NEW DELHI
Bangladesh now has the world’s second-highest rate of non-performing loans (NPLs), with nearly one-third of all bank lending classified as defaulted. According to reports, the country also holds the worst bad loan ratio among all South Asian Association for Regional Cooperation (SAARC) nations.
The report, attributes this severe financial crisis to a combination of weak credit discipline, politically influenced lending, and highly ineffective loan recovery processes. War-torn Ukraine tops the global list with a bad loan ratio of 37.35 percent, driven by massive economic destruction. Bangladesh follows closely in second place at 32.26 percent, ranking ahead of African nations like Chad and Guinea.
Official data from Bangladesh Bank reveals that non-performing loans surged to a staggering Tk 5.89 lakh crore by the end of March, jumping by Tk 31,000 crore in just three months. The country’s total outstanding loans sit at Tk 18.25 lakh crore. When restructured loans and special accounts are included, the total stressed assets reach Tk 11.2 lakh crore. This means a staggering 61 percent of the banking system’s entire loan book is currently in distress.
Industry experts and local bankers noted that political pressure heavily weakened credit standards over the years. Many large loans were approved based on personal connections rather than a borrower’s actual capacity to repay the money.
Consequently, the banking sector’s overall capital position has collapsed. The average capital-to-risk ratio plunged to negative 2.64 percent, falling drastically below the required regulatory minimum of 12.5 percent. In sharp contrast, regional neighbors have protected their financial systems through strict discipline, with Pakistan maintaining a capital ratio of 20.8 percent, Sri Lanka at 19.4 percent, and India at 17.2 percent.
The massive surge in defaults is now forcing Bangladeshi banks to set aside higher provisions and face rising legal costs. This dynamic is severely crushing banking profitability and drastically limiting the amount of fresh credit available to support productive economic sectors.
