Bangladeshi banks are grappling with unpaid government bills exceeding Tk8,565 crore in remittance incentives, straining their liquidity and profits. The backlog, built over two years, sees banks funding these subsidies from their own deposits while awaiting state payments.
The current system has banks paying a 2.5% cash incentive to expatriates on incoming remittances, expecting reimbursement from the Finance Ministry through Bangladesh Bank. However, state payments are nearly 9.5 months behind, with remittance inflows hitting a record $35.59 billion in FY2025-26, and taka devaluation pushing subsidy costs to Tk3 per dollar.
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As of June, outstanding claims stood at Tk8,185 crore. While a Tk500 crore payment was cleared on August 2, fresh July claims of Tk879 crore pushed the balance to Tk8,565 crore. The load is concentrated among a few institutions: Islami Bank Bangladesh has the largest exposure at Tk1,513 crore, followed by BRAC Bank with Tk850 crore. Other banks like City Bank, Eastern Bank PLC, Pubali Bank, and Southeast Bank hold Tk335 crore, Tk250 crore, Tk250 crore, and Tk170 crore respectively.
Bankers say they’re covering these payouts using client deposits, which reduces funds available for lending and investments. Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank, noted that banks are missing potential yields of 9% or more by not investing these funds in Treasury bills and bonds. A senior official at a private bank attributed the delay to the Finance Ministry’s funding crisis stemming from weak revenue collection.
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The delayed reimbursements are impacting banks’ liquidity and profitability. Mashrur Arefin, managing director and CEO of City Bank, explained that liquidity for lending declines, stuck funds yield zero return, and banks lose the chance to invest in income-generating assets. He also noted that the government faces budgetary and cash management pressure, with remittance growth outpacing expectations and budget allocations.
If reimbursement delays persist, some lenders may scale back promotional efforts and investments aimed at attracting remittance business. The pressure would disproportionately affect smaller institutions and those already dealing with liquidity constraints. A large volume of non-performing government receivables could also complicate banks’ asset-liability management, raising systemic stability concerns.
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The taka’s decline has exacerbated the problem. Before August 2024, the remittance exchange rate was Tk117 per dollar, with banks paying Tk3 per dollar as an incentive. Now, the rate is Tk123 per dollar, pushing the incentive cost to Tk3 per dollar, which banks cover from deposit funds. A senior official revealed that the government previously provided banks with advance remittance incentive funding, a practice that has stopped, with some outstanding amounts dating back two years.
Mashrur Arefin called for the reinstatement of advance funding, automatic monthly settlement of bank claims, sufficient budget allocations based on remittance flows, and compensation for delays beyond the stipulated period calculated against banks’ cost of funds. The central bank governor has acknowledged these concerns and promised to raise them with the finance ministry.