Private Bank Officials Angered as Loss-Making State Banks Allowed Bonuses

The introduction of separate incentive bonus policies for state-owned and private banks has triggered widespread discontent across Bangladesh’s private banking sector, raising fresh questions about regulatory fairness and workforce morale. Under the newly issued rules, state-owned banks may distribute incentive bonuses to employees even when operating at a loss, provided they obtain approval from the relevant ministry. In contrast, private banks face significantly tighter restrictions, effectively barring many from offering similar incentives even when they report profits under regulatory concessions.

The new framework has been introduced through two different authorities. The Financial Institutions Division of the Ministry of Finance has issued the policy governing state-owned banks, while Bangladesh Bank, the central bank, has framed the policy for private-sector institutions. This dual-track regulatory approach has become the focal point of controversy within the banking community.

Traditionally, incentive bonuses in the banking sector have served as a motivational tool, often equivalent to one month’s basic salary. Both public and private banks have historically awarded up to seven such bonuses in a year. In some exceptional cases, individual executives reportedly received bonuses exceeding Tk 20 million, a practice that prompted public criticism and regulatory intervention. In response, Bangladesh Bank issued multiple directives in recent years to curb what it viewed as excessive and poorly justified bonus payments.

However, the latest policy divergence has intensified concerns rather than resolving them. According to the ministry’s guidelines for state-owned banks, net profit will be calculated after accounting for loan-loss provisions and adjustments related to asset valuation. Based on various performance indicators, bonus eligibility will then be assessed. While employees of state-owned banks will generally be limited to a maximum of three incentive bonuses, the ministry retains discretionary power to approve at least one bonus even if a bank fails to meet profitability criteria.

By contrast, Bangladesh Bank’s policy for private banks is markedly stricter. It stipulates that no incentive bonus may be paid unless a bank achieves net profit calculated strictly on actual income and expenditure. Banks with capital shortfalls or deficiencies in statutory reserves are automatically disqualified from paying bonuses. Furthermore, profits generated through regulatory forbearance, deferred provisioning, or delayed reserve requirements will not be recognised for bonus purposes.

The central bank has also ruled out the use of accumulated or retained earnings from previous years to fund incentive bonuses. In addition, banks must demonstrate tangible progress in recovering classified and written-off loans, alongside measurable improvements in key banking indicators.

Private bank officials argue that these conditions are unrealistic in the current financial climate. Many banks operate with temporary capital gaps that are resolved through structured recovery plans, while still maintaining operational profitability. They contend that denying bonuses under such circumstances unfairly penalises employees who contribute to performance improvements.

Several senior private bank officials, speaking anonymously, expressed frustration that state-owned banks—many of which suffer from chronic capital erosion and reserve deficits—are being granted greater flexibility. They argue that the policy undermines the principle of equal treatment and risks damaging morale in the private sector, which has historically driven innovation and efficiency in the banking industry.

Industry analysts warn that the new policy could effectively end incentive bonuses for most private banks. As many institutions distribute bonuses immediately after year-end, often recognising profits adjusted through regulatory allowances, the revised rules will likely disqualify all but a handful of banks. This, they say, could have long-term implications for talent retention and performance-based culture within the sector.