H. M. Nazmul Alam :
If global financial crises had a museum, Bangladesh’s banking sector would require its own wing. Inside that wing would stand an exhibit labelled “Defaulted Loans: A Living Fossil,” with blinking lights marking the astonishing rise of nonperforming loans while the rest of the world, including countries at war, somehow keep theirs in check.
The irony is sharp enough to slice through ledgers. Ukraine, battered by nearly four years of full scale war, still maintains a default rate of 26 percent. Bangladesh, untouched by foreign invasion but scarred by something more elusive and far more persistent, has soared to nearly 36 percent. That number represents not just a structural failure but a cultural one.
The contrast is almost theatrical. Tunisia, navigating political turmoil and economic chaos after igniting the Arab Spring, records a default rate under 15 percent. Lebanon, whose economy has been repeatedly shaken by conflict and collapse, stays below 24 percent.
Even Russia, an oligarchic labyrinth with a long love affair with financial mismanagement, keeps its rate at 5.51 percent. When countries in flames manage to do better than countries in peace, the uncomfortable question is not who to blame but how such a quiet catastrophe was allowed to mature.
Bangladesh now holds the highest banking default rate in the world. No country has breached the 30 percent line, yet Bangladesh has glided past it like a gymnast unburdened by the weight of financial gravity. A country famous for breaking records in cricket has found a new field for extraordinary performance.
The picture becomes even more absurd when viewed in a broader context. Turkey, recently struck by currency meltdowns, inflation surges and an exodus of investors, has reduced its nonperforming loans to 2.29 percent. Greece, once the poster child of sovereign bankruptcy, has lowered its default rate to 3.6 percent.
Argentina, a country whose economy seems permanently attached to an oxygen tank, has reduced its banking defaults to 1.6 percent, down from over 20 percent at the start of this millennium. It is almost unsettling to see a country where inflation changes as frequently as weather forecasts outperform a system that is supposedly stable.
In the neighbourhood, things look no better for Bangladesh. Only Sri Lanka once recorded high levels of defaulted loans in the region, at around 12.6 percent. Yet after its political and economic collapse, the island nation revived itself through elections, policy discipline and a painful but necessary restructuring.
Its default rate is now far below Bangladesh’s. Pakistan, despite chronic instability, has managed to bring its non performing loan rate down to 7.4 percent. India stands at 2.3 percent and Nepal at 4.4 percent.
Compared to competitors in Southeast and East Asia, Bangladesh’s position resembles a lone skyscraper in a flat landscape. Singapore stands at 1.3 percent, Malaysia at 1.4 percent, Thailand at 2.7 percent, the Philippines at 3.3 percent, Vietnam at 5.4 percent and Indonesia at 2.1 percent.
Even China, with a banking sector larger than the GDP of most continents, restricts its defaulted loans to 1.5 percent. The United States is at 1.7 percent.
Bangladesh, in contrast, has arrived at the door of a crisis crafted not by fate but by design.
The updated figures from the central bank are staggering. As of September this year, defaulted loans stand at Tk 6,44,515 crore, which means over 35 percent of all loans distributed by the banking sector are not being repaid. In December last year, the amount was Tk 3,45,765 crore.
In nine months, defaults have increased by Tk 2,98,750 crore. It is rare to see a financial statistic climb so rapidly without a natural disaster behind it. Here, the disaster is entirely man made.
Historically, this ceiling shattering number is not accidental. When the Awami League assumed power in 2009, nonperforming loans stood at Tk 22,482 crore.
Over the next decade and a half, the system expanded not through discipline but through permissiveness. Loans were rescheduled, restructured and repainted in ways that kept them looking deceptively healthy. Around Tk 64,000 crore was written off.
Loans worth lakhs of crores were kept afloat through creative accounting. Yet the International Monetary Fund, in a report two years ago, estimated that nearly one third of all loans at that time were already non performing.
The change came only after the student led mass uprising and political transition. Simultaneously, the central bank began reclassifying defaults according to global standards rather than domestic conveniences.
Previously, borrowers could skip a full year of instalments without being marked overdue. Now, three months is enough. The result is not a sudden decay but a long hidden reality rising to the surface.
The banking sector’s reserve shortfall reveals a deeper structural threat. By September, banks needed Tk 4,74,598 crore in provisions to safeguard depositor money. They managed only Tk 1,30,366 crore.
The deficit now stands at Tk 3,44,231 crore. Only six months earlier, the gap was Tk 1,70,655 crore. In half a year, the shortfall expanded by Tk 1,73,576 crore.
This level of under provisioning means banks are carrying vast amounts of toxic loans with almost no financial cushions. Depositors, unknowingly, are keeping their savings in institutions where safety is more theoretical than real.
This is how financial systems fail. Not through a cinematic collapse but through slow rot.
A glance at history shows how far the sector has deviated from its earlier path. In 1999, Bangladesh experienced its previous peak default rate of 41.10 percent under the first Hasina government. After that, the figure steadily declined to 7.27 percent in 2010.
This was a time when monitoring strengthened, governance tightened and political interference remained restrained. Once that restraint weakened, the system grew porous.
Irregularities multiplied. The infamous Basic Bank scandal became a symbol of how public money could disappear while regulators looked away. By 2024, nonperforming loans reached Tk 3,45,764 crore. Now, the number is almost double.
The new central bank leadership initiated extensive reforms. Boards of 14 private banks were dissolved. State owned banks were restructured. Five Sharia based banks, deeply entangled in irregularities, are now being merged into a single entity. Plans for further mergers and even liquidations are underway.
These steps indicate a willingness to clean the system, but reforming a sector that has been eroded for over a decade is more complicated than replacing boards. The rot lies in incentives, entrenched networks, political patronage and an informal immunity that defaulters enjoyed for far too long.
Economists warn that the measures taken so far are far from enough. When a defaulted loan reaches this scale, mild remedies lose their potency. Financial accountability requires deterrence. That deterrence once prevented borrowers from imagining public money as a personal safety net. Today, the absence of consequences has made loan default almost a parallel culture, an unwritten policy that everyone understands but no one acknowledges.
Bangladesh is standing at that fragile intersection. Behind the large headline numbers lies the very real risk that a banking sector with inadequate reserves, high loan concentration and institutionalised irregularities could trigger a wider financial crisis. The irony is that the country did not need an external shock. It created one from within.
(The writer is an Academic, Journalist, and Political Analyst based in Dhaka, Bangladesh. Currently he is teaching at IUBAT. He can be reached at [email protected])
