Distressed loans amounted to 45% of outstanding, reaching Tk7.56 lakh cr

Highlights:

• Distressed loans reached record Tk7.56 lakh crore in 2024
• Defaulted, rescheduled, and written-off loans form the distressed total
• Top 10 banks hold 75% of defaulted loans
• CRAR fell sharply to 3.08%, lowest in South Asia
• Large borrowers like S Alam, Beximco, Bashundhara defaulted heavily
• Bangladesh Bank urges banks to expedite recovery under Basel III

Distressed loans in the country's banking sector surged to a record Tk7.56 lakh crore in 2024, equivalent to 45% of total outstanding loans, exposing the fragile health of the financial system.

According to the Financial Stability Report 2024 released by Bangladesh Bank, distressed assets stood at Tk7,56,526 crore against total loans of around Tk16.82 lakh crore as of December last year. The amount is almost equal to the size of the national budget for FY2025-26.

Distressed loans include defaulted, rescheduled, and written-off loans. Of the total, defaulted loans stood at Tk3,45,765 crore, rescheduled loans at Tk3,48,461 crore, and written-off loans at Tk62,300 crore.

The central bank disclosed the figure as part of commitments made to the International Monetary Fund (IMF) under the $4.7 billion loan programme.

Managing Director of Mutual Trust Bank Syed Mahbubur Rahman told The Business Standard, "Distressed assets in the banking sector represent a significant burden. Their volume is rising steadily, driven by the increase in non-performing loans. A significant number of loan irregularities are occurring in banks due to lack of good governance."

He said the distressed loans have already crossed Tk7 lakh crore and will continue to rise as nearly Tk2.5 lakh crore remains stuck in various courts. "Unless the top defaulters are tried in tribunals and the judicial process is expedited, there will be no way out."

The report attributed the sharp rise in bad loans to imprudent lending practices, weak regulatory oversight, and the sluggish pace of loan recovery. The top 10 banks accounted for nearly 75% of defaulted loans.

Bangladesh Bank officials said distressed assets grew rapidly after the fall of the Awami League-led government last year, as policy support for party-affiliated businesses was withdrawn. Shariah-based banks under the control of S Alam Group and other AL-linked institutions were the hardest hit. Large borrowers including S Alam Group, Beximco Group, and Bashundhara Group defaulted heavily in the aftermath, pushing distressed assets to an unprecedented level.

"The situation has arisen due to an overall slowdown of the economy. Even reputed companies are struggling to repay loans and are increasingly opting for rescheduling," said Mutual Trust Bank MD Syed Mahbubur, who is also a former chairman of the Association of Bankers, Bangladesh.

Capital adequacy of banks falls to lowest in South Asia

According to the Financial Stability Report, Bangladesh's banking sector has recorded the lowest capital adequacy ratio among South Asian countries, dragged down by a sharp rise in classified loans.

The Capital to Risk-weighted Asset Ratio (CRAR) fell to just 3.08% at the end of December 2024, down from 11.64% a year earlier, marking a drop of 8.56 percentage points. The decline was largely driven by weak capital positions in state-owned commercial banks, specialised development banks, and Islamic private commercial banks.

Besides, classified loans in the sector surged to Tk3.45 lakh crore by the end of 2024, accounting for over 20% of total disbursed loans. The steep rise in non-performing loans forced banks to set aside higher provisioning, eroding their capital base.

"This has pushed down Bangladesh's CRAR to the lowest level in the region," said the central bank's acting spokesperson Mohammad Shahriar Siddiqui, noting that Pakistan, Sri Lanka, and India maintained ratios of 20.6%, 18.4%, and 16.7% respectively.

Meanwhile, Bangladesh Bank has instructed all scheduled banks to expedite recovery drives to strengthen resilience and restore stability under the Basel III framework.