Bangladesh’s banking sector is facing a serious challenge as non-performing loans (NPLs) nearly tripled over the past two years now totalling a staggering Tk 345,765 crore by the end of FY 2024–25, Per the Centre for Policy Dialogue (CPD). This rapid increase in bad loans has had wide-ranging economic effects. Inflation has stayed high, revenue collection lagged, and growth in private-sector credit slowed, reflecting weakened financial health nationally. As an added stress, many banks are now operating with dangerously low capital adequacy, some even violating Basel III norms as the cost of NPLs chokes credit availability. The inability of banks to recover or provision for these simmering loan defaults means fewer new loans get approved. This is especially harmful to small and medium enterprises, which are crucial to job creation and exports. Industry experts warn that unless banks address NPLs and restore provisioning buffers, economic recovery may slow significantly. The fallout from NPLs extends into fiscal policy and banking governance. Persistent bad loans hurt investor confidence and raise borrowing costs due to deteriorated risk assessments. Many banks are being pushed to merge or recapitalise processes slowed by weak governance and interference. However, not all hope is lost. The central bank has introduced provisions for early loan-loss overhauls that align with IFRS-9 expected credit loss norms, aiming for full implementation by late 2027. Banks are also being encouraged to improve their internal risk systems, automate credit monitoring, and depoliticise lending decisions. Experts suggest that Bangladesh needs to address fundamental issues to create real change: Implementing transparency and holding people accountable is essential to reduce intentional defaults. Complete bank mergers quickly and fairly, reducing fragmentation. Strengthen bank boards and risk management systems. Boost legal power over defaulters and quickly access collateral. Without reform, analysts warn that inflation may stay high, credit growth may stall, and investor sentiment could deteriorate further. Still, there is a pathway forward. Immediate policy action such as stronger provisioning, bank consolidation, and governance reform paired with better monitoring, can restore stability. CPD emphasizes that transparent loan recovery frameworks and better oversight will help rebuild bank balance sheets and support economic growth. In summary, Bangladesh’s bulging NPLs threaten to derail credit flows and economic expansion. But with firm reforms, disciplined provisioning, and structural banking reforms, the economy can steer away from crisis restoring the engines of growth and private investment.
