THE true extent of the vulnerability of the banking sector, weighed down by a massive volume of non-performing loans, has increasingly come to light following the ouster of the Awami League government. While the previous administration reported that non-performing loans accounted for about 10 per cent of total outstanding loans, recent data from the Bangladesh Bank reveal that the actual figure is nearly 25 per cent. The volume of non-performing loans stood at Tk 4.20 lakh crore at the end of March 2025. With a default rate of 24.13 per cent, Bangladesh now ranks as having the worst-performing banking system in South Asia. The situation is especially dire in state-owned banks, where defaulted loans constitute 45.79 per cent of outstanding loans. The banking sector was riddled with systemic corruption and undue political interference during the Awami League regime. Large sums were syphoned off through fictitious and fraudulent accounts, while many loans were falsely reported as 鈥榬egular鈥� through data manipulation. Lenient policies that allowed repeated rescheduling further contributed to the problem. When the Awami League assumed office in 2009, the total amount of non-performing loans stood at Tk 22,481 crore.
Much of the recent increase in reported non-performing loans can be attributed to more accurate loan assessments and changes in classification rules implemented by the central bank, which lowered the default threshold in two phases from 270 days to 90 days, aligning with international standards. While the central bank鈥檚 adoption of global benchmarks for loan classification and its intensified inspection of loans and assets are commendable, the recovery of defaulted loans remains disappointing. As such, there is absolutely no room for complacency, and the fight against the entrenched culture of default needs to be intensified. However, to effectively address the crisis, several factors must be considered for a comprehensive strategy. The authorities must distinguish between wilful defaulters and standard defaulters. While stringent measures need be applied to hold wilful defaulters accountable and ensure recovery, borrowers who have defaulted due to genuine financial hardship, political unrest, or economic stagnation must be treated differently. Officials of the central bank have also noted that recent political instability and economic slowdown have worsened the situation, making it difficult for many business owners to meet repayment obligations. Businesspeople themselves have expressed the struggles they face in running operations amid political disruptions.
The government and the central bank should, therefore, formulate a comprehensive and well-balanced policy to tackle the non-performing loan crisis. While robust recovery mechanisms are essential to deal with wilful defaulters, a differentiated approach should be adopted for standard defaulters. Such a strategy is critical not only to restore financial discipline but also to safeguard businesses and employment from further harm.
