Ukraine, Europe’s second-largest country, has been engulfed in a full-scale war for nearly four years since February 2022, when Russia launched a comprehensive assault on the country. Yet even amid the devastation, Ukraine’s banking sector has fared better than Bangladesh’s. Data from the National Bank of Ukraine show that in September 2025, the country’s nonperforming loan (NPL) ratio stood at 26 percent. In contrast, nearly 36 percent of loans issued by Bangladeshi banks have turned nonperforming.
Analysis of central bank reports and research from leading institutions worldwide indicates that Bangladesh now has the highest nonperforming loan ratio in the world, with no other country currently reporting a ratio above 30 percent. Even nations plagued by war, high inflation, or economic recession have lower levels. Tunisia, the country that sparked the Arab Spring and is now facing severe political and economic turmoil, has a nonperforming loan rate of 14.7 percent. Lebanon, devastated by Israeli strikes, keeps its ratio below 24 percent. And Russia, engaged in a nearly four-year war with Ukraine, reports just 5.51 percent, despite a historical pattern that shows that the default rate in the oligarch-influenced Russia has often been high.
Nonperforming loan (NPL) ratios are trending downward even in countries across Asia, Europe, and South America struggling with currency volatility, high inflation, and other economic pressures. In Turkey, the rate fell to 2.29 percent in September. Greece, which faced bankruptcy a decade ago, now reports 3.6 percent. Argentina, confronting record local currency depreciation and high inflation, has seen its NPL ratio drop to 1.6 percent, down from more than 20 percent at the start of the millennium.
Compared to its South Asian neighbors, Bangladesh’s banking sector now carries far higher risk. Only Sri Lanka shows a somewhat higher NPL rate in the region, at 12.6 percent. Sri Lanka, however, declared bankruptcy three years ago amid severe economic and political crises. Since then, elections have restored political stability, and the Sri Lankan economy has made substantial strides.
Pakistan has also long struggled with economic and political instability. But the country has managed to reduce both inflation and nonperforming loans over the past two years. Currently, Pakistan’s banking sector reports an NPL ratio of 7.4 percent. In neighboring India, the ratio stands at 2.3 percent. Nepal’s banking sector reports an NPL ratio of 4.4 percent.
Compared with contemporary economies in Asia, Bangladesh’s banking sector carries a far higher NPL ratio. Singapore’s ratio is just 1.3 percent, Malaysia 1.4 percent, Thailand 2.7 percent, the Philippines 3.3 percent, Vietnam 5.4 percent, and Indonesia 2.1 percent. China, the world’s second-largest economy, reports a nonperforming loan ratio of only 1.5 percent, while U.S. banks stand at 1.7 percent.
Bangladesh Bank on November 26 released the latest data on nonperforming loans which show that as of September 30, nonperforming loans in the country’s banks reached BDT 6.44 trillion, representing 35.73 percent of all distributed loans. At the end of December 2024, the figure stood at BDT 3.45 trillion, or 20.2 percent of loans. In just nine months, nonperforming loans rose by over BDT 2.98 trillion. The increase over the past year is unprecedented, and the current ratio is the highest in 25 years.
When the Awami League government led by Sheikh Hasina took office on January 6, 2009, nonperforming loans totaled only BDT 224.82 billion. By September 2024, just a month after her ouster from power, the figure had climbed to BDT 2.84 trillion. In addition, about BDT 640 billion in bad loans were written off. Over the past two decades under Awami League rule, banks have restructured and rescheduled loans worth hundreds of billions of takas, often without strict scrutiny, giving the appearance of lower nonperforming loans. An IMF study conducted two years ago noted that more than one-third of all distributed loans in Bangladesh’s banks, amounting to over BDT 6 trillion, were already distressed at that time.
Officials at Bangladesh Bank and commercial banks say that over the past 15 years, loans distributed under the Awami League government have become nonperforming due to irregularities and corruption. Changes in loan classification rules, rising interest rates, and economic downturns have further contributed to the increase. After the 2024 July Uprising, authorities sought to reveal the true condition of the banking sector. As part of this process, banks underwent special inspections and audits, which exposed the current scale of nonperforming loans.
Bangladesh Bank now follows international standards in calculating loan delinquency. Previously, borrowers who missed payments for up to a year could avoid being classified as nonperforming. Under the new rules, any loan with unpaid installments for three months, or 90 days, is now marked as nonperforming. Authorities say future restructuring and policy support will aim to reduce these loans.
Arif Hossain Khan, executive director and spokesperson for Bangladesh Bank, told Bonik Barta, “In the past, banks kept nonperforming loans ‘under the carpet.’ Loans given to influential clients through irregularities and corruption were not recorded as nonperforming. Over the past year, these hidden loans have come to light. The central bank’s goal has been to reveal the sector’s true condition. Now we have a clear picture, and we expect nonperforming loans to start declining. We are taking appropriate steps to achieve that.”
Despite a nearly 36 percent nonperforming loan ratio in Bangladesh, the average across Asian countries is only 1.6 percent. According to the Asian Development Bank’s 2025 report, “Nonperforming Loans Watch in Asia,” as of December 31, 2024, the average nonperforming loan ratio in Asian banks was 1.6 percent. East Asian countries reported 1.4 percent, South Asian countries 3.5 percent, Southeast Asia 2.6 percent, and Central Asia 2.7 percent. The report also notes that in December 2024, Bangladesh’s banking sector had a nonperforming loan ratio of 20.2 percent.
The spike in nonperforming loans in Bangladesh’s banking sector did not come as a surprise, according to Syed Mahbubur Rahman, managing director of Mutual Trust Bank (MTB). Speaking to Bonik Barta, he said, “The fact that the nonperforming loan ratio has surpassed 35 percent is hardly unexpected. The governor had already warned six months ago that the ratio could reach 35 percent. The current volume and level of bad loans reflect two decades of irregularities and corruption. Some banks had been able to conceal nonperforming loans, but now they are being forced to disclose them.”
Rahman stressed the need to reduce nonperforming loans going forward. “What has happened has already happened. Now we need realistic measures to bring down bad loans. The central bank is providing policy support, and we hope the ratio will start declining by December. At the same time, we need initiatives to revitalize the economy, because credit growth in the private sector has dropped to a historic low,” he said.
Bangladesh Bank releases quarterly data on nonperforming loans. Before the September quarter, the most recent data covered till March, when banks had extended BDT 17.41 trillion in loans, of which BDT 4.20 trillion were classified as nonperforming. The September data show total outstanding loans rose to BDT 18.03 trillion, with BDT 6.44 trillion now classified as nonperforming. That means 35.73 percent of all loans are currently nonperforming.
Banks lend money collected from depositors and must maintain provisions or reserves against each loan to protect those funds. When a loan defaults, an equivalent amount must be set aside from operating profits as a provision. A shortfall in provisions exposes depositors’ funds to risk and strains a bank’s capital.
The surge in nonperforming loans has sharply increased provision shortfalls. Bangladesh Bank data show that by the end of September, banks needed BDT 4.74 trillion in provisions but had set aside only BDT 1.30 trillion, leaving a shortfall of BDT 3.44 trillion. In March, the shortfall was BDT 1.70 trillion. By these estimates, the gap in provision shortfalls has grown by BDT 1.73 trillion over the past six months, meaning banks have been unable to reserve adequate provisions against this volume of nonperforming loans.
Analysis of two decades of central bank data shows that the highest nonperforming loan ratio in Bangladesh’s banking sector occurred in 1999. During the first term of the Awami League government under Sheikh Hasina, nonperforming loans totaled BDT 238.80 billion. Widespread irregularities, weak oversight, and political influence in lending pushed 41.10 percent of total loans into default. In subsequent years, the ratio steadily declined, falling to 34.90 percent in 2000. From 2001 onward, it dropped consistently over the next nine years, reaching 7.27 percent by 2010, with outstanding nonperforming loans at BDT 227.09 billion.
After 2010, however, the banking sector experienced unprecedented looting and widespread corruption, beginning with the Basic Bank scandal and spreading across multiple institutions. By the end of 2024, nonperforming loans had risen to BDT 3.45 trillion, and the ratio stood at 20.2 percent in December.
Since taking office as governor, Dr. Ahsan H Mansur has implemented a series of reforms in the banking sector. At least 14 private bank boards were dissolved, and management and boards of state-owned banks were also restructured. The process of consolidating the five Shariah-based banks that faced the most severe irregularities into a single institution is now in its final stage. Plans for additional bank mergers and closures in the future are also underway.
Economist Dr. Mustafa K Mujeri, former Bangladesh Bank official and now executive director of the Institute for Inclusive Finance and Development (InM), said he does not consider the government and central bank’s measures sufficient. Speaking to Bonik Barta, he added, “The interim government took office as a result of a mass uprising. Public support for this government was unprecedented. It could have implemented more decisive and rigorous reforms, but failed to do so. If some willful defaulters had been punished as examples, others might have learned a lesson. We have yet to see such measures. Completing the existing reform programs is already challenging. Still, we remain cautiously hopeful. We hope the central bank will take concrete steps to control nonperforming loans over the next two months.”