Capital shortfall in 20 banks stood at Tk2.78 lakh crore in December quarter
The capital shortfall had stood at Tk2.82 lakh crore at the end of the September quarter of the same year
Highlights:
- Banking sector capital shortfall reached Tk2.78 lakh crore
- Twenty banks faced capital deficits by December 2025
- Banking sector CRAR dropped to negative 2.64%
- Non-performing loans reached 30.60% of outstanding loans
- Loan rescheduling artificially reduced reported capital shortfall temporarily
- Economists warn repeated rescheduling weakens banking sector sustainability
The banking sector's total capital shortfall stood at Tk2.78 lakh crore at the end of the December quarter of 2025, a slight decline from the previous quarter mainly due to Bangladesh Bank's loan rescheduling policy support, according to a central bank report.
The capital shortfall had stood at Tk2.82 lakh crore at the end of the September quarter of the same year.
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A bank capital shortfall occurs when a bank's own capital and reserve funds fall below the minimum level set by the central bank. Under international standards, banks are required to maintain a specific amount of capital against their risk-weighted assets.
Bangladesh Bank data shows that 20 banks were in capital deficit at the end of the December quarter.
Bankers and economists say the crisis stems from years of aggressive lending, weak oversight, and politically influenced loan approvals. The widening capital gap is also restricting banks' lending capacity and putting pressure on international financing, signalling broader risks for the economy.
Insiders said most state-owned banks in Bangladesh have been operating for years with virtually no capital base. The government, as owner of these banks, had previously injected thousands of crores of taka from taxpayers' money to help them recover. Despite that support, the banks have failed to overcome their capital shortages.
They added that compared with other South Asian economies, Bangladesh's banking sector remains in an extremely fragile capital position.
The report also showed that the sector's capital-to-risk weighted assets ratio (CRAR), a key indicator of financial strength, fell to negative 2.64% at the end of December. International regulatory standards require banks to maintain a minimum CRAR of 12.5%.
Non-performing loans (NPLs) in the banking sector stood at Tk5.57 lakh crore, or 30.60% of total outstanding loans, at the end of December 2025.
Deficits across banks
According to the central bank report, four state-owned banks had a combined capital shortfall of Tk37,364.82 crore at the end of the December quarter.
Agrani Bank's shortfall stood at Tk6,534 crore, BASIC Bank's at Tk4,158 crore, Janata Bank's at Tk22,482 crore, and Rupali Bank's at Tk4,189 crore.
Seven Islamic banks recorded a combined capital shortfall of Tk1,74,087 crore.
EXIM Bank's deficit stood at Tk25,914 crore, First Security Islami Bank at Tk64,162 crore, Global Islami Bank at Tk15,693 crore, Islami Bank Bangladesh at Tk6,597 crore, ICB Islamic Bank at Tk2,012 crore, Social Islami Bank at Tk30,053 crore, and Union Bank at Tk29,653 crore.
Meanwhile, seven private commercial banks recorded a combined capital shortfall of Tk33,138 crore.
AB Bank's shortfall stood at Tk6,551 crore, BCBL at Tk2,065 crore, Citizens Bank at Tk81.70 crore, IFIC Bank at Tk4,704 crore, National Bank at Tk9,032 crore, Padma Bank at Tk5,837 crore, Premier Bank at Tk4,866 crore, Bangladesh Krishi Bank at Tk30,751 crore, and Rajshahi Krishi Unnayan Bank at Tk2,704 crore.
Why capital shortfall declined over 3 months
A senior Bangladesh Bank official said the main reason behind the decline in capital shortfall between the September and December quarters was the central bank's loan rescheduling policy. Rescheduling helped classify some defaulted loans as regular, reducing the amount of required provisioning against bad loans. Since provisions are maintained from banks' capital, the lower provisioning requirement reduced the capital deficit.
Former World Bank Dhaka Office Lead Economist Dr Zahid Hussain said the apparent improvement in capital shortfall over the three months was largely artificial and driven by rescheduling.
"The improvement seen in capital shortfall is the impact of rescheduling. It is creating an artificial improvement. State-owned banks, Islamic banks, and the latest generation of private commercial banks are mainly responsible for the shortfall. Banks that were already in deficit remain in deficit," he said.
He added, "It is completely unacceptable for banks to remain in a capital deficit. If a bank's CRAR falls below 10%, the central bank should take action. But that is not happening in our country."
Zahid Hussain questioned whether the sector could continue relying on rescheduling indefinitely, warning that the banking sector would remain weak without meaningful reforms. He noted that Bangladesh Bank had initially barred banks with capital shortfalls from paying staff bonuses, but later backed away from the decision.
"Instead of repeated rescheduling, writing off bad loans would be a better option," he said.
Two reasons why rescheduling is unsustainable
According to Dr Zahid Hussain, there are two major reasons why repeated loan rescheduling is unsustainable.
First, rescheduling weakens banks' balance sheets and erodes capital. He compared it to "continuous bleeding" in the human body, gradually weakening financial institutions over time.
Second, it creates a moral hazard in society. When borrowers see repeated concessions despite non-payment, they become more likely to spend borrowed money on luxury consumption, such as expensive cars or foreign travel, rather than productive investment.
"As a result, honest borrowers become discouraged, while wilful defaulters are emboldened further. Overall, the trend is undermining discipline in the banking system and weakening the sector's long-term sustainability," the economist added.
