Several long-standing concerns and major demands raised by thoughtful individuals connected to the banking sector are finally set to be addressed, media reports indicate. These concerns stem from the fact that Bangladesh’s default loan rate is the highest in Asia and the second highest in the world, behind only Ukraine. Had Ukraine not been a war-torn country, Bangladesh would undoubtedly have occupied the top spot.
We know that by March 2026, total default loans in Bangladesh’s banking sector were about to touch Tk 6 trillion (600,000 crore) mark. In percentage terms, this accounts for 32.26 per cent of total disbursed loans. There is no doubt that if loans were classified accurately, this rate would be even higher. At the end of December 2025, the figure stood at around Tk 5.5 trillion.
Taking into account the declared default loans of Tk 5.57 trillion, rescheduled loans of Tk 2.69 trillion, default loans stayed by High Court rulings amounting to Tk 1.82 trillion, and written-off loans of Tk 830 billion, the total amount of high-risk distressed loans stands at Tk 10.93 trillion. This constitutes nearly 60 per cent of total outstanding loans. I don’t know whether the concept—or such an overwhelming situation—of high-risk distressed loans exists in any other country in the world.
In Italy and other European nations, there is a category of risky loans termed UTP (Unlikely to Pay), referring to credit where full recovery is deemed improbable. Since these loans are assumed to be recoverable to an extent, banks maintain relationships with such borrowers. UTP loans account for nearly 54 per cent of Italy’s total overdue and defaulted loans. This category can be compared to our “early warning” class of loans.
The planned steps are undoubtedly promising, commencing with a one-off “exit” facility—though star defaulters will be unable to avail themselves of this opportunity, as they have laundered virtually all their loans abroad or locked them into non-productive assets such as land or real estate.
These loans are classified as UTP because declaring them as non-performing assets would plunge banks into capital crises. The European Central Bank categorises non-performing loans into three tiers: past-due, UTP, and bad debt. Certain indicators have been identified for UTP accounts: changes in the borrower’s payment patterns, frequent installment defaults, failure to respond to repayment reminders, inventing various pretexts for non-payment, continuous requests for repayment extensions, and adverse media coverage. The behaviour of our defaulters bears a striking resemblance to these indicators.
However, our situation cannot be compared to that of Europe, nor even to those of economies closely comparable to ours. In 1999, India’s default loan rate stood at 14.7 per cent, which dropped to around 2 per cent by 2025. In Sri Lanka, the rate stands at 11.9 per cent, and in Nepal, it is 5.6 per cent. Even in Pakistan—a recent ally plagued by numerous crises—the rate is 5.8 per cent, down from 16.7 per cent in 2011. The average Capital Adequacy Ratio (CAR) of Pakistani banks stands at 20.8 per cent, well above the local regulatory minimum.
Shamefully, in Bangladesh, this rate stands at -2.64 per cent—meaning it is below zero. Looking slightly further afield, in Vietnam—our chief rival in ready-made garment exports—the default loan rate is below 5 per cent. Are any further examples required to illustrate the dire situation of our banking sector?
Amid this gloomy environment, a faint glimmer of hope emerges from the news that Bangladesh Bank is taking a firm stance. Several of our long-standing demands—such as publishing, displaying, and publicising lists of defaulters complete with their photographs; mandating a deposit of a specified portion of outstanding loans when filing writ petitions to prevent default declaration; setting an overall ceiling on borrowing across the entire banking sector; and reducing reliance on bank loans by introducing provisions to raise capital via the stock market and bond market—are under consideration.
When appointing a new chief executive for a bank, it is imperative to mandate an evaluation of the classified loan track record during their tenure at their current or previous bank.
However, when publishing defaulters’ lists, the dimensions of the photo and text size must be explicitly specified. Otherwise, adhering to the letter of the law by pasting a stamp-sized photograph and name in 10-point font on a wall will render the measure ineffective in achieving its purpose.
Currently, the maximum limit for cash credit is capped at 15 per cent of the lending bank’s capital. Large business entities borrowing from multiple banks can thus take out funds far in excess of their actual requirement. To curb this trend, India introduced the Maximum Permissible Bank Finance (MPBF) system, setting an aggregate borrowing limit for a given enterprise by taking into account its total credit drawn across all banks.
In our country, major industrial conglomerates rely exclusively on banks for both short-term and long-term financing. Yet, for long-term industrial loans, they ought to turn to the bond market or capital market instead. Consequently, it is understood that the government is considering measures requiring loans exceeding Tk 10 billion to be raised through bond issuance rather than bank loans.
Our expectations have been further bolstered upon learning that the government has additional plans alongside these demands. These include provisions for bank directors to forfeit ownership if they fail to reduce default loans or meet capital shortfall requirements; evaluating classified loan ratios when appointing, reappointing, or extending the tenure of bank chief executives; requiring senior management of banks with default loan rates exceeding 10 per cent to report recovery progress directly to the central bank governor every three months; and incorporating experienced bankers into the judge panels or jury boards of the Artha Rin Adalat.
When appointing a new chief executive for a bank, it is imperative to mandate an evaluation of the classified loan track record during their tenure at their current or previous bank. Alongside provisions causing directors to lose ownership for failing to curb default loans, another measure deserves consideration.
In Bangladesh, candidates competing in national or local elections regularly obtain clearance from the defaulters’ ledger by paying a minimal down payment. However, if they default again after winning the election, there is no remedy in place. Therefore, the provision forfeiting directors’ ownership should equally apply to elected representatives, ensuring they do not risk defaulting once elected.
The planned steps are undoubtedly promising, commencing with a one-off “exit” facility—though star defaulters will be unable to avail themselves of this opportunity, as they have laundered virtually all their loans abroad or locked them into non-productive assets such as land or real estate. The same outcome will apply to mortgaged property auctions or the appointment of asset management companies. Given the rampant fraud and embezzlement disguised as loans within the accumulated default figures, mortgaged assets often do not exist, leaving capital management firms powerless to act.
Nevertheless, we wish to remain optimistic, the full realisation of which depends entirely on political commitment and goodwill from the highest levels of power. Transforming the political ill-will of the previous regime into genuine goodwill will be the primary challenge facing the present government.
* Faruq Mainuddin is an author and banker. He could be reached at [email protected]
* The views expressed are the author’s own.
* This article appeared in Prothon Alo print and online and has been translated for Prothom Alo English Online