Amid ongoing instability in the banking sector, the fall of the Awami League government last year was followed by drastic regulatory actions. Bangladesh Bank dissolved the boards of 14 banks and extended liquidity support to several struggling institutions. Yet, nearly half a dozen banks continue to operate in a fragile state, luring depositors with unusually high interest rates — a practice experts warn is driving greater systemic risk. The competition to attract deposits through high interest has intensified instability across the sector. Weak banks, caught in a “trap of interest expenses,” are increasingly vulnerable. Earlier, the central bank introduced the “9-6 policy” to cap lending and deposit rates in order to restore discipline. However, after the withdrawal of that cap, some banks began offering deposit returns as high as 13 percent.
For instance, Union Bank is offering 13.34 percent, Global Islami Bank up to 12.67 percent (negotiable to 13 percent), and Padma Bank 13 percent. Other banks, such as Citizens Bank, Community Bank, and EXIM Bank, are offering more than 11 percent.
By contrast, stronger and more stable banks maintain much lower deposit rates. BRAC Bank, Prime Bank, City Bank, and several others keep average deposit rates at or below 9.5 percent. Islami Bank’s maximum stands at 9.83 percent. Despite lower rates, these banks continue to attract deposits without heavy promotional campaigns. State-owned banks are currently offering 8.5 to 9 percent, though their ratings have slightly weakened as Treasury bills and bonds yield 10 percent. Still, officials argue that state-owned banks remain a safer investment option.
Experts’ Concerns
Economists caution that weaker banks’ strategy of offering abnormally high deposit rates is unsustainable without adequate investment opportunities. Instead of solving the core issue of loan defaults, these banks are borrowing at high costs only to pay back interest to depositors.
Dr. M. Helal Ahmed Jony, Research Fellow at Change Initiative, explained:
“Weak banks are harming themselves by collecting deposits at high rates. Without investment growth, it becomes increasingly difficult to pay depositors. In many cases, new deposits are being used to pay off interest on older ones, which is not sustainable. Their priority should be recovering non-performing loans.”
Bangladesh Bank spokesperson and Executive Director Arif Hossain Khan echoed this, saying:
“Simply collecting deposits without ensuring safe investment is not realistic. Excessive deposits beyond capacity destabilize the market. Building piles of deposits without increasing safe lending has no benefit — past experiences prove the risks.”
Deposit Growth vs. Investment Drought
According to Bangladesh Bank’s latest data, total deposits in the banking sector reached Tk 18.77 trillion by June 2025, up 7.77 percent year-on-year. Yet, private sector investment dropped to just 6.4 percent — the lowest in 22 years.
This imbalance means while deposits are rising, investments are not keeping pace, leaving banks caught in the “interest expense trap.”
From January to May 2025, BRAC Bank saw the largest increase in deposits, followed by Islami Bank, Dutch-Bangla, UCB, Pubali, City Bank, IFIC, Jamuna Bank, Bank Asia, and Dhaka Bank. Deposits also grew at AB Bank, Community Bank, Eastern Bank, Midland, Madhumati, NCC, NRB, NRBC, One Bank, Standard Bank, Shahjalal Islami Bank, and Trust Bank.
Political Uncertainty as a Barrier
Former FBCCI President Abdul Awal Mintoo noted that political instability remains a critical obstacle to fresh investment.
“As long as uncertainty and instability persist, new investments will not come,” he said. “On one hand, there is a shortage of funds for investment; on the other, the environment is not conducive. Unless these two problems are solved, the prospects for investment growth remain very low.”