Prince Bandar Bin Mohammad Bin Abdul Rahman won the bid to take a 93 percent stake in Rupali Bank in October 2006, beating out five rivals.
Despite repeated reminders, he has not paid any money, creating financial havoc for the state-owned bank which has had to halt making new loans and recruiting staff.
"We've now decided to take Rupali Bank off the privatisation list.
The privatisation commission will formally scrap the deal and will inform the Saudi prince," Finance Minister Mirza Azizul Islam said.
"We've given him several notices to make payments but he came up with different statements at different times. The bank's privatisation will now be halted for a while," he said.
The bank was put up for sale last year as part of a deal with the International Monetary Fund to reduce the government's exposure to the banking business.
State-owned banks have a long history of major losses due loan defaults.
Rupali has bad debts of 128 million dollars, according to the government.