For many years, one fundamental question has repeatedly surfaced in discussions about Bangladesh's economy: Will the country ever be able to rein in non-performing loans?
An examination of the trajectory of this crisis makes it clear that the problem extends far beyond economic calculations. It is, above all, the cumulative outcome of a political culture, administrative failures, and prolonged policy leniency.
The deep scars inflicted on the financial sector over the past decade and a half have remained the greatest weakness of Bangladesh's macroeconomy, even after the recent political transition and the assumption of office by the newly elected government.
When the Awami League government took office in early 2009, the country's stock of non-performing loans stood at approximately Tk 22,481 crore (Tk 224.81 billion). In the years that followed, Bangladesh witnessed a wave of development, with the completion of major infrastructure projects such as the Padma Bridge, the Dhaka Elevated Expressway, and the Dhaka Metro Rail. During the same period, the national budget expanded to nearly Tk 797,000 crore (Tk 7.97 trillion).
Against the global backdrop, several of Bangladesh's macroeconomic indicators remained positive during this period. Even in the year of the COVID-19 pandemic, the economy grew by 3.45 per cent, with growth accelerating to 7.1 per cent in 2022. Moreover, between 2014 and 2024, Bangladesh recorded an average annual growth rate of 6.2 per cent, outperforming many of its emerging-market peers.
Yet, beneath this development story, deep structural weaknesses were steadily taking root in the financial sector. Politically backed lending that circumvented banking regulations, preferential treatment for selected corporate groups, and excessive leniency through repeated loan rescheduling gradually undermined the resilience of the banking system.
At the end of 2013, the ratio of non-performing loans stood at 8.9 per cent.
Despite a series of regulatory concessions designed to make banks' loan portfolios appear healthier than they actually were, the stock of non-performing loans climbed to Tk 145,633 crore (Tk 1.46 trillion) by the end of 2023.
By June 2024, that figure had risen further to Tk 211,391 crore (Tk 2.11 trillion), equivalent to 12.56 per cent of total outstanding loans.
Following the mass uprising in August 2024, the interim government led by Muhammad Yunus assumed office. The political transition confronted an economy burdened by challenges on multiple fronts. As part of its efforts to restore good governance, the interim administration decided to gradually reduce the overdue period for classifying loans as non-performing to 90 days, in line with International Monetary Fund guidelines.
Although economists viewed the move positively, loan recovery deteriorated sharply during the transitional period as production was disrupted and many business owners withdrew from economic activity. This, in turn, had adverse effects on employment and the broader economy.
At the same time, many loans that had previously been rescheduled were formally reclassified as non-performing. Following the dissolution of the boards of several banks, audit reports began to reveal the true extent of loan fraud involving a number of controversial corporate groups. As a result, the volume of non-performing loans surged to Tk 530,428 crore (Tk 5.30 trillion) by June 2025 and rose further to Tk 557,217 crore (Tk 5.57 trillion) by December.
While the interim government's willingness to disclose the true scale of non-performing loans was commendable, its lack of policy coordination placed additional strain on the macroeconomy. Neither the task force nor the commission established to reform the banking sector delivered meaningful results. The hasty merger of stronger and weaker banks, together with the rapid appointment of administrators to troubled institutions, triggered a severe crisis of confidence among depositors. That, in turn, worsened the liquidity crunch and contributed to a slowdown in private investment.
During the same period, the authorities sought to curb inflation through a tight monetary policy, but persistent supply-chain disruptions remained evident. Consequently, inflation reached 10.2 per cent in 2024, while GDP growth slowed to just 3.49 per cent in the 2024–25 fiscal year—well below Bangladesh's historical average growth rate.
At the beginning of 2026, the newly elected government, which came to power through the Thirteenth Parliamentary Election, inherited a fragile economy characterized by sluggish growth. By March 2026, non-performing loans had increased by another Tk 31,487 crore (Tk 314.87 billion), surpassing Tk 588,704 crore (Tk 5.89 trillion), equivalent to 32.26 per cent of total loans disbursed. At the same time, the banking sector''s provision shortfall had reached Tk 205,665 crore (Tk 2.06 trillion), placing the entire banking system under significant strain.
Meanwhile, within its first six weeks in office, the new government borrowed nearly Tk 41,000 crore (Tk 410 billion) from the banking system. Overall, during the first nine months of the current fiscal year, total bank borrowing by both the interim administration and the present government amounted to approximately Tk 109,000 crore (Tk 1.09 trillion).
Over the one-and-a-half decades of Awami League rule, Bangladesh''s total outstanding public debt, both domestic and external, rose from Tk 276,000 crore (Tk 2.76 trillion) to Tk 1,835,000 crore (Tk 18.35 trillion). A substantial share of this borrowing was used to finance the country''s major infrastructure projects.
During the interim government's 18-month tenure, the stock of both domestic and external public debt increased unexpectedly, pushing total government debt to approximately Tk 23 trillion. The present government began its term carrying this enormous debt burden. If the current trajectory continues, total government debt could reach nearly Tk 34 trillion by the 2028-29 fiscal year. In that case, the government would have to pay about Tk 162.7 billion annually in debt-servicing costs (interest alone), a prospect that poses a serious fiscal concern.
Meanwhile, under the budget for fiscal year 2026–27, the government plans to finance most of its Tk 243,000 crore (Tk 2.43 trillion) budget deficit through borrowing from the banking sector.
According to available data, as of March 2026, more than 85 per cent of the country''s total non-performing loans, amounting to Tk 499,000 crore (Tk 4.99 trillion), were concentrated in just 15 of Bangladesh's 61 banks.
Among the state-owned banks, Janata Bank is in the most precarious position, with nearly 70 per cent of its total loan portfolio, about Tk 72,539 crore (Tk 725.39 billion), classified as non-performing.
In both regional and global comparisons, Bangladesh''s position is deeply concerning. The average non-performing loan ratio across Asia is just 1.6 per cent, while the average for South Asia stands at 3.5 per cent. In India, the ratio ranges between 2.3 and 2.8 per cent; in Nepal, between 4.4 and 5.6 per cent; and even in crisis-stricken Pakistan, it is only 7.4 per cent. By contrast, nearly one-third of all loans disbursed in Bangladesh are now non-performing, several times the regional average.
Bangladesh's legal framework also differs significantly from those of many other countries. The concept of a "willful defaulter" is applied primarily in India and Pakistan. In most developed and emerging economies, however, the law is applied uniformly: failure to repay a loan within the stipulated period triggers the same legal consequences for all borrowers. In the United Arab Emirates, for example, the assets of loan defaulters can be seized immediately.
In China and Vietnam, corruption and large-scale embezzlement may carry the death penalty. China also imposes restrictions on willful defaulters, including bans on obtaining credit cards and purchasing airline or high-speed rail tickets. Following the 1998 financial crisis, South Korea restructured its banking sector by establishing the Korea Asset Management Corporation (KAMCO), which resolved non-performing loans by converting them into equity and other recoverable assets.
If every change of government also brings a change in the culture of banking and the philosophy of financial policymaking, the goal of bringing non-performing loans under control will remain perpetually out of reach.
The non-performing loan crisis cannot be resolved overnight through a single policy or by any one government. Nevertheless, without fundamental structural reforms, there is no viable path to improvement.
First, the central bank's genuine independence and supervisory capacity must be strengthened, and single-borrower exposure limits for large corporate groups must be enforced rigorously.
Second, the nearly 75,000 cases pending before the loan courts should be resolved expeditiously through the establishment of special tribunals, while strict legal action against willful defaulters must be implemented in practice rather than remaining merely a matter of legislation.
Third, lending decisions must be based on modern risk-based assessment and risk management, replacing the longstanding practice of granting credit on the basis of political influence or personal connections.
Fourth, unwarranted political interference in bank boards must come to an end. In state-owned banks, the practice of appointing directors and senior executives on political grounds should be replaced by a merit-based system that prioritises professional competence.
The deep wounds inflicted on Bangladesh's banking sector by years of irregularities and institutional weakness will take time to heal. Full recovery may require five to ten years. Economic history, however, offers an important lesson: countries that have successfully overcome banking crises have done so through a combination of sustained political commitment and comprehensive institutional reform. South Korea, Malaysia, Thailand, and Sri Lanka all rebuilt their banking systems through rigorous reforms and stronger accountability.
Bangladesh has the economic potential to do the same. The country's economy has already surpassed half a trillion US dollars in GDP. Remittance inflows remain robust, exports continue to offer significant growth potential, and Bangladesh possesses a large and youthful workforce. What is lacking is sustained political will and an unwavering commitment by policymakers to long-term structural reform.
If every change of government also brings a change in the culture of banking and the philosophy of financial policymaking, the goal of bringing non-performing loans under control will remain perpetually out of reach.
The non-performing loan crisis is not merely a banking-sector problem, it affects every citizen. Ultimately, the burden of bad loans is passed on to the public through higher interest rates, persistent inflation, and slower economic growth. Reining in this crisis is therefore a historic responsibility, and one for which both current and future policymakers must be held accountable.
* MM Mahbub Hasan is a banker and development researcher.
* The views expressed here are those of the author.
* This opinion appeared Prothom Alo online in Bangla and has been translated by Ayesha Kabir for Prothom Alo English online