The process involves the following.

• The bank’s Board must submit a detailed proposal, including the candidate’s complete resume and offer letter, to the BB.
• The BB conducts a rigorous Fit and Proper Test to assess the individual’s competence, integrity and sound judgment.
• The level of detail in the scrutiny is highly granular, with the BB verifying that there is:
1. no criminal conviction (especially for financial crimes);
2. no history of defaulted loans by the individual or their associated concerns (via CIB report); and
3. no record of punishment for violating financial sector rules or regulations.

Screening Requirements

The mandatory screening criteria, derived from the BB’s circulars and the BCA 1991, define the minimum standards for eligibility.

Fitness (competence/experience)

The following requirements apply.

• The CEO/MD requires a minimum of 20 years of banking experience and at least two years in a position immediately below the CEO/MD, plus a Master’s degree.
• Directors typically require a minimum of ten years of management or professional experience.

Propriety (integrity/moral)

The individual must provide a sworn Declaration confirming they are not:

• a loan defaulter;
• bankrupt;
• convicted of any criminal, fraud or forgery offence; or
• involved with any company whose licence was revoked.

Corporate governance compliance

The BB also screens for compliance with governance limits imposed by the BCA 1991, such as restrictions on the maximum number of directors (eg, typically 20, including independent directors) and constraints on the number of directors from a single family to ensure independence.

The Bank Company Act, 1991, coupled with Bangladesh Bank circulars, establishes a strictly controlled and performance-linked remuneration framework, primarily focusing on the highest level of bank management.

Individuals Subject to Remuneration Requirements

The core requirements target top bank officials to mitigate risk and ensure prudential governance.

• The CEO/managing director (MD) is subject to the most rigorous control. The entire package (salary, allowances, and facilities) requires mandatory prior approval from the BB.
• Directors receive fees/honoraria for board meetings. They are strictly prohibited from receiving specific indirect benefits, such as new loan facilities, loan limit enhancements or interest waivers from their own bank during their tenure.
• Regarding employees, CEO bonuses are typically conditional on similar incentives being provided to all staff, promoting a unified approach to rewards.

Relevant Remuneration Principles

The BB’s principles ensure that pay is tied to financial health, integrity and regulatory compliance.

• Performance alignment – Compensation must be commensurate with the bank’s financial condition, business volume and earning capacity.
• No unearned increments – Annual salary increments for the CEO are contingent upon the bank showing improvement in its major economic indicators (eg, CAMELS rating).
• Exclusion of variable/indirect pay – The CEO is explicitly prohibited from receiving indirect remuneration (such as commission, dividends or club expenses) beyond the approved package.
• Bonus cap – The CEO’s annual incentive bonus is subject to a regulatory maximum limit (eg, BDT1.5 million) to discourage excessive risk-taking.
• Tax responsibility – The CEO/MD must personally bear the cost of income tax; the bank is forbidden from paying it.

The Regulators’ Supervisory Approach

The Bangladesh Bank employs a direct, ex-ante (before-the-fact) regulatory approach.

• Mandatory prior approval – The BB must sanction all CEO appointments, reappointments and remuneration changes, giving it veto power over compensation levels.
• Transparency and scrutiny – Banks must submit a fully itemised proposal showing all monetary amounts. This allows the BB to conduct a prudential review to ensure the package is justifiable and does not pose a financial risk to the institution.
• Governance enforcement – This control mechanism is used to reinforce corporate governance and ensure that executive pay structures are fair and conservative.

The anti-money laundering (AML) and combating the financing of terrorism (CFT) requirements in Bangladesh’s banking sector are primarily dictated by the Anti-Money Laundering Prevention Act, 2012 and the Anti-Terrorism Act, 2009. The Bangladesh Bank, leveraging its authority under Section 45 of the Bank Company Act, 1991, issues binding directives through the Bangladesh Financial Intelligence Unit (BFIU).

Regulatory Framework and Obligations

The compliance regime is comprehensive, centred on preventing banks from being used as conduits for illicit funds.

Customer due diligence (CDD)

Banks must adopt a risk-based approach (RBA) to understand and verify customer identity. This involves the following.

• Know your customer (KYC) – Mandatory verification of a customer’s identity must be carried out when establishing a business relationship or conducting transactions above a specified limit.
• Beneficial owner (BO) identification – Banks are obligated to identify and verify the identity of the natural persons who ultimately own or control the customer (the BO).
• Enhanced due diligence (EDD) – This is required for all high-risk customers, including politically exposed persons (PEPs), and for certain cross-border correspondent banking relationships, involving greater scrutiny of the source of funds and wealth.

Reporting requirements

Banks are the frontline institutions responsible for detecting and reporting suspicious activities to the BFIU.

• Suspicious transaction reports (STRs) – These must be filed promptly whenever a bank suspects or has reasonable grounds to suspect that funds are linked to money laundering, terrorist financing, or lack an apparent lawful purpose, regardless of the amount.
• Cash transaction reports (CTRs) – There is a requirement for mandatory reporting of all cash deposits or withdrawals that exceed a specific threshold set by the BFIU.

Internal controls and record keeping

Banks must establish a robust internal compliance infrastructure.

• Compliance officer – A high-level executive must be designated as the Central Anti-Money Laundering Compliance Officer (CAMLCO) to oversee the AML/CFT programme and serve as the main contact point with the BFIU.
• Training and audit – Continuous training for all relevant staff is required, along with regular, independent internal and external audits of the AML/CFT compliance system.
• Record retention – All CDD, KYC documents and transaction records must be preserved for a minimum period of five years following the termination of the customer relationship or the date of the transaction.

The depositor protection regime in Bangladesh is institutionalised through the Deposit Insurance Trust Fund (DITF), primarily governed by the Bank Deposit Insurance Act, 2000, which is currently undergoing legislative amendments to expand its scope and coverage.

DGS Requirements

The DGS in Bangladesh operates as a mandatory, risk-adjusted scheme. Every scheduled bank operating in the country, including branches of foreign banks, are compulsorily required to be a member and contribute premium payments to the DITF. The DITF is a trust fund/account established, preserved, and maintained by the Bangladesh Bank under the provisions of the Bank Deposit Insurance Act, 2000.

The scheme is triggered upon the winding up (liquidation) of an insured bank, at which point the DITF becomes liable to pay the insured amount to the liquidator for distribution to the eligible depositors. The payment process aims to commence within 90 days of receiving the claim list from the liquidator.

Administration of the Scheme

The depositor protection scheme is administered and managed by the Bangladesh Bank.

• Trustee board – The board of directors of the Bangladesh Bank serves as the trustee board for the DITF. The Governor of Bangladesh Bank is the chairman of this board.
• Operational unit – The Deposit Insurance Department (DID) of the Bangladesh Bank is the operational unit entrusted with collecting premiums, managing the fund and processing claims.

Classes of Depositor and Deposits Covered

The DITF provides coverage on a per depositor, per bank basis: this means that all eligible accounts held by one person in the same right and capacity within a single bank are aggregated for calculating the insured amount.

• Covered depositors – The scheme is designed mainly to protect small and unsophisticated individual depositors.
• Covered deposits – Virtually all types of deposits in scheduled banks are insured, including savings accounts, fixed deposits (FDRs), current accounts and recurring deposits. The insured amount covers both the principal and any accrued interest.
• Exclusions (implicit) – Deposits held by other financial institutions (like banks or insurance companies) in the member bank, or deposits held by the government, are typically excluded or are not the primary beneficiaries of the protection.

Limits Applicable to the Scheme

The maximum coverage limit is relatively low compared to international standards, though it covers a significant percentage of total depositors.

• Current limit – The scheme provides protection of up to a maximum of BDT100,000 per eligible depositor, per insured bank. This ceiling applies to the aggregate of all deposits (principal plus interest) held by that person in that institution.
• Proposed limit – The government has pursued legislation (the proposed Bank and Financial Institution Deposit Protection Act, 2023) to double the coverage limit to BDT200,000 and extend the protection to Non-Bank Financial Institutions, but the BDT100,000 limit remains effective under the existing law.

Funding of the Scheme

The DITF employs a system of pre-funded contributions paid by the member institutions.

• Source of funds – The fund is entirely financed by half-yearly premium contributions paid by all scheduled banks. Banks are forbidden from passing this cost directly to the depositor.
• Premium rate – The premium rate is risk-based, meaning banks with lower CAMELS ratings (indicating higher risk) are required to pay a higher percentage of their total insured deposits into the fund than more financially sound institutions.
• Investment – The collected premiums are deposited into the Deposit Insurance Trust Fund account maintained by the Bangladesh Bank. The funds are prudently invested in government securities (such as treasury bonds/bills), and the income derived from these investments is also credited back to the DITF to ensure the fund’s growth and stability.

The capital, liquidity, and related risk control requirements for banks in Bangladesh are regulated by Bangladesh Bank through a prudential framework that is fully aligned with the Basel III standards.

Adherence to Basel III Standards and Local Implementation

Bangladesh Bank adopted the Basel III framework under its Guidelines on Risk Based Capital Adequacy (RBCA, 1991): Revised Regulatory Capital Framework (BRPD Circular No 18, 2014). The framework, which operates under the three pillars of Minimum Capital Requirements, Supervisory Review Process, and Market Discipline, began its implementation in January 2015, with full compliance, including the Capital Conservation Buffer (CCB), targeted by early 2020. Material departures are limited, mainly revolving around a phased approach for certain deductions from capital and the mandatory use of the standardised approach for calculating capital charges for credit risk and market risk, and the basic indicator approach (BIA) for operational risk. Notably, Bangladesh Bank requires a higher risk weight of 125% for all unrated corporate exposures, reflecting a conservative national discretion.

Risk Management Rules

Risk control requirements are guided by the three pillars and specific risk guidelines. Bangladesh Bank mandates that all banks establish a comprehensive risk management framework.

• Risk governance – This requires a structured approach involving the board of directors for overall risk oversight, supported by dedicated board-level committees like the board risk management committee (BRMC).
• Internal capital adequacy assessment process (ICAAP) – Under Pillar 2 (Supervisory Review Process), banks must develop and submit an ICAAP document, which systematically assesses all material risks (eg, credit, market, operational, liquidity, interest rate risk in the banking book, and strategic/reputation risk) and determines the appropriate internal capital for these risks.
• Stress testing – Regular stress tests must be performed and reported to assess the bank’s vulnerability to severe, yet plausible, adverse economic and financial scenarios.

Quantity and Quality of Capital Requirements

The framework mandates that all scheduled banks maintain a high quality and quantity of capital to absorb losses.

• Minimum Capital Adequacy Ratio – Banks must maintain a minimum Total Capital-to-Risk-Weighted Assets Ratio (CRAR) of 10.00%.
• Capital Quality – The core capital is Common Equity Tier 1 (CET1), which must be at least 4.50% of Risk-Weighted Assets (RWA). The minimum Tier 1 Capital Ratio is 6.00% of RWA.
• Capital Buffers – A Capital Conservation Buffer (CCB) of 2.50% of RWA, composed entirely of CET1, must be maintained above the 10.00% minimum CRAR. This brings the effective total minimum CRAR to 12.50%. If a bank’s capital falls into this 2.5% buffer range, regulatory restrictions are imposed on discretionary distributions, such as dividends and bonuses, to ensure capital conservation.
• Leverage Ratio (LR) – A non-risk-based backstop measure, the minimum Tier 1 Leverage Ratio is set at 3.00%. However, based on the need to align with international best practices and strengthen stability (BRPD Circular No 18/2021), this requirement is being gradually increased from 2023 onwards, targeting a minimum of 4.00% by 2026. The phased requirement is: 3.25% in 2023, 3.50% in 2024, 3.75% in 2025, and 4.00% in 2026.

Liquidity Requirements

Bangladesh Bank has enforced the two key Basel III liquidity ratios to strengthen funding resilience.

• Liquidity Coverage Ratio (LCR) – Banks must maintain an LCR of ≥100%. This ratio ensures that a bank holds sufficient High-Quality Liquid Assets (HQLA) to cover net cash outflows over a stressed 30-day period.
• Net Stable Funding Ratio (NSFR) – Banks must maintain an NSFR of >100%. This ratio promotes stable, long-term funding structures by ensuring that the bank has an available amount of stable funding that exceeds its required amount of stable funding over a one-year horizon.

These global standards complement existing local liquidity regulations, including the Cash Reserve Ratio (CRR) and the Statutory Liquidity Ratio (SLR).

The legal and regulatory framework for bank resolution in Bangladesh has recently been formalised and strengthened by the enactment of the Bank Resolution Ordinance, 2025 (BRO, 2025), which grants comprehensive resolution authority to the central bank, Bangladesh Bank. This Ordinance supersedes general insolvency laws for banks and aligns the domestic regime more closely with international best practices.

Principal Means of Resolving a Failing Bank

The Bank Resolution Ordinance, 2025 empowers Bangladesh Bank to intervene rapidly and employ a range of tools to resolve a failing bank while preserving critical functions and ensuring financial stability.

The principal resolution tools available to the resolution authority (Bangladesh Bank) include the following.

• Open bank resolution (M&A/P&A) – BB can mandate the merger of the failing bank with a financially sound institution or facilitate a purchase and assumption (P&A) transaction. This involves transferring specified assets, liabilities and/or shares to a third-party acquirer.
• Temporary takeover/nationalisation – BB can temporarily assume control of a scheduled bank or financial institution by issuing a share transfer order to a government-owned entity.
• Bridge bank – The creation of a “bridge bank” is explicitly authorised. This allows the central bank to transfer critical assets and deposits of the failing entity into a temporary, state-managed institution to ensure the continuity of essential banking services before the entity is restructured or sold.
• Recapitalisation and restructuring – BB can compel the increase of the bank’s capital through existing or new shareholders, or undertake comprehensive restructuring of the bank’s operations and balance sheet.
• Liquidation – This is the terminal step. If resolution is not viable, BB must petition the court for the bank’s licence to be revoked and liquidation proceedings to commence. The Ordinance sets time limits for the appointment of a liquidator and the settlement of liabilities.

Implementation of the FSB Key Attributes

Bangladesh has made significant strides towards implementing the Financial Stability Board (FSB) Key Attributes of Effective Resolution Regimes.

The Bank Resolution Ordinance, 2025 and the establishment of dedicated institutions within the central bank are direct steps towards formal compliance.

• Designation of authority – The Ordinance designates Bangladesh Bank as the exclusive resolution authority, a core key attribute.
• Resolution tools – The introduction of modern resolution powers like the bridge bank and comprehensive P&A/transfer powers aligns directly with the resolution toolkit required by the FSB.
• Institutional framework – Bangladesh Bank has established a particular department, mandated with implementing the Ordinance, creating standardised resolution procedures, and developing contingency measures.
• Recovery and resolution planning (RRP) – The department’s functions include formulating optimal resolution strategies and stress testing, which are fundamental components of RRP required by the key attributes.
• Cross-border co-operation – The Ordinance includes provisions for information sharing and co-ordination with foreign regulatory authorities regarding resolution measures.

In summary, the legal framework has been substantially overhauled to incorporate the majority of the FSB Key Attributes, providing BB with the necessary legal powers and tools to conduct orderly resolution without relying on public bailouts.

Insolvency Preference Rules Applicable to Deposits

There are also insolvency preference rules applicable to deposits in Bangladesh’s bank resolution framework.

The framework is governed by two main pieces of legislation.

• Deposit insurance – The Bank Deposit Insurance Act, 2000, provides immediate protection to depositors. Each depositor is insured up to a maximum of BDT100,000 (principal and interest). The Deposit Insurance Trust Fund (DITF), managed by Bangladesh Bank, is subrogated to the claims of these insured depositors upon payout.
• Creditor hierarchy – The Bank Resolution Ordinance, 2025, establishes a specific hierarchy of claims that governs the order in which creditors are paid in the event of liquidation. While the full ranking is detailed in the Ordinance, modern resolution regimes, like the one being implemented in Bangladesh, typically grant super-priority to the following.
1. Insured deposits – The DITF’s subrogated claim, or the claim of insured depositors, is typically ranked very highly.
2. Deposits (general) – In line with international standards, the claims of all depositors (insured and uninsured) generally rank higher than those of general unsecured creditors and bondholders, ensuring depositors bear losses only after shareholders and junior creditors.

The central bank’s objective, as stated in the Ordinance, is to prioritise “the interests of the depositors” during any resolution process, which is legally underpinned by this preferential ranking in the hierarchy of claims.

The banking regulatory framework in Bangladesh, spearheaded by Bangladesh Bank, is very proactive regarding the integration of environmental, social and governance (ESG) factors into core banking operations. The requirements have evolved from basic “green banking” to comprehensive “sustainable finance” policies, establishing mandatory duties across risk management, financing targets and disclosure.

The primary regulatory documents governing ESG in the banking sector include the Sustainable Finance Policy, Guidelines on Environmental & Social Risk Management (ESRM), and the Guideline on Sustainability and Climate-related Financial Disclosure.

Environmental and Social Risk Management

The cornerstone of BB’s ESG requirements is the mandate for scheduled banks and finance companies to fully integrate environmental and social risks into their credit risk management (CRM) process.

• Mandatory environmental and social due diligence (ESDD) – Banks must conduct ESDD for all lending/investment proposals. The due diligence must assess potential risks related to environmental degradation, pollution, biodiversity impact, occupational health and safety, labour practices, and community displacement.
• ESDD risk assessment tool – BB requires the use of an upgraded ESDD risk assessment tool (most recently updated in 2025). This tool automatically generates a quantitative risk rating (high, medium or low) for a project based on responses to a checklist.
• Exclusion list – Banks must maintain and screen loan applications against an exclusion list of business activities that are deemed too harmful to be financed, such as certain polluting industries.
• Post-disbursement monitoring – For high-risk projects, banks must ensure that client firms comply with national regulations, possess necessary permits (like those from the Department of Environment), and have operational effluent treatment plants (ETP).

Green and Sustainable Finance Targets

BB directly shapes the asset composition of the banking sector through mandatory financing targets and incentives.

• Minimum green finance target – All banks and financial institutions are mandated to allocate a minimum of 5% of their total funded loan disbursement/investment to direct green finance.
• Sustainable finance taxonomy – The Sustainable Finance Policy established taxonomies to clearly define and categorise eligible projects. The Green Taxonomy focuses on climate change mitigation/adaptation (eg, renewable energy, energy efficiency), while the Sustainable Finance Taxonomy includes broader categories like sustainable agriculture, socially responsible finance, and financing for cottage, micro, small and medium enterprises (CMSMEs).
• Refinance schemes – BB operates dedicated refinance schemes (such as the BDT4 billion fund) to encourage lending to green products and projects, allowing banks to offer loans at concessional interest rates.

Governance and Disclosure

The regulatory framework dictates specific requirements for organisational structure and mandatory public reporting to ensure transparency and accountability.

• Organisational structure – Banks must establish a dedicated Sustainable Finance Unit (SFU) and a Sustainable Finance Committee to oversee, implement and monitor their ESG strategies.
• TCFD/IFRS alignment – BB’s Guideline on Sustainability and Climate-related Financial Disclosure mandates phased adoption of disclosures based on the IFRS Sustainability Disclosure Standards (IFRS S1 and IFRS S2), which incorporate the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
• Disclosure requirements – Banks must report across the four pillars of TCFD/IFRS: Governance (board/management’s role), Strategy (impact of climate/sustainability risks on business model), Risk Management (integration of climate risks into existing systems), and Metrics and Targets (eg, carbon footprint, green finance portfolio size).
• Supervision and rating – BB actively supervises compliance through mandatory reports on green banking activities and conducts an annual Sustainability Rating for all banks and financial institutions.

Internal Operational Requirements

BB also requires banks to adopt “in-house” green practices to reduce their own environmental footprint. These include implementing a Green Office Guide, minimising paper and electricity consumption, using energy-efficient equipment, installing solar power panels where feasible, and regularly calculating their carbon footprint.

The European Union’s Digital Operational Resilience Act (DORA) is an EU regulation and does not directly apply in Bangladesh. However, the Bangladesh banking sector, regulated by Bangladesh Bank, has comprehensive, binding guidelines that address the core pillars of DORA: ICT Risk Management, Operational Resilience and Third-Party Risk.

The relevant regulations are primarily the Guideline on ICT Security for Banks and Non-Bank Financial Institutions and the Circulars on outsourcing of activities.

ICT Risk Management and Resilience

Bangladesh Bank’s regulatory framework requires banks to establish a robust and sophisticated information and communication technology (ICT) governance structure that focuses on operational resilience, aligning closely with DORA’s aims.

• ICT governance – Banks are required to establish ICT governance and develop an extensive ICT security policy and management approach. The governance framework emphasises the need for senior management oversight of technology-related risks.
• Risk management framework – The Guideline on ICT Security mandates a holistic approach to ICT risk management, including the systematic identification, assessment, measurement and mitigation of IT and security risks across the entire organisation.
• Data centre and recovery – Banks are required to maintain a resilient ICT infrastructure, including establishing at least a Tier Three Data Centre (DC) and a Disaster Recovery Site (DRS) in a different seismic zone. This ensures business continuity and system recovery in the event of a failure or disaster.
• Business continuity planning (BCP) – The regulations establish a procedure for business impact analysis (BIA) in conjunction with ICT risk management, requiring banks to develop robust BCPs to protect critical business processes and ensure timely resumption of services after a significant failure.
• Security controls – The guidelines define minimum control requirements for all financial institutions (including banks, NBFIs, MFS providers and payment system operators), covering areas like network security, application security, and electronic banking infrastructure (ATM, POS, mobile banking).

ICT-Related Incident Management

While not explicitly called “incident reporting” in the DORA sense, BB’s requirements mandate prompt communication and handling of security breaches.

• Security incident handling – The framework requires banks to develop a procedure for the timely and effective handling of operation and information security incidents. This includes identifying, classifying, documenting and addressing root causes.
• Cybersecurity mandates – Banks must maintain a focus on cyber-resilience and are subject to continuous monitoring by the regulator regarding cyber threats. The requirement for internal and external information system audits ensures that security protocols are regularly verified.

ICT Third-Party Risk Management (Outsourcing)

BB’s circulars on outsourcing enforce strict control over third-party service providers, mirroring DORA’s focus on supply chain risk.

• Board approval and policy – Banks must develop a comprehensive outsourcing policy approved by the board of directors. The policy must clearly define the criteria for selecting service providers and delegation of approval authorities based on the risks and materiality of the outsourced activity.
• Due diligence – Prior to selecting any service provider, banks must conduct appropriate due diligence on the vendor’s experience, competence, financial soundness and IT security standards. Regular audits must be conducted to assess the adequacy of the service provider’s risk management practices.
• Contractual requirements – All outsourcing relationships must be governed by legally enforceable written contracts that clearly define the rights, responsibilities and expectations of all parties, particularly concerning data confidentiality and security.
• Restricted/critical activities – Banks are prohibited from outsourcing core management functions, certain risk management functions or critical internal control functions (like internal audit, compliance, and treasury).
• Outsourcing abroad – Any outsourcing of activities or data processing outside Bangladesh requires the prior approval of Bangladesh Bank. The request must include a due diligence report, a legal opinion regarding data confidentiality, and a description of the monitoring measures.
• Subcontracting – Subcontracting of material outsourcing arrangements is not allowed without BB’s permission.

The regulatory agenda of the Bangladesh Bank for 2025 and 2026 is exceptionally dynamic, driven by a national push for enhanced governance, financial sector stability, and compliance with IMF programme conditions. These developments are broadly focused on structural reforms, governance oversight, modernising supervision, and tackling the high volume of non-performing loans.

Below is an outline of the key regulatory developments.

Governance and Banking Sector Restructuring (Structural Reforms)

The most transformative changes involve the overhaul of legal frameworks to restore institutional integrity and curb undue influence in the banking sector.

Enhancing central bank autonomy

A major initiative is the proposed amendment of the Bangladesh Bank Order, 1972. This aims to grant the central bank full operational and regulatory autonomy. Achieving full regulatory independence is viewed as foundational for the successful implementation of all other reforms, particularly those concerning politically influenced governance issues and the resolution of troubled banks.

Overhaul of the Bank Company Act, 1991

According to reports and analyses published in the major news media, Bangladesh Bank is actively pushing for comprehensive amendments to the Bank Company Act, 1991. The draft amendments focus intensely on corporate governance and include the following:

• proposals to significantly reduce the number of directors from a single family and their affiliates on bank boards (eg, reducing the limit from five to two).
• reducing the maximum continuous term for a director (eg, from 12 years to six years);
• prohibiting specific political figures (such as government ministers, members of parliament and city mayors) from serving as bank directors to mitigate political risk;
• tightening rules to prevent business conglomerates from controlling significant stakes in multiple institutions and preventing the use of representative directors; and

These changes are designed to de-concentrate power, professionalise bank boards, and directly address the long-standing governance failures that have plagued the sector.

Bank resolution and consolidation

The central bank is actively pursuing a roadmap for bank consolidation and resolution to address weak and distressed banks.

• Merger Roadmap – The BB has initiated a policy-driven approach to encourage or enforce the merger and acquisition (M&A) of weaker institutions with stronger ones.
• Banking Resolution Ordinance (2025) – The introduction of this ordinance aims to formalise and strengthen the framework for the recovery and resolution of ailing banks, providing the BB with clearer tools for timely intervention and minimising systemic risk.

The above will lead to sector consolidation, reducing the total number of scheduled banks, and strengthening the stability of the remaining entities by removing contagion risks.

NPL Management and Asset Quality Modernisation

A core component of the regulatory drive is the systemic change in how non-performing loans are recognised, provisioned and managed.

Adoption of IFRS-9 (ECL model)

Bangladesh Bank is mandating the gradual transition of the banking sector’s provisioning system from the traditional incurred loss model to the International Financial Reporting Standard 9 (IFRS-9) Expected Credit Loss (ECL) model.

• Timeline – The new system is set for phased roll-out, targeting full implementation by December 2027. Banks are required to establish working teams and report progress well before this deadline.
• Impact – This shift requires banks to proactively make provisions based on anticipated losses (forward-looking), rather than waiting for a default to occur. This will enhance the accuracy and transparency of balance sheets but will also place significant, immediate pressure on capital adequacy, especially for banks with weak portfolios.

NPL reduction roadmap

BB has established a concrete roadmap to significantly reduce the gross NPL ratio in the banking system, targeting specific benchmarks by June 2026.

• Targets – State-owned commercial banks are targeted to reduce their NPL ratio to 10%, and private commercial banks to below 5%.
• Write-off policy – The loan write-off policy has been eased, allowing banks to speed up the process to two years (from the previous three years) to clear old, fully provisioned bad debts from their books.
• Impact – This creates stringent compliance metrics for bank performance and will require more aggressive monitoring and recovery efforts.

Supervisory and Risk Modernisation

The regulatory focus is shifting from routine compliance checks to a proactive, risk-focused supervisory model, leveraging technology.

Implementation of risk-based supervision (RBS)

The central bank is in the process of rolling out a comprehensive RBS policy across all scheduled banks.

• Timeline – Full implementation is slated for January 2026.
• Mechanism – RBS involves restructuring the central bank’s supervision departments, developing bank-specific risk assessment teams, and creating a unified supervisory dashboard for data-driven monitoring.
• Impact – This qualitative change moves supervision towards real-time monitoring of inherent risks (credit, market, operational, etc), allowing for timely intervention before localised troubles become systemic.

Regulation and licensing of digital banks

In line with the national Smart Bangladesh initiative, the BB has issued comprehensive Guidelines to Establish Digital Banks.

• Requirements – Digital Banks (DBs) must be licensed public limited companies with robust ICT governance frameworks, requiring a high minimum paid-up capital (eg, BDT3 billion).
• Scope – DBs must offer efficient, innovative and end-to-end tech-based digital financial products, but are restricted from providing over-the-counter services or engaging in trade and guarantee services.
• Impact – This introduces a new, technology-heavy banking category, accelerating the adoption of AI and blockchain solutions, and enhancing financial inclusion in traditionally underserved market segments.

Summary

The regulatory horizon in Bangladesh is marked by a decisive move towards higher standards of governance, transparency and prudence. The upcoming period will be defined by the implementation of the new Bank Company Act amendments, the financial restructuring mandated by the NPL roadmap and IFRS-9 adoption, and the institutional strengthening through central bank autonomy and risk-based supervision. These reforms collectively aim to create a more resilient, professionally managed and internationally compliant banking sector.