Eight in 10 respondents to a banking sector study believe repeated policy interventions and regulatory forbearance are weakening lending discipline in Bangladesh, where one-third of outstanding bank loans have turned non-performing.
The Bangladesh Institute of Bank Management (BIBM) presented the findings on Monday, revealing widespread concerns over weak credit assessments, related-party lending, inadequate loan monitoring and delayed recognition of defaults.
The study put the gross non-performing loan ratio at 33.2 per cent as of June 2026, underscoring the scale of the banking sector’s asset-quality crisis.
According to the findings, 80 per cent of respondents believe regulatory forbearance and repeated policy interventions undermine lending discipline, while 60 per cent consider related-party lending a major problem.
The researchers cautioned that these figures represent respondents’ perceptions, not the measured prevalence of such practices across the banking sector.
Weaknesses begin even before loans are approved.
Some 68.8 per cent of respondents said cash-flow analysis is frequently compromised during credit appraisal, while 43.8 per cent identified shortcomings in assessing industry and sector risks.
The findings suggest that banks’ reliance on collateral can overshadow assessments of borrowers’ actual repayment capacity.
The researchers recommended shifting from collateral-based lending towards credit decisions grounded in reliable cash-flow analysis.
Problems persist after disbursement. Respondents reported difficulties obtaining accurate cash-flow information, verifying how borrowers use funds and conducting regular inspections of business operations.
The study identified overdue instalments, unusual transactions, declining cash flows, diversion of funds and deteriorating risk grades as critical early-warning signals requiring closer monitoring.
Another concern is the delayed recognition of troubled loans.
Provisioning burdens, management accountability concerns and pressure to maintain favourable asset-quality indicators emerged as leading reasons for postponing the recognition of defaults.
Loan rescheduling also presents conflicting incentives. While restructuring can help financially viable borrowers recover, the study found that improving reported default and provisioning figures can also influence such decisions.
Researchers identified negotiation, restructuring, collateral recovery, legal proceedings and alternative dispute resolution as possible recovery mechanisms, depending on borrowers’ financial viability and the enforceability of agreements.
Respondents ranked loan approval and governance as the largest gap between regulatory expectations and banking practices, followed by credit appraisal and loan rescheduling and restructuring.
BIBM Director General Md Ezazul Islam said the study raised fundamental questions about the quality of credit appraisal, independence of lending decisions, monitoring after disbursement and the credibility of restructuring and recovery.
“A high NPL ratio is a symptom; our task today is to examine the causes, and to identify reforms that can be implemented,” he said.
The findings were presented at a roundtable titled Default Loan in the Banking Sector in Bangladesh: Policy Expectations and Market Realities, held at BIBM’s auditorium in Mirpur.
Bangladesh Bank Deputy Governor Md Kabir Ahmed attended as chief guest.
The research team comprised BIBM Associate Professor Md Shahid Ullah, Professor Mohammad Mohiuddin Siddique and Bangladesh Bank officials Md Nurul Alam and Md Rashel Hasan.
The discussion included former BIBM A K Gangopadhyay Chair Professor S A Chowdhury, BIBM Supernumerary Professor Md Ali Hossain Prodhania, University of Dhaka Banking and Insurance Department Chairman Md Shahidul Islam Zahid and Pubali Bank Deputy Managing Director Mohammad Esha.
BIBM Director of Research, Development and Consultancy Md Shihab Uddin Khan delivered the welcome address, while Ezazul Islam chaired the session.
The study’s findings point to weaknesses across the entire lending process, from assessing borrowers and approving credit to recognising defaults and recovering funds. Its strongest warning concerns the gap between banking regulations and their implementation, particularly in loan approval and governance.
