Bangladesh’s banking system is under mounting systemic strain as a sharp deterioration in asset quality has translated directly into a ballooning provision gap, leaving 24 state-owned and private banks unable to meet mandatory safety buffers.
Bangladesh Bank data show that nearly 36 per cent of total outstanding loans had turned classified by the end of September 2025, a surge that has overwhelmed banks’ earning capacity and stripped away provisioning cover, even at several lenders otherwise considered relatively strong.
According to the central bank’s latest updated report, the sector’s total provision shortfall stood at Tk344,231 crore at the end of September 2025, up from Tk56,036 crore a year earlier – an increase of about Tk2,93,823 crore within a year.
And while only 10 banks reported provision shortfalls last year, the number has now risen to 24.
Central bank figures show that the combined shortfall of these 24 state-owned and private banks amounted to Tk349,859 crore at the end of September; excess provisioning by a few lenders reduced the overall gap to Tk344,231 crore.
State-owned banks accounted for Tk74,763 crore of the shortfall, private banks Tk269,596 crore, specialised banks Tk259 crore, while foreign banks posted a provision surplus of Tk387 crore.
The widening gap mirrors the rapid worsening of loan quality. Total outstanding loans in the banking sector stood at Tk1,803,840 crore at the end of September, of which classified loans reached Tk644,515 crore.
A year earlier, bad loans were Tk284,977 crore, representing 16.93 percent of total loans – meaning the volume of non-performing loans has more than doubled within a year.
Stress is unevenly distributed but acute: of the country’s 61 banks, 23 kept non-performing loan ratios below 10 per cent as of September; 13 recorded ratios between 10 and 20 per cent; eight were in the 20 to 50 per cent range; while 17 banks crossed the 50 per cent threshold.
Within that group, six banks exceeded a 90 per cent bad-loan ratio, a level widely seen as posing a grave risk to system stability.
Economists say such a surge in bad assets makes a widening provision shortfall inevitable. Failure to maintain full provisioning against loss-category loans further weakens balance sheets, they argue, adding that narrowing the gap requires first bringing non-performing loans under control through stricter scrutiny at the loan approval stage to ensure recoverability of disbursed funds.
Under existing rules, banks must maintain provisions ranging from 0.5 to 5 per cent against unclassified loans, 20 per cent against substandard loans, 50 per cent against doubtful loans and 100 per cent against bad or loss-category loans.
Md Mazedul Haque, chairman of Policy Think and Economic Research Centre, said provisions against bad loans act as a protective shield for the banking sector. Banks that fail to maintain required provisions within the stipulated timeframe should face restrictions or even suspension of lending operations, he said, adding that allowing bad loans to grow is detrimental to any economy.
Bank-level exposure underscores the severity of the problem. Islami Bank Bangladesh PLC tops the provision shortfall list with Tk 82,094 crore, followed by First Security Islami Bank at Tk52,569 crore.
State-owned Janata Bank ranks third with Tk48,031 crore, while National Bank stands fourth at Tk24,282 crore and Exim Bank fifth at Tk23,548 crore.
Several others – including Social Islami Bank, IFIC Bank, Union Bank, Rupali Bank, Agrani Bank and Premier Bank – also face significant provision shortfalls, underscoring how the bad-loan shock has become a full-blown provisioning crisis for the banking system.
