Skyrocketing Non-Performing Loans Threaten Economic Stability

Non-performing loans (NPLs) in Bangladesh’s banking sector have reached alarming levels, spreading beyond trade into the industrial sector and raising serious concerns about the country’s investment climate and overall economic growth. The latest report by Bangladesh Bank highlights the growing fragility of the financial system and the risks posed by rising loan defaults.

By December 2025, the business and trade sector recorded a staggering NPL ratio of 42 per cent. Total loans in this sector stood at Tk594,624.55 crore, accounting for approximately one-third of total bank lending. While slightly lower than the Tk574,187 crore reported in September 2025, the persistent high level of defaults signals structural weaknesses in lending practices and risk management.

The industrial sector, which commands the largest share of bank credit at 43 per cent, is also under strain. Loans disbursed to industries reached Tk764,117 crore by December, with 30.8 per cent classified as non-performing. Although this represents an improvement from 37 per cent in September, it remains a substantial figure, reflecting both internal and external challenges faced by borrowers.

Loan and NPL Overview by Sector (December 2025)

Bankers attribute the rise in NPLs to weak lending governance, lack of proper regulatory oversight, and political interference. Reports suggest that some influential groups secure loans under false identities and transfer funds abroad, leaving banks with minimal recovery options.

Industrialists, meanwhile, point to adverse economic conditions. Rising production costs and supply chain disruptions in the post-COVID period have constrained cash flows, making it difficult for businesses to meet repayment schedules. These factors have collectively contributed to a significant portion of loans turning non-performing.

A senior private bank executive, speaking on condition of anonymity, warned that continued high NPL levels could trigger a liquidity crisis in the banking sector. “Investment may slow, employment generation could be affected, and banks may raise interest rates to manage risk. Some institutions may even face capital shortfalls that threaten their existence,” he said.

Experts argue that urgent measures—including stricter credit assessments, improved loan recovery mechanisms, and stronger regulatory oversight—are essential to stabilise the financial sector. Without decisive action, the growing burden of bad loans could impede economic growth and undermine confidence in the banking system.

This version comes to approximately 370 words and maintains a formal, analytical tone suitable for financial reporting.