Defaulted loans rise to Tk 588,704cr in March
Defaulted loans in Bangladesh’s banking sector rose again in the first quarter of 2026, reversing the brief decline recorded at the end of last year and raising fresh concerns over weak loan recovery, governance problems and the overall health of the financial sector.
According to Bangladesh Bank data, classified loans climbed to Tk 588,704 crore at the end of March this year, up by Tk 31,487 crore from Tk 557,217 crore in December. With the latest increase, defaulted loans now account for 32.26 percent of total outstanding loans in the banking sector.
Total outstanding loans stood at Tk 1,824,668 crore at the end of March.
The latest rise shows that nearly one-third of all loans in the banking sector have become non-performing, meaning borrowers have failed to repay their loans within the scheduled time.
This has increased pressure on banks, particularly those already facing capital shortfalls, liquidity stress and weak balance sheets. At the end of last year, the ratio of non-performing loans had dropped to around 31 percent from 36 percent three months earlier. However, that decline was largely linked to large-scale loan rescheduling under a special policy support programme introduced by Bangladesh Bank.
Loan rescheduling allows borrowers to get more time to repay their loans by restructuring payment terms. Although it can help businesses survive temporary financial pressure, frequent or large-scale rescheduling may also hide the real condition of bad loans if borrowers are unable to repay even after receiving additional time.
The March figures suggest that the relief created by rescheduling was temporary, as fresh defaults and weak recovery again pushed up the volume of classified loans. Banking sector insiders have long argued that rescheduled loans often return to the default category when borrowers fail to maintain revised repayment schedules.
Economists and financial analysts have repeatedly warned that Bangladesh’s high level of defaulted loans is not only a banking problem but also a broader economic concern. When banks fail to recover loans, their ability to provide fresh credit to productive sectors becomes weaker. This can affect private investment, business expansion and employment generation.
The rise in bad loans also forces banks to keep higher provisions against possible losses. This reduces profitability and weakens their lending capacity. State-owned banks and several private banks have faced repeated criticism over loan irregularities, poor due diligence, politically influenced lending and weak monitoring of large borrowers.
Governance has remained one of the most discussed issues in the banking sector. Experts say that many loan defaults are not caused only by business failure but also by poor loan approval practices, lack of accountability and the influence of powerful borrowers. In many cases, large borrowers are able to secure repeated restructuring facilities, while small borrowers face stricter recovery pressure.
Bangladesh Bank has taken several steps in recent years to address the problem, including tighter monitoring, policy reforms and instructions to banks to improve recovery efforts. However, the latest data show that the sector continues to struggle with a deeply rooted default culture.
The high volume of non-performing loans also comes at a time when the economy is facing pressure from inflation, exchange rate volatility, import restrictions and slower private sector credit growth.
Businesses in different sectors have reported difficulties in maintaining cash flow due to higher costs and slower demand, which may also be contributing to repayment problems.
However, analysts say the problem cannot be explained by economic pressure alone. They argue that without stronger governance, transparent loan classification, effective legal recovery and action against wilful defaulters, the banking sector will continue to face recurring stress.
The latest defaulted loan figure is significant because it reflects the real challenge banks face after the temporary improvement seen in December. While the fall in the default ratio at the end of last year offered some relief, the March data indicate that the underlying problem remains unresolved.
A high default rate also affects public confidence in the banking system. Depositors expect banks to handle funds responsibly, while businesses depend on banks for investment and working capital. If bad loans continue to rise, banks may become more cautious in lending, which could further slow economic activity.
For Bangladesh’s banking sector, the latest increase in classified loans is therefore a warning sign. It shows that temporary policy support alone may not be enough to solve the crisis. Stronger recovery efforts, improved corporate governance, stricter supervision and a more effective legal framework will be needed to bring down defaulted loans in a sustainable way.
Unless these structural weaknesses are addressed, the burden of bad loans may continue to grow, putting further pressure on banks and the wider economy.
