Non-performing loans (NPLs) in the country’s banking sector, long kept out of sight, are now becoming visible. As a result, both the volume and the rate of defaulted loans are increasing at an alarming pace. According to data from the central bank, as of the end of March this year, defaulted loans in the 61 scheduled banks totaled BDT 4.2 trillion, accounting for 24.13 percent of all loans disbursed by the banking sector.
Bangladesh Bank publishes quarterly updates on non-performing loans in the banking sector. The latest data for the March 2025 quarter was released on Sunday (June 15). It shows that between March 2024 and March 2025, defaulted loans surged by BDT 2.38 trillion. In March last year, the default rate was 11.11 percent. Within just one year, the rate has jumped by over 13 percent. Due to the rapid and abnormal rise in defaulted loans, the banks are now facing severe shortfalls in provisions. As of the end of March 2025, this shortfall stood at BDT 1.7 trillion. This means banks have failed to maintain adequate loan-loss provisions against a large portion of their defaulted loans.
Officials from the central bank and various commercial banks say that even this figure does not reflect the full extent of the NPL crisis. Many defaulted loans, especially from banks that were looted over the past 15 years, are yet to be fully accounted for in the central bank’s records. Once all anonymous and irregularly disbursed loans are identified, the default rate could hit 30 to 35 percent. Bangladesh Bank’s Governor Dr. Ahsan H Mansur has also highlighted this concern on several occasions in the past.
When the Awami League government, led by Sheikh Hasina, assumed office on January 6, 2009, following victory in the ninth national election, defaulted loans in the banking sector totaled only BDT 224.82 billion. By September last year—the month after Sheikh Hasina’s departure—the figure had climbed to over BDT 2.84 trillion. In addition to this, another BDT 640 billion in defaulted loans was written off. Over the past several years, banks have rescheduled and restructured trillions of takas in loans without proper scrutiny, largely to keep default figures low. According to estimates by the International Monetary Fund (IMF), one-third of all loans disbursed by Bangladeshi banks—amounting to over BDT 6 trillion—were already in distress.
Yesterday, Bangladesh Bank also explained why the volume of defaulted loans has risen in the last three months. It said the central bank has started following international standards when classifying loan terms. Previously, due to relaxed rules, borrowers could avoid being classified as defaulters even after missing payments for a year. Now, loans are being classified as non-performing if installments remain unpaid for just three months, or 90 days. The central bank noted that the increase in defaults over the last three months is partly due to the inspection department marking loans of several large borrowers as non-performing. In addition, factors such as failure to renew continuous loans, failure to pay installments of rescheduled loans on time, and applying interest on already classified loans under adverse conditions have also contributed to the rise in defaults.
According to data from the Bangladesh Bank, the total outstanding loans disbursed by the country’s banks stood at BDT 17.41 trillion at the end of March this year. In March 2024, the figure was BDT 16.4 trillion. That means in one year, the total outstanding loans increased by only BDT 1.01 trillion. However, during the same period, non-performing loans rose by BDT 2.38 trillion. In March last year, defaulted loans stood at BDT 1.82 trillion. That figure has now reached BDT 4.2 trillion, and the default rate has jumped from 11.11 percent to 24.13 percent.
Loans are disbursed to borrowers from the money deposited by bank clients. Therefore, banks are required to maintain a provision or security reserve at a fixed rate against all types of loans. If a loan turns non-performing or is classified as sub-standard, banks must maintain 100 percent provision against that loan. In other words, for every BDT 100 defaulted, BDT 100 must be set aside from the bank’s operating profit as a safety reserve. A provision shortfall indicates that an equivalent amount of depositor money is at risk. Such shortfalls also weaken the bank’s overall capital base.
Bangladesh Bank data shows that as of the end of March this year, banks were required to maintain provisions totaling BDT 2.75 trillion. But they were only able to maintain provisions of BDT 1.04 trillion. This left a shortfall of over BDT 1.7 trillion. In comparison, at the end of March last year, the provision shortfall was just BDT 265.85 billion.
Syed Mahbubur Rahman, Managing Director of Mutual Trust Bank (MTB), said the default loan rate is likely to rise further. Speaking to Bonik Barta, he said, “Governor sir himself has said that non-performing loans could reach 35 percent. But the reality is, it could go even higher. Loans issued through irregularities and corruption in the past, along with those from banks whose boards have been dissolved, will gradually become defaulted. The ongoing global war situation could also drive this further. Already, oil prices are rising in the global market. If the Iran-Israel conflict continues, it will have serious consequences for Bangladesh’s economy.”
When NPLs rise in a country, it often leads to a downgrade in that country’s sovereign credit rating. At present, Bangladesh’s credit outlook is negative. With defaulted loans continuing to rise, the banking sector is facing deeper crises, including a widening provision shortfall and capital deficit. As a result, foreign banks may become increasingly reluctant to issue letters of credit (LCs) for Bangladeshi banks. Syed Mahbubur Rahman commented on this concern, saying, “Foreign banks had already reduced the credit limits of our banks. Right now, we’re simply asking them to be patient. Look at the liquidity position of our banks—because LCs will be settled with liquidity. So for the time being, there’s no need to focus on the NPL rate. But we can’t continue with such reassurances forever. We must ensure 100 percent governance and bring down the volume of default loans.”
According to Bangladesh Bank data, the defaulted loans in six state-owned commercial banks have reached BDT 1.46 trillion. The average default rate in Sonali, Rupali, Agrani, Janata, BASIC, and Bangladesh Development Bank (BDBL) now stands at 45.79 percent. Meanwhile, non-performing loans in 42 private banks have amounted to BDT 2.46 trillion, representing a default rate of 20.16 percent. In addition, nine foreign banks have BDT 32.39 billion in defaulted loans, and three specialized government banks have BDT 64.94 billion in defaulted loans. Their respective default rates are 4.83 percent and 14.47 percent.
At the end of June 2024, the total amount of defaulted loans in the country’s banking sector stood at BDT 2.11 trillion, or 12.56 percent of total disbursed loans. On August 5 last year, following a student-led mass uprising, the Sheikh Hasina government was ousted. The former Prime Minister fled to India. For the first time in Bangladesh’s history, the then-Governor of Bangladesh Bank, Abdur Rouf Talukder, also fled. After the Interim Government took charge, economist Dr. Ahsan H Mansur was appointed as the new Governor.
Following his appointment, Bangladesh Bank dissolved the boards of 14 private banks and restructured the boards and management of state-owned banks. During Sheikh Hasina’s tenure, these banks saw unprecedented levels of looting. Governor Ahsan H Mansur has repeatedly stated, “The level of corruption, irregularities, and looting in the banking sector over the past 15 years is unprecedented in global history. Nowhere else in the world have so many banks been looted at once. Groups like S Alam and Beximco alone have taken around BDT 2.5 trillion.”