Staff Reporter :
Bangladesh’s banking sector is under increasing pressure, with the combined provision shortfall escalating more than six times over the past year, exposing significant vulnerabilities to financial shocks.
Data recently released by Bangladesh Bank reveals that the provision deficit reached Tk 170,655 crore in March 2025, rising sharply from Tk 106,130 crore in December 2024. This figure has climbed steadily throughout the year, from Tk 55,378 crore in September and Tk 31,549 crore in June 2024.
A year earlier, in March 2024, the shortfall was just Tk 26,585 crore.
By March 2025, banks were required to hold Tk 275,103 crore in provisions but had only set aside Tk 104,448 crore, leaving a substantial shortfall of Tk 170,655 crore.
Industry insiders argue that this steep rise in provision deficits has
revealed long-standing financial irregularities that were previously obscured under the former Awami League government, which was ousted in August 2024. The true scale of non-performing loans (NPLs) came to light only after Bangladesh Bank began enforcing stricter disclosure and ended years of leniency toward politically connected borrowers.
The total volume of NPLs in the banking sector has ballooned to Tk 420,335 crore by the end of the January-March quarter of this year, accounting for 24.13 per cent of total outstanding loans, according to Bangladesh Bank data.
The overall banking sector’s outstanding loans stood at Tk 1,741,992 crore as of 31 March 2025, a slight decrease from Tk 1,711,402 crore at the end of December 2024. However, the volume of bad loans surged by Tk 74,570 crore within just three months. Compared to the same quarter last year, NPLs have increased by a staggering 131 per cent from Tk 182,295 crore.
Under current regulations, banks are required to set aside provisions ranging from 0.5 per cent to 5 per cent for standard loans. Provisioning requirements increase substantially for classified loans: 20 per cent for substandard, 50 per cent for doubtful, and 100 per cent for bad or loss-category loans.
Consequently, banks now face higher provisioning demands to mitigate potential losses from deteriorating loan quality.
The central bank’s data indicates that state-owned commercial banks are leading the way toward financial distress, with provisions covering only 31.47 per cent of their required reserves.
These institutions face a provision shortfall of Tk 63,997 crore against classified loans, which continue to expand unchecked. Their required provisions stood at Tk 93,383 crore, yet they have managed to set aside only Tk 29,386 crore, demonstrating that government ownership has not shielded them from financial mismanagement.
Meanwhile, private commercial banks recorded a provision shortfall of Tk 107,340 crore, with a coverage ratio of 39.20 per cent – slightly better than state-owned banks but still alarmingly low.
Private lenders require Tk 176,556 crore in provisions but have only allocated Tk 69,216 crore, underscoring structural weaknesses within the commercial banking sector, which appears to prioritise short-term gains over long-term stability.
Foreign banks, by contrast, stand out as a notable exception. They maintain a provision coverage ratio of 118.64 per cent, creating a surplus of Tk 433 crore, highlighting a significant divergence between international banking standards and local practices.
Specialised banks also exceed their provisioning requirements, with a coverage ratio of 108.74 per cent and a surplus provision of Tk 248 crore, demonstrating that disciplined financial management is achievable when institutions focus on prudent lending practices.
