The World Bank Board of Executive Directors has approved $450 million in financing to help Bangladesh strengthen the foundations for a stronger banking sector.

The Financial Sector Support Project II aims to bolster the deposit protection system to protect small depositors and build Bangladesh Bank’s supervisory capacity and systems.

It will also support the deposit protection fund by increasing its capital and advancing key reform priorities, including enhancing the deposit protection system, establishing an effective Emergency Liquidity Assistance framework, developing bank restructuring strategies, and supporting reforms in state-owned banks, said a press release.

The banking sector faces significant challenges caused by weak corporate governance, regulatory capture, and related-party lending.

The non-performing loan (NPL) ratio stood at 32.6 percent as of the end of March 2026, well above the average for South Asian banks of 7.9%, and the system-wide capital-to-risk-weighted assets ratio was negative 2.6 percent as of the end of December 2025.

“Bangladesh’s vision of attaining a trillion-dollar economy requires a stable and inclusive financial sector. But the banking sector—which accounts for about 90 percent of total financial sector assets—faces mounting stress,” said Jean Pesme, World Bank Division Director for Bangladesh and Bhutan.

“This project will help Bangladesh put in place a set of essential tools, systems, and safeguards needed to protect small depositors and support confidence, restore stability in the banking sector, allowing it to support economic growth and job creation.”

It will upgrade and modernise Bangladesh Bank’s Information and Communications Technology (ICT) infrastructure, helping address rising cybersecurity risks and close critical gaps in sector-wide data and analytics.

This will improve Bangladesh Bank’s ability to monitor risks, enhance data-driven and risk-based supervision, and improve the resilience of the financial sector.

“The project, which forms part of a coordinated approach by development partners including the IMF and the Asian Development Bank, supports measures to bolster crisis preparedness and build the authorities’ capacity to manage banking sector stress,” said Toshiaki Ono, World Bank Senior Financial Sector Specialist and Task Team Leader of the project.

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Companies and organisations will be required to file tax returns on the income generated by employee welfare funds from the current fiscal year and pay a 27.5 percent tax on the earnings. 

The Income Tax Act 2023 incorporates the provision, lifting the tax exemption and amnesty on the compulsion to file returns for funds such as provident funds, gratuity funds and workers' profit participation funds maintained by the private sector.

The law, however, has exempted government-managed provident funds from taxation, raising questions.

TIM Nurul Kabir, executive director of the Foreign Investors' Chamber of Commerce & Industry, said there were many other avenues to collect tax.

"Employees benefit from provident funds after their retirement. So, the authority should not slap taxes on retirement benefit."

He said while levying the tax, the government has not treated provident funds of the private and public sectors equally.

"It is discriminatory," he said, adding that they would appeal to the tax authority for the withdrawal of the tax on income from provident funds.

Debabrata Roy Chowdhury, director for legal, regulatory and corporate affairs at Nestlé Bangladesh PLC, said the introduction of income tax on trust funds would lower the overall income from such schemes.

"This will have an adverse long-term impact on retired employees of private organisations."

Chowdhury urged the authority to address the issue in line with the spirit of the government's initiatives aimed at ensuring social security for private sector employees.

"The recent introduction of the universal pension scheme for private sector employees is a good example of that."

A senior official of the NBR, on condition of anonymity, said the income of government-managed provident funds was exempted in line with the Provident Fund Act 1925.

He said provident funds under the private sector had been historically exempted and there was no requirement to submit tax returns. As a result, it was unclear whether the funds were properly utilised.

"From now onwards, we will see proper disclosure."

The tax official said the contribution of payroll tax is about 3 percent of the total income tax although it should increase as the economy is growing.

Md Shahadat Hossain, a former president of the Institute of Chartered Accountants of Bangladesh, said income from investment in savings certificates, where people invest as a source of future earnings, is already taxed.

"From that perspective, the imposition of tax on provident and other employee welfare funds seems okay."

However, Towfiqul Islam Khan, senior research fellow at the Centre for Policy Dialogue, said social protection for private sector employees was low.

"Provident and other workers' welfare-related funds provide little social protection. The imposition of tax will increase inequality. But there can't be any discrimination in taxation between private and government provident funds."

Khan, citing the latest income tax law that replaced the Income Tax Ordinance 1984, said the NBR tried to find new avenues to increase tax collection and improve the nation's revenue-gross domestic product ratio, which is one of the lowest in the world.

"We can see the desperation of the tax authority to boost collection. This ultimately reveals the inability of the NBR to catch the tax evaders and illicit money makers."