From the Bank Ledger to the Kitchen: Bangladesh’s Loan Crisis Became Everyone’s Problem
Bangladesh’s banking crisis is usually discussed through balance sheets, capital adequacy and non-performing loans.
For ordinary citizens, however, its consequences are far more tangible: expensive food, costly housing, higher borrowing costs, weaker purchasing power, fewer secure jobs and a growing sense that life is becoming harder.
The scale of the crisis has changed dramatically. At the end of 2021, defaulted loans stood at approximately Tk1.03 lakh crore, or 7.93 percent of total loans.
They rose to Tk1.21 lakh crore in 2022 and Tk1.46 lakh crore in 2023.
By December 2024, the figure had surged to Tk3.46 lakh crore, or 20.2 percent of outstanding loans.
It reached Tk6.45 lakh crore by September 2025, before falling to roughly Tk5.57 lakh crore at the end of December after extensive rescheduling.
Parliament was told in April 2026 that defaulted loans stood at Tk5,44,831 crore as of December 31, 2025.
The figures require a qualification: the deterioration did not all occur suddenly. Bangladesh Bank introduced stricter loan-classification practices, making previously concealed weaknesses more visible.
Rescheduling also moved substantial volumes temporarily out of the default category.
The figures thus reflect both old problems and new ones. Yet the underlying crisis is unmistakable.
The pandemic created an unusual statistical calm because regulatory forbearance delayed loan classification. Once protections were withdrawn, weaknesses became visible.
Economic uncertainty, foreign-exchange shortages, slower business activity, currency depreciation and rising costs further damaged repayment capacity.
A defaulted loan is not merely an accounting problem. When a bank cannot recover its money, capital is consumed, provisions must be created and liquidity becomes tighter.
Depositors may become cautious, while banks become more selective or charge more to compensate for risk.
The credit system becomes less efficient, and productive enterprises may find it harder to obtain financing.
Gross NPLs reached 24.13 percent in March 2025 and 35.73 percent in September.
The decline to around 30.6 percent at year-end, caused by rescheduling, should not be mistaken for recovery.
Bangladesh Bank’s Financial Stability Report indicated that risky loans, including those not formally classified as non-performing, were approaching Tk11 trillion by December 2025, nearly 60 percent of banking-sector loans. The danger is therefore much larger than the headline NPL figure.
Loan defaults are not the principal direct cause of inflation. Inflation is multidimensional, shaped by exchange-rate depreciation, imported commodity prices, supply disruptions, food production, energy costs, fiscal conditions, monetary policy and market structure.
The World Bank reports that Bangladesh’s annual inflation rose from approximately 5.5 – 5.7 percent in 2020-21 to 7.7 percent in 2022, 9.9 percent in 2023 and 10.5 percent in 2024. It moderated to about 8.8 percent in 2025.
Depreciation of the taka, supply disruptions, food-price shocks, flooding and weaknesses in supply chains have been major drivers.
The relationship is indirect but significant:
Conversely, inflation, currency depreciation and high interest costs weaken businesses, reduce their ability to repay and generate more defaults. The result is a feedback loop rather than a one-way relationship.
Consider a small manufacturer. It borrows to import machinery or raw materials. As the taka depreciates, imported inputs become more expensive.
Electricity, transport and wages rise, while consumers reduce spending because their purchasing power is falling.
Sales weaken just as the firm’s working-capital needs increase. The business may then fail to service its loan.
The bank classifies the loan as distressed, creates provisions and reduces lending capacity. Another viable enterprise may find credit more expensive or unavailable
Investment declines, production slows, supply tightens and prices remain elevated. Thus, a banking crisis can reinforce inflation without being its original cause.
The ultimate sufferers are the taxpayers and the depositors, who pay for the defaulters.
When large borrowers fail to repay and banks cannot absorb the losses through their own capital and provisions, the burden does not disappear. It may eventually migrate to depositors, taxpayers and the wider economy.
Bangladesh Bank reported that banks had failed to maintain required provisions against non-performing loans.
At the end of 2024, the provision-maintenance ratio had fallen to approximately 50.75 percent.
This creates a dangerous asymmetry. If a borrower receives enormous credit without adequate scrutiny and the project succeeds, the borrower gains the profit.
If the loan is diverted or the project fails, the banking system bears much of the loss. If the bank becomes weak, society ultimately carries the cost.
This is moral hazard, especially when political connections or repeated rescheduling make repayment appear optional.
The ordinary citizen may not own a bank, but lives within the banking system. A shopkeeper pays more for working capital.
A young entrepreneur struggles to obtain a business loan. A homebuyer faces higher financing costs.
A farmer pays more for agricultural inputs. A salaried family discovers that its income buys less food.
A retiree dependent on deposits may receive a return that fails to compensate for inflation.
The World Bank has noted that wage growth for low-income workers remained below inflation from May 2021 onward, although the gap narrowed more recently.
This is the clearest connection between financial–sector weakness and public discomfort.
Inflation is not merely a number published by a statistics office. It is a transfer of purchasing power.
When food prices rise faster than wages, a household becomes poorer even if its nominal income remains unchanged.
A banking system rests on trust: depositors trust banks, banks trust borrowers, borrowers trust contracts, and society trusts regulators. When defaults become pervasive, that chain weakens.
The central questions are no longer simply how much money has been lost, but why it was lent, who benefited, who failed to repay and why the system allowed the failure to continue.
Bangladesh must distinguish genuine business failure from deliberate financial misconduct.
Businesses can fail because of war, inflation, exchange-rate shocks or market collapse.
But fraudulent borrowing, political influence, connected lending, diversion of funds and deliberate non-repayment are different matters. Treating both categories alike would be unjust.
The solution cannot be another cycle of indiscriminate rescheduling. Rescheduling may help a fundamentally viable enterprise facing temporary difficulty.
Repeatedly rescheduling an unviable or deliberately non-compliant borrower merely postpones recognition of the loss.
Bangladesh needs transparent loan disclosure, independent credit assessment, strong recovery institutions, protection for depositors and credible enforcement regardless of political or economic influence.
Bangladesh Bank has outlined a medium-term roadmap involving stricter supervision, faster recovery, legal reform and stronger international credit-loss standards.
But regulation alone will not be enough. The country needs a cultural change in finance: borrowing must once again imply an obligation to repay.
Bangladesh’s loan crisis is not ultimately about numbers in bank ledgers. A Tk100 crore default can mean less credit for productive businesses. Thousands of such defaults can weaken the banking system.
A weakened banking system constrains investment; weak investment slows production and employment; reduced production, combined with exchange-rate and supply shocks, sustains inflation; and inflation reduces the purchasing power of millions.
The chain eventually reaches the dinner table.
The central challenge is therefore not merely to reduce the reported number of defaulted loans.
It is to restore the integrity of the financial system so that money flows toward productive investment rather than politically protected or poorly supervised borrowers.
A bad loan may begin in a bank’s balance sheet. Its final bill, however, can arrive at the household kitchen.
(The author is a Professor of Canadian University of Bangladesh)
