Banks’ Capital Gap Reaches Critical Levels

The financial health of Bangladesh’s banking sector has come under acute strain, as capital deficits surged to Tk2.82 lakh crore by the end of September 2025, pushing the overall position into negative territory. The sharp deterioration, highlighted in the latest report by Bangladesh Bank, reflects mounting defaulted loans and deep-rooted structural weaknesses in governance and credit management.

The report reveals that within a single quarter—from July to September—the combined capital shortfall of 23 banks nearly doubled from Tk1.55 lakh crore recorded in June. The rapid escalation has heightened fears of systemic instability, with implications extending beyond the banking sector into the wider economy.

A key measure of financial resilience, the capital-to-risk weighted assets ratio (CRAR), fell dramatically to negative 2.90% at the end of September, compared with 4.47% three months earlier. This is significantly below the internationally mandated minimum of 12.5%, underlining the severity of the crisis.

Core Financial Indicators

The surge in non-performing loans—now standing at Tk6.44 lakh crore—has been a principal driver of the capital erosion. Banking insiders point to years of aggressive lending, often influenced by vested interests, coupled with weak regulatory enforcement.

Syed Mahbubur Rahman, Managing Director of Mutual Trust Bank, observed that indiscriminate loan disbursement and director-driven lending decisions have significantly undermined asset quality. He noted that many previously undisclosed bad loans are now being recognised, further exacerbating capital shortages.

Capital Deficit by Banking Segment

Among state-owned lenders, Janata Bank reported the largest deficit at Tk19,973 crore, followed by Agrani Bank, Rupali Bank, and BASIC Bank. In the private sector, National Bank Limited recorded the highest shortfall, with several others—including AB Bank and Padma Bank—also under significant stress.

Islamic banks account for the largest share of the deficit, indicating concentrated vulnerabilities in the segment. First Security Islami Bank alone posted a deficit exceeding Tk65,000 crore, with Union Bank Limited and Islami Bank Bangladesh Limited also reporting substantial gaps.

Economists caution that the crisis has evolved into a structural challenge. Zahid Hussain, a former World Bank economist, warned that the capital erosion has made banks increasingly cautious, slowing private sector credit growth and constraining economic activity. Many institutions are now reliant on liquidity support from the central bank to remain operational.

He further noted that rising credit risk is undermining confidence among international lenders, increasing the cost of foreign borrowing and limiting access to external financing.

The implications are far-reaching. Weak capital positions restrict banks’ ability to extend large-scale loans, absorb financial shocks, and maintain depositor confidence. While a handful of well-managed banks continue to maintain adequate capital buffers—typically in the range of 13–14%—these remain outliers in an otherwise fragile system.

Addressing the crisis will require decisive reforms, including capital injections, improved governance standards, and stronger regulatory oversight. Experts also emphasise the urgency of establishing an effective bank resolution framework and taking firm action against major defaulters.

Without swift and comprehensive intervention, the mounting capital shortfall risks evolving into a broader financial crisis, with potentially serious consequences for Bangladesh’s economic stability and growth trajectory.