Bangladesh's Banking Sector Grapples with Non-Performing Loans Crisis

Strategic Insights -

Bangladesh's banking sector is facing unprecedented challenges due to a massive volume of non-performing loans (NPLs), significantly impacting banks' capacity to extend new credit to investors. The latest provisional data from Bangladesh Bank reveals a private sector credit growth decline to 7.57 percent in March 2025, as many businesses struggle to access loans from the banking system. The central bank has engaged both international and domestic audit firms to assess the actual asset values and loan defaults at several troubled banks, which will provide a clearer picture of the defaulted and non-performing loans in the sector.

Key Takeaways:

  • The provisional data from Bangladesh Bank indicates a private sector credit growth decline to 7.57 percent in March 2025, as many businesses struggle to access loans from the banking system.
  • The central bank has engaged both international and domestic audit firms to assess the actual asset values and loan defaults at several troubled banks, which may lead to a further rise in defaulted loans to 40 percent.
  • Approximately 35 percent of total bank loans disbursed to the private sector, amounting to Tk 17.19 lakh crore, are now classified as non-performing, the highest rate in South Asia.
  • Experts attribute this sharp rise to the exposure of a massive stock of toxic loans that had previously been obscured through data manipulation during the Awami League's tenure.
  • The staggering amount of defaulted loans stems from years of data manipulation, entrenched corruption, and unchecked irregularities, posing a severe threat to the country's macroeconomic stability.
  • The private sector credit accounts for Tk 17.19 lakh crore, representing 7.57 percent growth, while public sector credit accounts for Tk 50,019 crore (5.26 percent).
  • Of the NPLs, four state-owned banks held Tk 1,26,062 crore, while six private commercial banks accounted for Tk 1,31,797 crore by the end of December 2024.
  • The concentration of bad loans signals major vulnerabilities in the financial system, with experts warning that the surging NPLs may drive up borrowing costs and further constrain banks' lending capacity.

Statistics:

  • Tk 21 lakh crore: Total outstanding loans in the banking sector
  • Tk 4.54 lakh crore: Net credit to the government sector (16.32 percent)
  • Tk 50,019 crore: Public sector credit (5.26 percent)
  • Tk 17.19 lakh crore: Loans to the private sector (7.57 percent growth)
  • Tk 2.57 lakh crore: 10 commercial banks held in defaulted loans as of December 2024
  • 35 percent: Percentage of total bank loans disbursed to the private sector classified as non-performing
  • 40 percent: Estimated further rise in defaulted loans upon final assessment
  • Tk 3.45 lakh crore: Total defaulted loans in the sector as of March 2025
  • 75 percent: Concentration of defaulted loans held by 10 commercial banks
  • Tk 1,26,062 crore: Defaulted loans held by four state-owned banks
  • Tk 1,31,797 crore: Defaulted loans held by six private commercial banks
  • Tk 2 lakh crore: Increase in defaulted loans over the past year
  • 5 August 2024: Date on which the Awami League's tenure ended following a mass uprising

Sources:

  • Bangladesh Bank
  • World Bank
  • IMF
  • Centre for Policy Dialogue
  • Policy Exchange Bangladesh