Loan defaults, weak governance expose banking vulnerabilities this year
Md. Istiak :
Bangladesh’s banking sector ended 2025 facing one of the most severe crises in decades. Years of political interference, irregular lending, and weak regulatory oversight had left many banks in poor health, but the scale of the problem became clear this year.
By September, non-performing loans (NPLs) had reached Tk 6.44 lakh crore, nearly 36 percent of total credit the highest since 2000. Over a dozen banks reported default ratios above 50 percent. Large corporate groups, particularly after the government change in August 2024, caused most of these new defaults.
The broader economy added to the pressure. Inflation remained high at 8 percent. Private sector credit growth slowed to record lows, and lending rates climbed to 16–17 per cent, discouraging investment. Businesses held back expansion, while depositors worried about their savings.
The interim government acted with bold steps. Five troubled shariah-based banks merged into the state-owned Sammilito Islami Bank PLC, creating the country’s largest Islamic lender with Tk 35,000 crore in capital, including Tk 20,000 crore from the government. Four banks were linked to the S Alam Group, while EXIM Bank was controlled by the Nassa Group. Shareholders lost their investments, but depositors were reassured.
Nine troubled non-bank financial institutions were also shut down. The Bank Resolution Ordinance 2025 gave authorities the power to intervene in failing banks, while the Deposit Protection Ordinance doubled insured deposits to Tk 2 lakh, covering 93 percent of depositors. These moves were seen as necessary to restore confidence, though they cannot solve underlying governance problems alone.
Governance reforms faced obstacles. Bangladesh Bank Governor Ahsan H Mansur sought to reduce political influence and strengthen autonomy, but bureaucracy slowed progress. Asset reviews, updated loan rules, and preparations for risk-based supervision continued quietly, with full implementation scheduled for January 2026.
Draft amendments to the Bank Company Act, meant to tighten rules for bank owners and directors, were left for the next elected government.
There were some positives in the external sector. Crackdowns on illegal money transfers helped stabilize the foreign exchange market. Remittances hit a record $30.04 billion, boosting reserves to $32.57 billion. Technology also began entering banking, with AI services and digital bank license applications, though these offered little immediate relief.
The crisis exposed systemic weaknesses. Political interference and concentrated ownership had eroded depositor confidence. Yet it also forced action: weak banks were merged or closed, and the first steps toward risk-based supervision were taken.
As Bangladesh enters 2026, the sector remains fragile. 2025 was a reckoning, not a recovery. The next government’s political will, along with continued reform, stronger supervision, and improved corporate governance, will determine whether the banking system can finally become stable, resilient, and capable of supporting sustainable economic growth and broader financial inclusion for all citizens.