Bangladesh’s economy is facing one of its most severe crises in recent history, with all three pillars—the banking sector, non bank financial institutions (NBFIs), and the stock market—mired in instability.
A vicious cycle of defaulted loans, weak regulation, political influence, corruption, and the dominance of junk companies has left the economy in a precarious state, deepening uncertainty about the future.
Years of lax policies, political interference, and corruption have left the banking sector heavily burdened with defaulted loans.
According to the latest estimates from Bangladesh Bank, defaulted loans stood at around Tk6 lakh crore at the end of June.
In addition, another Tk3.18 lakh crore in hidden defaults is in the process of being disclosed.
This includes Tk1.78 lakh crore stuck in money loan courts, Tk80,000 crore written off, and Tk60,000 crore under court stay orders.
Once updated by the Credit Information Bureau (CIB), the total could rise to Tk9 lakh crore.
Amid this dire situation, the government has proposed removing the definition of “wilful defaulter” in the draft of the new Banking Company Act.
The draft argues that identifying wilful defaulters is complex and not aligned with reality.
However, the amended law of 2023 had required every bank to prepare a list of wilful defaulters and submit it to the central bank.
A Bangladesh Bank official, speaking on condition of anonymity, told Dhaka Tribune: “There was widespread looting in the name of loans during the previous government. Despite having the ability, many influential businessmen did not repay loans. That is why the new draft proposes to remove this definition.”
Experts, however, argue that wilful defaulters can be identified if the accounts of actual defaulters are made public.
Former Chittagong University professor Dr Moinul Islam told Dhaka Tribune: “The culture of rescheduling, cancellation, and interest waivers does not improve the financial health of banks, even if it reduces defaults on paper. What is happening must be made public. This will benefit the banking sector in the long run.”
Bangladesh Bank Governor Dr Ahsan H Mansur has pledged greater transparency, saying: “From now on, no information will be kept secret. All defaulted loans will be made public and strict recovery efforts will be carried out.”
The Asian Development Bank (ADB) recently reported that Bangladesh now has the highest volume of defaulted loans in Asia.
In 2024, 20.2% of the country’s total disbursed loans defaulted—28% higher than the previous year.
The ADB described Bangladesh as having the “weakest banking system” in Asia.
By contrast, India, Pakistan, and Sri Lanka have managed to reduce non-performing loans through reforms.
Former World Bank chief economist Dr Zahid Hussain said: “The stricter the rules, the more the number of defaulted loans increases. Without bold reforms like India, this crisis will not end.”
Selim Raihan, executive director of South Asian Network on Economic Modeling (SANEM), added: “The problem will not be solved unless political interference is stopped and the judiciary is strengthened.”
In an unprecedented move, Bangladesh Bank has decided to merge five Islamic banks—First Security, Social Islami, Global Islami, Union, and Exim Bank—into a new state-owned entity, tentatively named United Islami Bank.
The government will inject at least Tk20,000 crore in capital. The default loan rates of these banks range between 48 and 98%.
“This initiative is in the interest of protecting depositors,” said the Bangladesh Bank Governor.
“There is nothing to panic about. The government will take all responsibility.”
The situation is equally grim for state-owned banks. Recovery of defaulted loans has virtually stalled.
In the first six months of this year, the top 20 defaulters owed Tk31,908 crore, of which only Tk219 crore was recovered.
Janata Bank is in the worst condition, with defaulted loans of Tk70,845 crore—75% of its total loan portfolio.
There are, however, some positive signs.
Growth in bank deposits rose to 8.42% in July, a slight improvement over the previous month.
Bankers view this as a modest sign of returning confidence.
The instability in the banking sector has spilled over into non-bank financial institutions. Here, the situation is even more alarming.
According to Bangladesh Bank, defaulted loans of 20 troubled NBFIs total Tk21,462 crore, representing 83% of their loan portfolios.
The central bank has recommended liquidation of nine of these institutions.
Experts say the sector has effectively gone bankrupt, with many unable to repay depositors, further eroding public confidence.
As of December 2024, the total debt of these 20 institutions was Tk25,808 crore, but collateral stood at only Tk6,899 crore—just 26% of the total debt.
Central bank officials warn that unless swift action is taken to protect depositors, the sector could collapse entirely.
The third pillar of the economy, the stock market, has also been under prolonged stress.
Over the past 16 years, the market has shrunk by about 38%. Adjusted for inflation, investors have lost capital at an average rate of 3% annually.
Meanwhile, an influential group has reportedly exploited the market to amass wealth.
According to the Dhaka Stock Exchange (DSE), shares of 98 out of 397 listed companies are now trading below the face value of Tk10. More than half of these are priced under Tk5.
The list includes 33 banks and NBFIs, 35 mutual funds, and 17 textile companies.
“The fact that the price of such a large number of shares has fallen below face value proves that the performance of these companies is not good. As a result, investors are leaning towards a few strong companies,” said Kazi Monirul Islam, CEO of Shanta Asset Management.
Saiful Islam, president of the DSE Brokers Association of Bangladesh, added: “So many junk shares in the stock market are discouraging foreign and institutional investors. Weak companies need to be closed or merged quickly, and new strong companies must be brought into the market.”
