Bangladesh is preparing a Tk1,276.30 crore five-year project to strengthen supervision of the banking sector, improve the handling of troubled financial institutions and modernise the technology infrastructure used to monitor financial risks.
The Financial Sector Support Project-2 (FSSP-2), which is being considered for approval by the Executive Committee of the National Economic Council (ECNEC), is aimed at addressing a number of persistent weaknesses in the banking industry. These include high levels of non-performing loans, governance failures, administrative inefficiency, liquidity and capital pressures, and outdated information technology systems.
The project is designed to enhance Bangladesh Bank’s capacity to supervise banks, restructure troubled institutions and undertake bank resolution when necessary. It also seeks to strengthen governance and financial stability in state-owned banks and improve mechanisms for protecting depositors.
FSSP-2 is one of 15 new and revised projects scheduled to be placed before the ECNEC 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.
World Bank to finance most of the project
The five-year project is scheduled to run from July 2026 to June 2031, with Bangladesh Bank serving as the implementing agency.
Of the total Tk1,276.30 crore 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 government financing for the project.
The Planning Commission has recommended the proposal for ECNEC approval, citing the need to strengthen financial-sector safeguards and modernise the supervisory machinery at a time when the banking industry is facing several structural challenges.
According to the project document, high non-performing loans, weaknesses in corporate governance, administrative inefficiency and obsolete IT systems are among the major obstacles to financial stability.
Several banks, particularly some state-owned and Islamic banks, have also faced pressure arising from shortages of liquidity and capital, according to the document.
Greater focus on troubled banks
A key objective of FSSP-2 is to improve the regulator’s ability to respond when a bank becomes financially distressed.
The project will support stronger supervisory arrangements, allowing Bangladesh Bank to monitor institutions more effectively and identify weaknesses at an earlier stage. It will also strengthen the capacity to restructure troubled banks and carry out bank resolution when required.
Bank resolution is intended to provide a structured way of dealing with institutions that can no longer operate normally while limiting disruption to depositors and the wider financial system. The project’s focus on this area comes against a backdrop of concerns over financial weaknesses within parts of the banking sector.
The programme will also seek to improve governance and financial stability in state-owned banks. At the same time, the Deposit Insurance Trust Fund will be strengthened to facilitate faster repayment to depositors when a bank is unable to meet its obligations.
Technology accounts for most of the investment
Technology is the largest component of the proposed project. Of the total allocation, Tk711.72 crore has been earmarked for ICT equipment, while Tk355.36 crore will be spent on computer software.
Another Tk7.64 crore has been allocated for database development and Tk1.05 crore for computers and related equipment.
Together, these allocations form a substantial part of the project’s capital expenditure, which amounts to Tk1,077.24 crore.
The heavy emphasis on technology reflects the growing importance of timely and integrated information in banking supervision. Regulators need reliable data to assess the financial condition of institutions, identify emerging risks and take corrective measures.
The project document says weaknesses in ICT infrastructure and integrated information management are hampering the authorities’ ability to respond effectively to cyberattacks, cross-border financial risks and other emerging threats.
Modernising the systems used for financial-sector supervision is therefore expected to improve the regulator’s ability to collect, analyse and respond to information across the banking system. The project also recognises that technological vulnerabilities can have implications for depositor confidence and overall financial stability.
Training for more than 3,500 people
The programme includes a substantial human-resource development component. A total of 3,565 people are expected to receive training, with Tk70.77 crore allocated for the purpose.
Of this amount, the IDA will finance Tk67.77 crore, while Bangladesh Bank will contribute Tk3 crore.
The project also includes Tk94.44 crore for individual and institutional consultancy services. Of this allocation, Tk29.10 crore will be spent on individual consultants and Tk65.34 crore on institutional consultancy.
The combination of new technology, specialist advice and staff training is intended to strengthen the institutional capacity required for modern financial supervision.
Moving towards earlier risk detection
The broader objective of FSSP-2 is to move Bangladesh’s financial-sector regulation towards a more proactive, technology-driven supervisory framework. Instead of relying primarily on action after financial weaknesses become severe, the proposed system is intended to improve the ability to identify vulnerabilities before they develop into wider problems.
This approach is particularly relevant in a banking environment where high non-performing loans, weak capital positions, liquidity pressures and governance shortcomings can create interconnected risks.
Strengthening the Deposit Insurance Trust Fund is another part of the proposed response. A more effective deposit protection mechanism could help ensure that depositors have access to compensation when an institution is unable to fulfil its obligations.
The project consequently extends beyond a conventional technology upgrade for Bangladesh Bank. It is intended to strengthen the broader institutional framework for bank supervision, financial risk management, troubled-bank resolution and depositor protection.
The proposal comes as Bangladesh’s banking sector continues to face a combination of financial, governance and technological challenges. If approved, the five-year programme will seek to address those weaknesses through improved supervisory capacity, modernised information systems, enhanced staff skills and stronger mechanisms for dealing with distressed institutions.
Meanwhile, Finance Ministry sources said the 15 projects scheduled for consideration at Tuesday’s ECNEC meeting cover a range of sectors, including health, agriculture, water resources, local government, roads, land, airports, power and industry.
