Surge in Small Loan Defaults as Over 2.4 Million Borrowers Join Default List in a Year

An alarming surge in defaults among small borrowers—particularly Cottage, Micro, Small, and Medium Enterprises (CMSMEs), agricultural entrepreneurs, housing loan recipients, and retail consumers—is emerging as a critical vulnerability for Bangladesh’s banking sector. According to recent data from Bangladesh Bank, the number of defaulted loan accounts under Tk 1 crore surged by nearly 2.4 million in a single year, rising from 2.16 million in March last year to over 4.54 million by the end of March.

Central bank analysts caution that while large-denomination defaults account for heavier financial losses in absolute monetary terms, the rapid escalation of defaults among retail and small-scale borrowers signifies a systemic decline in general repayment capacity and retail credit quality. High inflation, elevated living costs, surging utility prices, and sluggish commercial activity are widely cited as the primary drivers eroding the financial cushion of small business owners and salaried individuals alike.

Breakdown of Sectoral Performance

The central bank’s data outlines a widespread deterioration in credit quality across various economic sectors:

• Commerce & Trade: Accounts for 32% of total bank loans, with roughly 44% currently classified as non-performing.

• CMSME Sector: Over 34% of total outstanding loans in this sector are defaulted. Within CMSME, cottage industries recorded the highest default rate at nearly 53%, followed by medium enterprises at roughly 38%.

• Industrial Sector: Approximately 32% of total industrial credit is non-performing.

• Agriculture, Fishing & Forestry: Accounting for over 4.25% of total bank credit, default rates in this segment reached nearly 30% by March.

• Construction: Represents 7% of total bank credit, with default rates standing at approximately 30%.

• Consumer/Retail Loans: Comprises 9% of total bank credit, maintaining a default rate of 7%.

Industry Leaders and Economists Weigh In

“The rising default trend among small borrowers is extremely concerning, though hardly surprising. Protracted macroeconomic stress and persistent high inflation have severely eroded the repayment capacity of both salaried employees and small business owners due to rising living expenses and escalating energy costs.”

— Dr. Masrur Reaz, Chairman of Policy Exchange Bangladesh

Bank executives are implementing targeted recovery and monitoring measures at branch levels to manage the stress:

• Bangladesh Krishi Bank (BKB): Chairman Mohammad Nurul Amin noted that despite reducing its defaulted customer count from 2.4 million to 2.0 million over the past year, the bank’s non-performing loans (NPL) ratio remains high at 38%. The bank recently received Tk 600 crore from the government against previously waived agricultural loans and is deploying dedicated branch-level recovery drives.

• Janata Bank: Managing Director Md. Mojibor Rahman acknowledged that default stress is spreading from large corporate accounts to the agriculture and SME sectors. In response, supervision at local branches is being intensified to regularise accounts under central bank policy guidelines.

• Islami Bank Bangladesh: Acting Managing Director Md. Altaf Hossain highlighted that excluding distressed exposures linked to the S. Alam Group, the bank’s NPL ratio stands between 22% and 23%—substantially lower than the overall banking sector average—with ongoing efforts focused on regularising distressed accounts.