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    Bangladesh Plans Maiden Climate Bank Amid Banking Sector Challenges

    GovernanceAccountabilityBangladesh Plans Maiden Climate Bank Amid Banking Sector Challenges
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    Bangladesh Plans Maiden Climate Bank Amid Banking Sector Challenges

    As the country grapples with its existing banking challenges, the question remains: Can Green Bank rise as a beacon of sustainability, or will it become another casualty of systemic shortcomings?

    Bangladesh is poised to take a ground-breaking step toward addressing its climate vulnerabilities with the proposal for its first-ever climate bank, likely to be named Green Bank Ltd. The initiative, conceived by the privately run organisation Water and Essential (WE), aims to align banking operations with global environmental and sustainability standards.

    Experts, however, point out that the proposal comes at a time of turbulence in the country’s banking sector, raising questions about its feasibility and timing.

    Proposal for a Climate Bank

    The proposed Green Bank is envisioned as a specialised institution under a global-standard climate-bank model, with a paid-up capital of Bangladeshi Taka 3.24 billion. Its primary objective is to safeguard the nature and address pressing environmental concerns in a country acutely vulnerable to climate change impacts, such as rising sea levels, floods, and extreme weather events.

    Unlike conventional banks, Green Bank Ltd aims to function as a hybrid venture – a for-profit and non-profit joint enterprise – adhering to environmental, social, and governance (ESG) principles. The bank’s model includes significant domestic and international investment, with 93-95 per cent of its ownership open to such stakeholders. The entrepreneurial organisation behind the proposal, WE, would retain 5-7 per cent of the ownership.

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    According to its proponents, the bank will play a critical role in achieving Sustainable Development Goals (SDGs) by 2030 and is designed to be replicable worldwide. “It is an exceptional business that adheres to Environmental, social, and governance (ESG) conditions and contributes to building a green economy,” the proposal highlights.

    Administrative Steps and Initial Reactions

    The proponents of the Green Bank have submitted the proposal to Bangladesh’s Ministry of Environment, Forest and Climate Change (MoEFC), which has recommended forming a committee to conduct a feasibility study. The MoEFC has forwarded the proposal to the Financial Institutions Division (FID) for further action. The FID, in turn, plans to pass it on to Bangladesh Bank, the central regulatory body, for scrutiny.

    A senior FID official confirmed receiving the proposal, stating, “The proposal to establish a climate bank named Green Bank has been forwarded for evaluation by Bangladesh Bank to decide on the next steps.”

    Current Challenges in Bangladesh’s Banking Sector

    The proposal’s timing coincides with significant instability in the country’s banking sector. Bangladesh currently has 62 scheduled banks, including 43 private commercial banks (PCBs). While some of these banks have shown promising results, many are grappling with severe issues such as liquidity shortages, high non-performing loans (NPLs), and reputation crises, according to a recent study by the Bangladesh Institute of Bank Management (BIBM).

    Adding to the challenges, an executive director of Bangladesh Bank, speaking anonymously, expressed scepticism about issuing a new banking license under current conditions. “The local banking sector has been vulnerable for the last several months, mainly due to liquidity crises. Given the state of the economy and the banking system, issuing a new license is quite improbable,” the official noted.

    Other experts have echoed similar concerns. Dr. Mustafa K. Mujeri, Executive Director of the Institute for Inclusive Finance and Development (InM), warned against licensing new banks without addressing existing systemic issues. “The banking sector is currently in disarray. It is imperative to stabilise the sector before considering new entrants,” he said.

    Potential Impact and Challenges for Green Bank

    Despite the challenges, proponents of Green Bank argue that it is not a conventional financial institution and should not be evaluated solely through the lens of traditional banking. It is envisioned as a transformative platform where environmental preservation and economic sustainability intersect.

    The proposed climate bank would act as a repository for environmental data and a hub for initiatives promoting green technologies and practices. Advocates emphasise that it could help bolster Bangladesh’s environmental resilience while contributing to global climate action frameworks.

    However, sceptics caution that even unconventional banking models require a robust financial ecosystem to thrive. The risk of financial mismanagement, highlighted by past irregularities in new-generation banks, remains a significant concern, they say. Experts believe that without a comprehensive strategy to reform and stabilise the current banking sector, introducing a new entity – even one with noble intentions – could backfire.

    Nevertheless, the proposal for Green Bank marks a bold vision for Bangladesh, blending financial innovation with environmental stewardship. While its ambitious goals align with global priorities, the success of such a venture depends on rigorous planning, stakeholder collaboration, and a conducive regulatory environment, say experts.

    The feasibility study recommended by the MoEFC will likely serve as a critical next step in determining whether this pioneering initiative can navigate the complex financial and environmental landscape of Bangladesh. As the country grapples with its existing banking challenges, the question remains: Can Green Bank rise as a beacon of sustainability, or will it become another casualty of systemic shortcomings?

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