Artificial Bank Profits Mask Looming Risks in Bangladesh

The banking sector of Bangladesh has witnessed a significant yet contentious shift in financial performance, led by the state-owned Sonali Bank PLC. Despite a backdrop of declining core banking activities, the nation’s largest state lender recorded its highest-ever net profit of Tk1,313 crore in 2025. This figure represents a growth of more than 33% compared to the previous year. However, analysts and audited financial statements suggest that this surplus is primarily the result of regulatory forbearance and large-scale debt restructuring rather than organic business expansion.

Sonali Bank’s Financial Discrepancies

The performance of Sonali Bank in 2025 was marked by a stark contrast between its audited and unaudited figures. In January 2026, the bank initially reported an unaudited net profit of Tk2,650 crore—a 200% year-on-year surge. This figure was later halved in the audited statement to Tk1,313 crore following an intervention by the central bank, which mandated higher provisioning against bad assets and the reclassification of certain exposures as non-performing loans (NPLs).

Furthermore, the bank’s core revenue streams showed signs of distress. Net interest income plummeted by 77%, falling to Tk337 crore. This decline was attributed to reduced interest earnings from borrowers and increased interest obligations to depositors. Despite these fundamental weaknesses, the bank transformed a capital deficit of nearly Tk6,000 crore in 2024 into a capital surplus of Tk1,325 crore by the end of 2025.

Regulatory Forbearance and Sector-Wide Impact

The primary catalyst for these recorded gains was a relaxed loan rescheduling policy introduced by the central bank in September 2025. This policy allowed banks to restructure defaulted loans over a 10-year period, including a two-year grace period during which neither principal nor interest is required to be paid.

This campaign resulted in a temporary reduction of default loans across the industry by Tk87,298 crore in the final quarter of 2025. By moving these assets from the “default” to the “regular” category, banks significantly reduced their provision maintenance costs, thereby inflating their net profit figures.

The following table illustrates the impact of this policy on major financial institutions:

Economic Warnings and Future Consequences

While balance sheets appear cleaner, experts warn that the underlying stress has merely been deferred. Zahid Hussain, a former lead economist at the World Bank’s Dhaka office, characterised the practice as “continuous bleeding” that erodes capital and creates a “moral hazard.” He noted that such concessions often follow political considerations, emboldening wilful defaulters while discouraging disciplined borrowers.

The World Bank’s Bangladesh Development Update 2025 corroborated these concerns, stating that continued regulatory forbearance risks delaying the recognition of asset quality problems and slowing essential balance-sheet repairs. Furthermore, because banks are not receiving cash inflows from these rescheduled loans during the grace period, their capacity for fresh lending is severely constrained. This is reflected in private sector credit growth, which plummeted to an all-time low of 6.03% in January 2026.

Industry veterans, including former Bank Asia Managing Director Arfan Ali, warned that these “engineered” statements send misleading signals to depositors. There is a prevailing concern that when the two-year grace periods expire, a wave of re-defaults will occur, potentially leading to sharp capital erosion and jeopardising depositor funds in the third year of the cycle. Additionally, international lenders such as the IFC and ADB often view rescheduled loans as distressed assets, which may result in restricted credit lines and higher borrowing costs for Bangladeshi exporters and importers.