The fragility of the banking sector stands exposed like never before. According to the latest central bank figures, nearly one in every five borrowers has defaulted on loans. This is not merely a statistic. It is a grim reflection of years of systemic failure in governance, regulation and borrower accountability. With 14.09 lakh defaulters out of 76.05 lakh borrowers and non-performing loans swelling to nearly Tk 6 lakh crore, Bangladesh now has one of the worst-performing banking systems in South Asia. Less than 3 per cent of borrowers fall into default status in countries such as India, Vietnam and Indonesia and the figure is less than 7 per cent even in fragile economies such as Sri Lanka or Pakistan. In Bangladesh, the true scale of the crisis was masked through manipulated reporting, lenient classification rules and political patronage for years. The previous Awami League regime repeatedly played down the extent of non-performing loans, reporting figures of around 10 per cent of the outstanding when the actual number was close to 30 per cent. The central bank鈥檚 recent move to align loan classification rules with international standards, reducing the default threshold from 270 days to 90 days and conducting more rigorous on-site inspection, has brought long-concealed vulnerabilities to light.
The roots of the crisis lie in the interplay of impunity and influence. Politically connected large borrowers have for years misused their access to syphon off funds, secure repeated rescheduling or write-offs and treat repayment as optional. This has fostered what economists aptly describe as an 鈥榰nholy nexus鈥� between borrowers and lenders under political patronage. As large defaulters went unpunished, small borrowers followed suit, eroding credit discipline across the board. Consequences of this entrenched default culture are severe. The ballooning non-performing loans have crippled banks鈥� capacity to lend productively, threatened depositors鈥� confidence and weakened the economy鈥檚 resilience. State-owned banks are particularly in dire shape, with almost a half of their outstanding loans now classified as defaulted. Recovery efforts have so far been inadequate and unless decisive action is taken, the crisis could spill over into broader economic instability. Addressing this situation requires more than cosmetic reforms. The Bangladesh Bank needs to rebuild its monitoring and control mechanisms, long eroded under political interference, and enforce strict governance and accountability in both state-owned and private commercial banks. A clear distinction should also be made between wilful defaulters who exploit the system for personal gains and those who have defaulted because of genuine economic hardship amid political unrest and stagnation.
The government and the central bank should, therefore, show the political will to undertake institutional reform to restore discipline, credibility and stability in the banking sector. In so doing, the authorities need to prioritise transparency, accountability and sound management practice in the banking sector.
