Banking sector needs 5-10 years to recover from current NPL crisis: Governor
United Islami Bank to start operations from next week, says governor
Highlights
- 35% of all loans in the banking sector are now NPLs
- Defaulted loans exceed Tk6.5 lakh crore as of September.
- Nine NBFIs set for liquidation due to failures
- Current account deficit has fallen from $19b to $400m
Bangladesh Bank Governor Ahsan H Mansur has said the country's banking sector will need five to ten years to recover from the severe burden of non-performing loans (NPLs), warning that high levels of defaulted loans remain the single biggest challenge for financial stability.
The ongoing reforms were designed to restore discipline over time, but the damage done by years of poor governance and political influence would take patience and strong commitment to fix, he said while speaking at the "4th Bangladesh Economic Conference 2025" at a hotel in Dhaka today (29 November).
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"Non-performing loans are a very big problem in the banking sector. Currently, 35% of loans are non-performing. This is not a small problem – more than one-third of loans have become unpaid," the governor said.
Credit growth is generally slow now because businesses are taking time. They want to understand where the country is going.
"We have to run the banking sector keeping this situation in mind. It may take five to ten years to come out of this situation," he added.
According to central bank data up to September, defaulted loans in the banking system now exceed Tk6.5 lakh crore.
Mansur said the roots of the crisis are deep, pointing to prolonged directives and interference in the operations of the central bank itself.
"The main reason behind the problems in the banking sector is the politicisation of the central bank. Many decisions were taken under instructions," he said. "It may happen again – it must be stopped. Politicians have a moral duty to stop this."
The governor said the figure of defaulted loans may rise further until December before a gradual improvement begins.
Governor Mansur also spoke about the merger of five troubled Shariah-based banks to one entity – United Islami Bank.
"We are applying the Bank Resolution Ordinance to five weak banks, merging them into a strong new bank," he said. "We are hopeful the launching will take place next week. The paid-up capital will be Tk35,000 crore. The government is providing Tk20,000 crore."
Troubled NBFIs to be closed
The governor also announced measures against non-bank financial institutions (NBFIs) that have failed to protect public funds.
"Nine financial institutions are going to be liquidated. The government is fully committed and will provide every kind of support," he said.
Under a newly created department and law, banks and NBFIs heading towards failure will first receive warnings and then stricter actions if no improvement is seen. "This will not be an isolated move, and it will not be done for special reasons. When needed, measures will be taken," he said. "A law has been enacted for this, and a separate department has been created."
Mansur said the next government formed after the upcoming election would understand the urgency of financial reforms and support the process going forward.
Dollar reserves stable, adequate
Governor Ahsan H Mansur dismissed concerns of dollar shortages, saying banks currently hold sufficient reserves to allow imports freely.
"When I joined as governor, the dollar rate was Tk120. Now it is Tk122.50 – without any intervention. The market is fully market-based," he said. "We can import as much as we want. If anyone says they cannot import, that is their problem. Banks do not have a dollar shortage."
He added that all margin requirements on letters of credit (LCs) have been removed.
The governor also said there were challenges during the last Ramadan to ensure supply of food imports, but this year key Ramadan-essential items have already seen increased import orders.
Central bank figures show that compared to a year ago, imports of six major essential goods in September and October rose sharply: soybean oil by 36%, sugar 11%, lentils 87%, chickpeas 27%, field peas 294%, and dates 231%.
"Ramadan items have already been covered. We do not see any concerns this time," he said.
Mansur further stated that the gap between policy interest rates and inflation should ideally stay between 2.5% and 3%.
"Currently inflation is 8.20%. If we bring it below that level, closer to 7%, then the policy interest rate will be reduced," he noted.
Other guests at the event included Bangladesh Institute of Development Studies Director General AK Enamul Haque; Ha-Meem Group Chairman and Managing Director AK Azad; Bangladesh Steel Manufacturers Association President and GPH Group Chairman Jahangir Alam; and City Bank Managing Director and Chief Executive Officer Mashrur Arefin.
Speaking at the event, City Bank Managing Director and Chief Executive Officer Mashrur Arefin said business sentiment is cautious as investors try to gauge the economic direction ahead of the national election.
"Credit growth is generally slow now because businesses are taking time. They want to understand where the country is going," he said. "Inflation was 12% and today it is 8.17%. The central bank wants to reduce it to 5%. Investment will improve after the election."
He also praised the central bank's shift to a fully market-based currency regime. "No intervention in the dollar market – it was a long-time dream," he said.
He said the country earns around $50 billion from exports and $30 billion from remittances each year. Imports amount to about $5 billion a month, or roughly $70 billion a year.
"So we earn about $80 billion and spend $70 billion, which can be considered quite good. This is bringing a kind of discipline to the market," he said.
He also noted that the current account deficit has fallen from $19 billion to $400 million, while the financial account is now in surplus.
Bangladesh Institute of Development Studies Director General AK Enamul warned that enforcement-heavy financial governance risks undermining confidence.
"The current financial management is too focused on 'catching wrongdoers'. This creates a crisis of trust in business," he said. "If an economy is not based on trust, businesses and investment cannot move with confidence. Without trust, recovery becomes difficult."
He also criticised weaknesses in regulatory accountability and compared tax administration to a colonial-era system that sees revenue collection as the only priority.
