Bangladesh’s banking sector is facing its hardest reality check in decades, with nearly 30% of all loans – amounting to a staggering Tk6 lakh crore – being classified as non-performing by the end of June this year, according to senior central bank officials.
This marks the highest level of non-performing loans ever recorded in the country.
Beneath this headline figure lies a deeper concentration of risk: the top 25 defaulters alone account for over Tk1.16 lakh crore, or roughly one-fifth of the pile.
“By June, nearly 30% of the loan portfolio in the system has turned non-performing. We are bringing out the bad loans hidden under the carpet,” Bangladesh Bank governor Ahsan H Mansur told TIMES of Bangladesh.
Experts warn that this revelation could heighten the risk of a downgrade in Bangladesh’s credit rating, ultimately driving up the cost of doing business in the country.
They explain that a lower credit rating erodes trust among foreign banks and entities in local banks, prompting them to raise fees for services. This, in turn, will make imports more expensive and could negatively impact export earnings.
New rules behind the revelation
The reckoning follows the central bank’s April move to enforce a 90-day past-due standard in line with International Monetary Fund (IMF) conditions, replacing the looser six-month window that had kept defaults artificially low.
The new rules, paired with a roadmap toward IFRS-9 provisioning by 2027, have stripped away years of accounting leniency that allowed troubled loans to remain hidden.
The scale of the problem has been building for years. Bad loans accounted for just over 6% of bank credit in the late 2000s, climbed above 10% by 2018, and appeared to fall back during the pandemic thanks to broad forbearance, according to Bangladesh Bank data.
By mid-2024, however, as regulators began closing loopholes, defaults surged to about 17%. The March 2025 quarter put the tally at 24.13%. Now, three months later, the ratio has hit 30%.
Bangladesh Bank spokesperson Arief Hossain Khan told TIMES of Bangladesh that the huge amount of non-performing loans lays bare the scale of plunder that took place in the country’s banking sector in recent years.
Entwinement of politics and finance
The pain of the non-performing loans is not evenly spread. Four state-owned commercial banks, long considered the weakest players, now hold about a quarter of the sector’s non-performing loans, or roughly Tk1.46 lakh crore.
On the borrower side, powerful corporate houses – some with close political ties – dominate the list of defaulters. Groups such as S Alam, Beximco, Nasa, which came under scrutiny last year following the mass uprising, highlight how deeply entwined politics and finance remain in Bangladesh’s credit system.
Ahsan H Mansur argued that though the figures are alarming, transparency is essential.
“At the same time, we have introduced international standards in loan classification. Though NPLs have jumped, this initiative will present us with the real picture. That will help us design the right policies and procedures to reform the banking sector,” he said.
Bank executives are divided over the fallout. “All bad loans coming into the open is a good thing. This might increase the risk of Bangladesh’s credit rating falling, but it will be better for the future,” said Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank.
“Look at Greece where 60% of their loans went bad, yet they managed to turn around because international organisations stepped in. If Bangladesh shows its real condition, the confidence of international partners will grow,” Mahbubur Rahman told TIMES of Bangladesh.
Others are less sanguine. A managing director of a private bank, speaking on condition of anonymity, warned that the Bangladesh Bank’s restructuring schemes, which allow long-term rollovers for defaulters, are tying up scarce liquidity.
“We lent against short-term deposits. This is creating severe treasury management problems. We know our customers better. It would be better if such decisions were left to the banks,” he said.
Even within the central bank, unease is palpable. One senior official cautioned that political connections are being used to tilt relief toward big borrowers, potentially planting the seeds for the next round of irregularities.
The central bank has already barred dividend payments at banks with NPL ratios above 10% and is demanding stricter provisioning. But the broader economy is expected to feel the shock as higher borrowing costs and tighter credit filter through to businesses.
Stakeholders say the situation is both simple and stark: Bangladesh has finally revealed years of hidden bad debt. Nearly half of the over Tk18 lakh crore loan book is expected to be impaired or irregular once legal disputes and write-offs are accounted for.
Impact of downgrading ratings
Moody’s Ratings downgraded the Bangladesh’s long-term issuer and senior unsecured ratings to B2 from B1 on 18 November 2024. The outlook was revised to negative from stable. At the time the rating was published, total non-performing loans stood at 17 percent, based on September 2024 data.
Moody’s is one of the world’s three major credit rating agencies, alongside Standard & Poor’s (S&P) and Fitch Ratings.
A downgrade of Bangladesh’s credit rating by Moody’s signals higher risk for investors, raising borrowing costs for the government, banks, and businesses while discouraging foreign investment.
It can weaken the currency, fuel inflation, and tighten access to global funds, as many institutional investors avoid lower-rated debt.
The move also undermines market confidence, hurting the country’s reputation and increasing the cost of doing business, since higher financing costs ultimately filter down to companies and consumers.
