Business Report :
Bangladesh’s banking industry remains under considerable strain due to high credit risks, a fragmented system, and weak governance across certain lenders, and is expected to stay under pressure through 2026, according to Standard & Poor’s (S&P) Global Ratings.
In its latest midyear outlook, the global credit rating agency assessed Bangladesh’s banking system with a score of 9.0 on its Banking Industry Country Risk Assessment (BICRA) scale, which ranges from 1.0 (lowest risk) to 10 (highest). This rating places Bangladesh among the riskiest banking sectors in the Asia-Pacific region, alongside only three other economies: Mongolia, Cambodia, and Vietnam.
By contrast, banking systems in Singapore, Australia, and Hong Kong received scores of 2.0, indicating high levels of stability and resilience. Japan and South Korea followed with ratings of 3.0.
The report highlighted persistent structural challenges within Bangladesh’s banking sector, including weak liquidity at some Islamic banks and capital shortfalls among several state-owned and Shariah-compliant institutions.
“Bangladesh’s banking industry continues to face deep-rooted structural problems, driven by poor lending standards and inadequate foreclosure laws,” said Shinoy Varghese, primary credit analyst at S&P Global Ratings.
Varghese noted that state-owned banks still carry significant volumes of underperforming assets. The discontinuation of legacy credit lines, combined with defaults on rescheduled loans, underscores the fragile nature of many borrowers’ cash flows.
S&P acknowledged that recent regulatory measures-such as the introduction of stricter loan classification guidelines, tougher conditions for loan renewals, and clearer definitions for wilful defaulters-have led to more accurate reporting of non-performing loans.
“Although these steps may cause short-term strain, they will enhance transparency and bring the system closer to international standards,” Varghese said.
Despite the tighter credit environment and rising default rates, the outlook also identified potential positives for bank profitability. The shift to a market-based interest rate regime, combined with elevated interest rates, could support net interest margins (NIMs).
“Interest rates are likely to remain high through 2026, which will restrain credit demand. However, this environment may improve bank earnings, particularly as market-based lending rate mechanisms take hold,” Varghese added.
