Loan Defaults Hit One-Third of Bank Portfolios

The share of defaulted loans in Bangladesh’s banking sector has surged to 31.20% by the end of the December quarter, according to the latest update from Bangladesh Bank. This marks a sharp rise from 19.90% in the same period last year, signalling both regulatory adjustments and the exposure of long-hidden financial irregularities.

In monetary terms, the defaulted loans now total Tk5,54,486 crore, highlighting the significant weight of non-performing assets on bank balance sheets.

Stricter Loan Classification Standards

Bangladesh Bank has pointed to the implementation of international loan classification standards in 2025 as a key factor behind the increase. Under these standards, loans unpaid for more than 90 days are classified as defaulted, reducing the previous threshold from 180 days.

A senior central bank official commented, “The adoption of the 90-day rule has naturally expanded the volume of non-performing loans. However, policy measures introduced towards the end of 2025 have helped temper the rise slightly in the December quarter.”

One important reform allows banks to write off bad loans earlier. Previously, loans could only be removed from the books after being classified as non-performing for two consecutive years. The new framework permits earlier write-offs, which helps improve banks’ capital positions.

Restructuring and Recovery Efforts

Several financial institutions have restructured defaulted loans under central bank guidance, removing a portion from the default list. Without these interventions, the December figure would have been considerably higher.

Bankers emphasised that the increase in defaults reflects the unmasking of previously concealed bad loans. Practices that previously allowed loans to appear as performing despite non-repayment are no longer permitted.

Impact on Islamic and Conventional Banks

Foreign audit firms have conducted thorough reviews of multiple banks’ loan portfolios. The five Islamic banks that recently consolidated into a single entity have recorded a particularly steep rise in defaults. Conventional banks, however, have not been immune, with several experiencing significant irregularities.

Bankers also cite a long history of fraud, corruption, and mismanagement, involving major corporate groups such as S Alam Group, Beximco Group, Nasa Group, Bismillah Group, and Hall-Mark Group, as well as scandals at BASIC Bank, as major contributors to the current default levels.

Defaulted Loans Overview

Bankers warn that while recent policy measures and restructuring efforts have provided temporary relief, the banking sector still faces the consequences of years of mismanagement, underlining the urgent need for continued oversight and reforms.