Defaulted loans rise by 12% in December quarter

The share of defaulted loans in the banking sector for loans has risen to over 31% in the past year.

The central bank published a banking "update" report this month, which shows that by the end of the December quarter, the default rate for loans stood at 31.20%, up from 19.90% during the same period the previous year.

In monetary terms, a 31.20% default rate for such large loans amounts to Tk5,54,486 crore.

According to data from Bangladesh Bank, the increase is largely due to the adoption of international standards for loan classification starting in 2025. Under the revised rules, loans not repaid within a specified period are considered overdue, and if unpaid for more than 90 days, they are classified as defaulted, down from the previous threshold of 180 days. This stricter 90-day rule has contributed to the rise in defaulted loans.

Infograph: TBS

A senior central bank official said that counting loans as defaulted after 90 days has increased the volume of non-performing loans since last year. However, due to various policy support measures introduced by Bangladesh Bank toward the end of 2025, the level of defaulted loans declined slightly in the December quarter compared to September.

One such measure allows banks to write off bad loans earlier. Previously, loans could only be written off after remaining classified as bad for two consecutive years. Under the new framework, write-offs can occur sooner.

Bangladesh Bank data shows that the default rate for loans stood at 36.30% at the end of September.

Another senior official noted that many institutions have restructured their defaulted loans following policy support from the central bank. As a result, a significant amount has been removed from the default list; otherwise, the December figure would have been even higher.

Bankers say the rise in defaulted loans over the past one and a half years reflects the exposure of previously hidden bad loans. The practice of showing loans as regular without actual repayment is no longer allowed.

They also noted that foreign audit firms have reviewed loan portfolios of several banks. In particular, the five Islamic banks undergoing consolidation – now merged into a single entity – have seen a sharp increase in defaulted loans.

According to bankers, the current situation reflects years of irregularities, fraud, and corruption in the banking sector during the Awami League government's 15-and-a-half-year tenure. Major groups such as S Alam Group, Beximco Group, Nasa Group, Bismillah Group, and Hall-Mark Group, along with scandals involving BASIC Bank, have contributed to the rise in defaulted loans.

Islamic banks have been the most affected, though several conventional banks have also experienced major loan irregularities.