Bangladesh - Second Financial Sector Support Project

Overview & Synopsis

Financial Sector Support Project II for Bangladesh has the development objectives to strengthen the financial sector safety net and supervisory capacity, and to support banking sector restructuring. Component 1: Strengthening supervisory capacity and systems will modernize and digitize oversight at Bangladesh Bank (BB) through Information and Communication Technology upgrades, resilient data centers, and supervisory technology, and will build institutional and human capacity for risk-based supervision, bank resolution, deposit protection, Non-Performing Loan (NPL) resolution and asset recovery, including climate and cyber risk integration, delivered via targeted training and advisory support. Sub-components: Sub-component 1.1 Modernizing supervisory systems and infrastructure will upgrade end-of-life ICT, enhance primary and near data centers, fully operationalize a disaster recovery data center, deploy advanced analytics and supervisory tools, and strengthen cybersecurity and operational resilience; Sub-component 1.2 Strengthening BB’s supervisory capacity will deliver training and expert advisory on prudential regulation and supervision, resolution planning and execution, deposit insurance operations, NPL resolution and asset recovery, and project and ICT management, with a focus on inclusive leadership and gender-sensitive capacity building. Component 2: Strengthening financial sector safety net and supporting banking sector restructuring will recapitalize the Deposit Protection Fund through Performance-Based Conditions and establish frameworks and tools for crisis response, orderly resolution, and state-owned bank reforms. Sub-components: Sub-component 2.1 Financial Sector Safety Net will enhance the Deposit Protection System (DPS) through backup fiscal support, investment and target fund policies, public awareness, and faster depositor payout, and adopt an effective and transparent Emergency Liquidity Assistance (ELA) framework; Sub-component 2.2 Bank resolution and restructuring will adopt supervision intervention and viability assessment guidelines, prepare resolution plans for nonviable banks, implement a sector-wide NPL resolution strategy with supporting circulars, and establish the Restructuring and Resolution Fund (RRF) with clear governance and deployment rules; Sub-component 2.3 State-Owned Banks reform will diagnose selected state-owned banks, adopt a time-bound reform strategy with governance enhancements, issue strengthened corporate governance requirements, and reduce the aggregated NPL ratio. Component 3: Implementation support will finance a Project Implementation Unit to ensure effective coordination, fiduciary management, environmental and social compliance, monitoring and evaluation, and timely reporting.