Banking Sector Defaults Surge to 31%

The proportion of defaulted loans within the country’s banking sector has risen sharply, reaching 31.20% by the end of the December quarter, according to the latest report from Bangladesh Bank. This represents a significant increase from 19.90% in the same period last year, reflecting both regulatory changes and longstanding structural issues within the financial system.

In monetary terms, loans classified as defaulted now total Tk5,54,486 crore, highlighting the substantial scale of non-performing assets in the sector.

Regulatory Changes Driving the Increase

The central bank has attributed much of the rise to the adoption of internationally standardised loan classification rules in 2025. Under the new framework, any loan unpaid for over 90 days is now considered defaulted, a stricter threshold than the previous 180-day period.

A senior official at Bangladesh Bank explained, “Reclassifying loans as defaulted after 90 days has naturally increased the volume of non-performing loans. Nonetheless, policy support measures introduced toward the end of 2025 have helped reduce default levels slightly in the December quarter compared with September.”

One such policy allows banks to write off bad loans earlier, rather than waiting for two consecutive years of non-performance, thereby improving balance sheet health. According to central bank data, the default rate at the end of September stood at 36.30%, indicating a modest improvement by December.

Restructuring and Policy Support

Several banks have restructured defaulted loans in line with central bank guidelines, which has removed a significant portion from the default category. Without these interventions, the December figure could have been substantially higher.

Bankers noted that the recent surge exposes long-concealed irregularities in the sector. Loans previously shown as performing despite non-repayment are now accurately classified, revealing the true extent of financial stress.

Foreign audit firms have reviewed portfolios across multiple institutions, particularly the five Islamic banks that have since merged into a single entity. These banks have experienced a sharp rise in defaults, reflecting both consolidation challenges and prior mismanagement.

Historical Context

The rise in defaults has been linked to a history of fraud, corruption, and mismanagement in both conventional and Islamic banks. Prominent corporate groups, including S Alam Group, Beximco Group, Nasa Group, Bismillah Group, and Hall-Mark Group, along with scandals involving BASIC Bank, have contributed to the current high default levels.

Defaulted Loan Overview

Bankers emphasise that while Islamic banks have been the most affected, conventional banks have also faced significant irregularities. The current situation underscores the need for ongoing reforms to restore transparency and stability to the country’s banking sector.