A bank’s capital adequacy measures its financial resilience. It shows whether a bank can absorb potential business risks such as loan defaults. The capital to risk-weighted assets ratio (CRAR) is the proportion of a bank’s capital to its risk-weighted assets. In Bangladesh, the central bank monitors commercial banks’ CRAR under the international Basel III standards, which specify that banks in the country must maintain a minimum CRAR of 12.50 percent to safeguard deposits and avert insolvency.

Many banks in the country now fail to set aside provisions against non-performing loans. The shortfall has driven the sector’s CRAR into deeply negative territory. Central bank data show the banking sector’s CRAR fell to negative 2.64 percent at the end of 2025 — far below the Basel III floor of 12.50 percent. In a functioning economy, a banking sector’s average capital turning negative is regarded by analysts as a rare occurrence in the modern world.

While Bangladesh’s capital position deteriorated, its neighbours strengthened. Pakistan’s banking sector CRAR now stands at roughly 21 percent; Sri Lanka’s exceeds 19 percent. India’s banks averaged 17.20 percent, according to Bangladesh Bank’s Financial Stability Report 2025. Just three years ago, both Sri Lanka and Pakistan faced sovereign debt distress, dollar shortages, spiralling inflation and recession.

Negative CRAR is treated as an indicator of a bank’s insolvency. According to Bangladesh Bank, nearly two dozen banks in the country are now capital-deficient. Their combined shortfall exceeds BDT 2.8 trillion. The reported deficit already reflects the central bank forbearance on provisioning rules. Had the policy relaxation not been granted, the sector’s CRAR deficit would have multiplied several times, officials say.

Bangladesh Bank also considers a negative aggregate CRAR across the banking sector a rare event. “No other country’s banking sector in the modern world should have a negative CRAR. In that sense, Bangladesh is a rare case,” spokesperson and executive director Arif Hossain Khan told Bonik Barta.

Capital shortfalls, he explained, originate in provisioning shortfalls, which become acute when non-performing loans increase sharply. “The NPLs we see today in the country’s banking sector are an expression of bank looting under the guise of loans.”

Khan contended that the post-2009 fraud in some banks under the guise of lending “cannot be called banking in any sense”. He added, “It can be called looting. Those who took these loans are not borrowers; they are looters. We are being forced to print money and lend. But this can’t continue for long. If it does, Bangladesh’s inflation could reach Zimbabwe or Argentina levels.”

The central bank’s latest annual Financial Stability Report charts the erosion. At the end of 2023, the banking sector’s CRAR stood at 11.64 percent. It fell to 3.08 percent by end-2024, before dropping to negative 2.64 percent at the close of 2025.

While Bangladesh’s capital strength slipped into negative territory, its neighbours’ banking sectors recorded higher CRAR levels. India’s CRAR rose from 16.8 percent in 2023 to 17.20 percent last year, the Bangladesh Bank report shows. Pakistan’s CRAR is the highest among the South Asian countries cited in the report. Despite financial turmoil in recent years, Pakistan’s CRAR stood at 19.7 percent in 2023 and climbed further to an average of 20.80 percent in 2025.

Sri Lanka’s banking sector also holds a strong capital position. Its CRAR stood at 19.40 percent last year, up from 18.4 percent in 2023. That strength sits in sharp contrast to the country’s post-Covid collapse, which led to the toppling of the Rajapaksa government and sent inflation rocketing to a record 69 percent in September 2022.

Bank executives and policymakers accuse the ousted Awami League government of concealing non-performing loans during its 15-year rule. Chairmen and managing directors linked to oligarch and mafia groups faced no proper audits, they say. Central bank supervision was often inadequate. Following the student-led mass uprising in August 2024, hidden bad debts were exposed. The rise in NPLs then contributed to the sector’s CRAR turning negative within a short span.

Despite the turmoil, several banks in Bangladesh retain strong capital buffers, said Mashrur Arefin, chairman of the Association of Bankers Bangladesh (ABB) and managing director of City Bank PLC. “Some large private-sector banks have CRARs of 17 to 20 percent. Our own City Bank is among them,” he told Bonik Barta. “Banks that follow corporate governance have prioritised a strong capital structure. The problem is that the CRAR of banks mired in irregularity and corruption is so dire that it has dragged the entire sector into the negative. This is tarnishing Bangladesh’s banking image abroad. The country’s overall rating is also showing a deteriorating trend,” he said.

The rise in NPLs is linked to the slide into negative CRAR. In June 2024, NPLs stood at BDT 2.11 trillion, or 12.56 percent of total outstanding loans. By September 2025, they rose to BDT 6.44 trillion — 35.73 percent of the loan book. Special rescheduling concessions in the last quarter of 2025 helped trim the headline figure slightly. Yet by the end of March 2026, NPLs still totalled BDT 5.88 trillion, or 32.26 percent of all loans disbursed.

While one-third of all loans in Bangladesh are non-performing, the NPL ratio in India stands at just 2.2 percent. In Pakistan, it has fallen to 5.8 percent. Even Sri Lanka, which slid into bankruptcy three years ago, now has an NPL ratio in single digits.

The scale of the capital hole also appears in the accounts of several banks. State-owned Janata Bank’s actual capital shortfall reached BDT 644.06 billion by the end of last year, almost twice the cost of constructing the Padma Bridge. Islami Bank Bangladesh PLC would face a deficit exceeding BDT 700 billion if provisioning forbearance were not applied. Five sharia-based banks merged into a single entity would also confront a combined shortfall of more than BDT 1.5 trillion.

Mohammad Muslim Chowdhury, a former finance secretary and former chairman of Sonali Bank, described the prevailing capital deficit and negative CRAR as “dreadful”. “The situation is very bad. In this era of modern banking, a negative CRAR in any country is unusual and unimaginable,” he told Bonik Barta. “I would urge the government and Bangladesh Bank to give the matter due importance.”

Basel III was introduced internationally to help ensure that banks can absorb shocks from financial distress or a failing institution using their own capital. Bangladesh adopted the standards in 2015, with a full implementation deadline of 2019. The rules require banks to hold capital equal to 12.5 percent of risk-weighted assets. The country’s capital adequacy ratio has now slipped into negative territory.