Non-Performing Loans Surge to 31%

The proportion of non-performing loans in Bangladesh’s banking sector has risen sharply, reaching 31.20% by the end of the December quarter, according to the latest report from Bangladesh Bank. This marks a significant increase from 19.90% in the same quarter of the previous year, reflecting a combination of regulatory changes and the exposure of long-standing financial irregularities.

In absolute terms, defaulted loans now amount to Tk5,54,486 crore, underlining the substantial financial burden on the banking system.

Regulatory Reforms Amplify Defaults

The central bank attributes the rise largely to the adoption of international loan classification standards beginning in 2025. Under the new regulations, loans that remain unpaid for more than 90 days are considered defaulted, compared with the previous 180-day threshold.

A senior official explained, “Counting loans as defaulted after 90 days has increased the volume of non-performing loans. Nevertheless, policy support measures introduced toward the end of 2025 have helped reduce defaults slightly in the December quarter compared to September.”

One key measure allows banks to write off bad loans earlier, a shift from the previous requirement of maintaining loans as non-performing for two consecutive years before write-off. This has contributed to a modest decline in defaulted loans in the last quarter. According to Bangladesh Bank data, the default rate stood at 36.30% at the end of September.

Restructuring and Policy Impact

Several banks have restructured loans with central bank support, removing significant amounts from the default category. Without such restructuring, the December figure could have been considerably higher.

Bankers emphasise that the rise in defaults also exposes long-hidden irregularities, as practices that previously allowed loans to be classified as regular despite non-payment are no longer permitted.

Islamic and Conventional Banks

Foreign audit firms have reviewed the loan portfolios of multiple banks. The five Islamic banks that have recently merged into a single entity have experienced a sharp increase in defaulted loans. Conventional banks have also faced notable irregularities, indicating systemic issues across the sector.

Historical Context

The current situation reflects years of mismanagement, corruption, and fraud. Prominent corporate groups, including S Alam Group, Beximco Group, Nasa Group, Bismillah Group, and Hall-Mark Group, as well as scandals at BASIC Bank, have contributed substantially to the increase in defaults.

Defaulted Loans Overview

Bankers caution that while policy interventions and loan restructuring have provided temporary relief, the banking sector continues to grapple with the aftermath of long-term irregularities, highlighting the urgent need for continued oversight, transparency, and reform.