The issue of non-performing or defaulted loans has long been a major challenge in Bangladesh’s banking sector. While this problem was initially limited to state-owned banks, over time it spread to large private banks as well. The culture of loan default has gradually taken root and grown into a massive, entrenched problem.
Following the fall of the Awami League government in August last year, previously concealed defaulted loans in the banking sector began to surface. Additionally, loans taken by several Awami League leaders and their close business associates have also turned non-performing. As a result, within the span of a year, the share of defaulted loans in the banking sector has jumped from 12 per cent to over 28 per cent of total disbursed loans. In other words, more than a quarter of all loans issued by banks are now in default.
A recently published report by the Asian Development Bank (ADB) highlighted that Bangladesh now ranks highest in Asia in terms of non-performing loans. The report, which assessed various financial indicators across countries in the Asia-Pacific region, was based on data from 2023 — a year when Bangladesh had already topped the list. However, it is known that the situation has worsened significantly in 2025.
In the past, various methods were used to underreport defaulted loans in Bangladesh. Relaxed rescheduling and restructuring policies also contributed to artificially lower figures. Recently, however, Bangladesh has started adopting international standards in loan classification. At the same time, an economic slowdown and the deteriorating business performance of individuals affiliated with the former ruling party have led to a sharp rise in loan defaults.
There is no doubt that this upward trend in defaulted loans tarnishes the country’s image and negatively impacts trade and investment. To facilitate business and economic recovery, proactive steps are needed. Measures must be taken to support genuine entrepreneurs so that they can resume operations — something the government is reportedly working on.
According to the ADB report, Bangladesh had the highest default loan rate among South Asian countries at the end of 2023, standing at 9.6 per cent. The data shows that Bangladesh's non-performing loan ratio has been rising steadily since 2021. It was 8 per cent in 2021, increasing to 8.7 per cent in 2022.
Among South Asian countries, only Nepal and Sri Lanka experienced a similar rise in default loans during this period. Other countries saw improvements. For instance: Bhutan’s NPL ratio dropped from 11.7 per cent in 2020 to 3 per cent in 2022. India’s NPL ratio fell from 7.9 per cent in 2020 to 1.7 per cent in 2023. Maldives reduced its NPLs from 18.8 per cent to 8.3 per cent over the same period.
According to the same report, Taiwan and South Korea have the lowest rates of non-performing loans in Asia, at just 0.1 per cent and 0.2 per cent, respectively.
Defaulted loans in Bangladesh cross Tk 5.3 trillion, continue to rise amid banking sector turmoil
According to Bangladesh Bank sources, at the end of 2024, the default loan rate in the country’s banking sector stood at 20.20 per cent. By the end of June 2025, the volume of defaulted loans had surged to Tk 5304.28 billion, accounting for 27.09 per cent of all loans disbursed by banks. In other words, more than one-fourth of the total outstanding loans in the banking sector are now classified as non-performing.
Officials at the central bank have indicated that much of the money withdrawn—directly or indirectly—during the previous Awami League government is now beginning to be identified as defaulted loans. As previously mentioned, the rise in defaulted loans is also linked to the adoption of international standards in loan classification. Many of the restructured or renewed loans are not being repaid, and due to irregularities, the central bank’s inspection department has categorised several such loans as non-performing, contributing to the overall increase—an upward trend that is expected to continue.
When the Awami League took office in 2009, the total amount of defaulted loans stood at just Tk 224.81 billion. Since then, the volume has increased steadily. For years, stakeholders have raised concerns that politically connected and influential individuals affiliated with the former government were siphoning large sums from banks through irregular means, much of which is believed to have been laundered abroad.
Sources further indicate that following the recent political shift in the country, the true extent of loan irregularities is now coming to light, particularly in banks previously linked to S Alam Group, a Chattogram-based business conglomerate known for its close ties to the former ruling party and its controversial financial dealings. Among these, Islami Bank has seen the most significant rise in defaulted loans. Similar increases have been observed in First Security Islami Bank, Global Islami Bank, Union Bank, Social Islami Bank, and EXIM Bank.
Bangladesh Bank has initiated a move to merge these five banks, and the decision to appoint administrators for the process has already been made.
In addition, both state-owned banks like Janata Bank and Rupali Bank, and private sector banks such as United Commercial Bank (UCB), IFIC Bank, Mutual Trust Bank, Trust Bank, and NRB Commercial Bank have also recorded a rise in non-performing loans.
According to newspaper sources, around 1,250 defaulting companies have applied to Bangladesh Bank seeking loan restructuring under special provisions. Of these, the central bank has considered regularising the loans of around 300 companies. Bangladesh Bank is now working on a comprehensive policy framework to allow banks to offer loan restructuring facilities more broadly.
Sources indicate that under this upcoming policy, borrowers will be required to deposit a specific amount to qualify for restructuring. However, interest payments will still need to be made during the grace period for principal repayment. Many hope this will help reduce the volume of non-performing loans (NPLs).
However, unless these businesses improve their internal management and focus on sound operational practices, the outcome could be the opposite. Bangladesh has seen numerous cases of abuse of such opportunities in the past.
To truly overcome the widespread culture of loan default, the country must address its deep-rooted political favouritism and crony capitalism, while also improving the risk management capacity of commercial banks. Unwarranted interference by bank directors must also be curtailed.
*Mamun Rashid is a banker and economic analyst.
#The views expressed are the author’s own.