Bangladesh is preparing a Tk1,276.30 crore programme to overhaul banking-sector supervision, strengthen the handling of troubled financial institutions and modernise the technology used to monitor the country’s increasingly complex financial system.
The Financial Sector Support Project-2 (FSSP-2) is designed to address several long-standing weaknesses in the banking industry, including high levels of non-performing loans, governance shortcomings, administrative inefficiency and outdated information technology systems. The five-year initiative is expected to strengthen Bangladesh Bank’s supervisory capacity and improve its ability to deal with financially distressed banks.
The project is among 15 new and revised schemes scheduled to be placed before the Executive Committee of the National Economic Council (ECNEC) for approval at its meeting at 10am on Tuesday at the NEC conference room in Sher-e-Bangla Nagar. Prime Minister and ECNEC Chairperson Tarique Rahman is scheduled to preside over the meeting.
The Planning Commission has recommended the banking-sector project for approval, highlighting the need to strengthen safeguards around financial stability and modernise the mechanisms used to supervise banks.
World Bank to provide most of the funding
The project will be implemented by Bangladesh Bank from July 2026 to June 2031. Of the total estimated cost, Tk1,261.54 crore will come from the World Bank’s International Development Association (IDA), while Bangladesh Bank will contribute Tk14.76 crore.
There will be no direct financing from the government for the project.
The scale of external financing reflects the importance placed on strengthening the country’s financial-sector institutions. The project document identifies weak supervision, poor governance and inadequate technology as some of the structural challenges that could make it harder for regulators to identify and respond to emerging risks.
Several banks, particularly some state-owned and Islamic banks, have also faced pressure from liquidity and capital shortages, according to the project document. These problems can complicate the task of maintaining confidence in individual institutions as well as in the wider banking system.
Stronger powers for bank supervision and resolution
A central component of FSSP-2 is to improve Bangladesh Bank’s capacity to supervise financial institutions, restructure troubled banks and carry out bank resolution when necessary.
Bank resolution refers to the process of dealing with an institution that can no longer operate normally while seeking to limit disruption to depositors and the wider financial system. Strengthening this mechanism is particularly relevant when a bank faces severe financial stress, as delays in taking corrective action can increase potential losses and risks.
The project also seeks to improve governance and financial stability in state-owned banks. At the same time, the Deposit Insurance Trust Fund will be strengthened so that depositors can receive compensation more efficiently when a bank becomes unable to meet its obligations.
Technology receives the largest allocation
Technology is at the heart of the proposed programme. A substantial share of the project budget will be used to upgrade Bangladesh Bank’s information and communications technology infrastructure.
Tk711.72 crore has been allocated for ICT equipment, while Tk355.36 crore will be spent on computer software. Another Tk7.64 crore is earmarked for database development and Tk1.05 crore for computers and related equipment.
Taken together, these components represent Tk1,077.24 crore in capital expenditure, accounting for most of the project’s total cost.
The emphasis on technology reflects the growing role of real-time information, integrated databases and digital monitoring in financial-sector regulation. Regulators need timely and reliable data to assess banks’ financial positions, identify vulnerabilities and respond to risks before they spread across the system.
According to the project document, weaknesses in ICT infrastructure and integrated information management are currently limiting the authorities’ ability to respond effectively to cyberattacks, cross-border financial risks and other emerging threats.
A stronger technological foundation is therefore expected to improve both the speed and quality of financial-sector supervision. It could also help regulators obtain a more comprehensive picture of risks developing across individual institutions and the wider banking system.
Training and consultancy
The project also places significant emphasis on developing human resources within the financial-sector regulatory framework.
A total of 3,565 people are expected to receive training under the programme, with Tk70.77 crore allocated for this purpose. The IDA will finance Tk67.77 crore of the training cost, while Bangladesh Bank will provide Tk3 crore.
Another Tk94.44 crore has been allocated for individual and institutional consultancy services. Of this amount, Tk29.10 crore is earmarked for individual consultants and Tk65.34 crore for institutional consultancy.
The combination of technology investment, staff training and specialist consultancy is intended to strengthen the institutional capacity required to operate a more modern supervisory system.
Shift towards preventive supervision
One of the broader aims of FSSP-2 is to move financial-sector regulation towards a more proactive model. Instead of responding primarily after weaknesses become serious, the proposed system is intended to help regulators identify vulnerabilities at an earlier stage.
That approach is particularly relevant in a banking system where problems such as non-performing loans, capital shortages, liquidity pressures and governance weaknesses can interact with one another.
The project’s emphasis on bank resolution and deposit protection also reflects the need to manage failing institutions without allowing difficulties at one bank to create wider instability.
For Bangladesh Bank, therefore, the programme goes beyond replacing outdated computers or upgrading software. It is intended to strengthen the wider institutional framework used to supervise banks, manage financial risks and protect depositors.
The FSSP-2 proposal comes at a time when Bangladesh’s banking sector is confronting a combination of financial, governance and technological challenges. The proposed five-year investment seeks to address those weaknesses through stronger supervision, improved information systems, enhanced staff capacity and more effective mechanisms for dealing with troubled banks.
Meanwhile, Finance Ministry sources said the other projects scheduled for consideration at the ECNEC meeting cover a broad range of sectors, including health, agriculture, water resources, local government, roads, land, airports, power and industry.