The alarming escalation of the provision shortfall in Bangladesh’s banking sector has laid bare the structural weaknesses that have long been concealed beneath a veneer of regulatory leniency and political patronage. According to Bangladesh Bank, the combined provision deficit surged over sixfold in just a year, reaching Tk 170,655 crore in March 2025 — a stark rise from Tk 26,585 crore a year earlier.
This deficit, which represents the gap between required provisions and what banks have set aside to cushion against loan defaults, reflects not only poor financial discipline but also systemic mismanagement. Banks were required to hold Tk 275,103 crore in provisions by March 2025, but had managed to allocate just Tk 104,448 crore. The magnitude of this shortfall has amplified the banking sector’s exposure to financial shocks and raised pressing questions about institutional resilience.
The timing is significant. Following the ousting of the Awami League government in August 2024, Bangladesh Bank has adopted a stricter regulatory stance, bringing to light the true scale of non-performing loans (NPLs), which now account for a staggering 24.13 per cent of all outstanding loans. The total volume of NPLs stands at Tk 420,335 crore, marking a 131 per cent increase from a year ago.
Particularly troubling is the performance of state-owned commercial banks, which have fulfilled only 31.47% of their provisioning requirements. With a shortfall of nearly Tk 64,000 crore, these institutions exemplify the pitfalls of political interference and lack of accountability. Private banks, though slightly better, fare little differently, having met just 39.20 per cent of the required provisions.
In contrast, foreign and specialised banks have demonstrated what sound financial governance can achieve. With provisioning coverage ratios exceeding 100 per cent, these institutions provide a rare glimpse of responsible banking practices, driven by discipline rather than expediency.
This unfolding crisis must serve as a wake-up call for policymakers, regulators, and financial institutions alike. Restoring stability requires urgent reforms — enhanced transparency, stricter enforcement of provisioning norms, and an end to preferential treatment for politically connected borrowers. Without these, the banking sector risks becoming a drag on Bangladesh’s broader economic ambitions.
The time for cosmetic fixes has passed. The figures speak for themselves: the sector is teetering, and only bold, systemic intervention can arrest its decline.
