Paper profits, hidden losses: How seven banks disguised a Tk1.16 lakh crore loss under regulatory shield
This massive erosion of capital and profitability was made possible through extraordinary regulatory forbearance granted by Bangladesh Bank, which allowed these lenders to defer mandatory provisioning requirements against bad loans and investments.
The true financial health of Bangladesh's banking sector has been cast into harsh relief as audit reports reveal that seven listed banks effectively concealed a staggering cumulative loss of approximately Tk1.16 lakh crore for the 2025 financial year.
This massive erosion of capital and profitability was made possible through extraordinary regulatory forbearance granted by Bangladesh Bank, which allowed these lenders to defer mandatory provisioning requirements against bad loans and investments.
While the institutions reported marginal profits on paper to maintain a facade of stability, independent auditors have exposed a catastrophic reality: without the central bank's intervention, the combined losses of these seven banks would have reached a level threatening the very foundation of the national economy.
According to a detailed analysis of audited financial statements for 2025, the seven banks — Islami Bank Bangladesh, Rupali Bank, Al-Arafah Islami Bank, Standard Bank, United Commercial Bank (UCB), One Bank, and NRBC Bank — collectively utilised the central bank's deferral facility to mask their underlying distress.
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A senior Bangladesh Bank official explained that the unprecedented leniency was granted to prevent a total systemic collapse. Most of these lenders lacked sufficient profits to cover their massive provision shortfalls, and forcing immediate loss recognition could have triggered a financial disaster. The central bank accordingly sought time-bound recovery plans from each institution, though the sheer scale of the deficit raises urgent questions about whether recovery is achievable in the foreseeable future.
The most alarming figures emerged from Islami Bank Bangladesh PLC, the country's largest private sector lender. The bank reported a technical net profit of Tk136 crore for 2025, but it's auditor, Mahfel Huq and Co, issued a qualified opinion revealing a provision shortfall of Tk84,615 crore. Had the bank accounted for these requirements as mandated by international standards, its actual loss for the year would have been Tk84,507.83 crore on a solo basis. The auditors further noted that the bank's capital adequacy ratio would have plunged deep into negative territory, against the 6.42% reported under regulatory forbearance. More critically, the audit firm raised doubts about the bank's status as a "going concern," warning that its ability to continue operations is now entirely dependent on extraordinary and ongoing policy support from the central bank.
Al-Arafah Islami Bank reported a net profit of Tk85.43 crore, but its auditor, KM Alam and Co, unmasked an actual loss of Tk5,306 crore, driven by a provision shortfall of nearly Tk5,400 crore against classified investments and other assets. The auditor noted that the bank's non-performing investment ratio stood at 17.16%, with more than 16% of total investments rescheduled under special policy support. Such rescheduling, while compliant with local regulations, introduces significant uncertainty over future cash recovery and liquidity. The auditor emphasised that the financial statements were prepared in a manner that inflated reported profits while failing to reflect the true underlying credit risk.
State-owned Rupali Bank finds itself in an equally dire position, reporting a marginal profit of Tk6.81 crore while concealing an actual loss estimated at Tk14,000 crore. The bank faces a provision shortfall of Tk14,014 crore against classified loans, which now account for over 39% of total disbursements. Despite this precarious standing, Bangladesh Bank authorised the lender to prepare its accounts without recognising the deficit. The bank's solo capital adequacy ratio stands at a mere 2.88% — well below the regulatory requirement of 12.50%.
The pattern holds across the other four banks. Standard Bank reported a profit of Tk80 crore but carried an actual loss of Tk5,200 crore due to a similar provision gap. One Bank posted a net profit of nearly Tk30 crore, yet its auditor, Mahamud Sabuj and Co, revealed that recognising the required provisions of Tk3,903 crore would have resulted in a net loss of Tk3,340 crore — wiping out shareholders' equity entirely and leaving the bank with a negative net asset value. UCB and NRBC Bank followed the same pattern, posting modest profits that mask actual losses of Tk3,278 crore and Tk620 crore, respectively.
The immediate consequence of this artificial profitability has fallen most heavily on ordinary shareholders. Although these banks reported profits, Bangladesh Bank regulations strictly prohibit dividend distribution when a provision shortfall exists. As a result, all seven banks failed to recommend any returns to investors. This dividend drought — in many cases extending over multiple years — has triggered the automatic downgrade of these stocks to the 'Z', or junk, category on the Dhaka and Chittagong stock exchanges, eroding investor confidence and driving a sharp decline in share prices. Retail and institutional investors now find themselves trapped in fundamentally weak assets.
The deferral facility has created a widening chasm between reported financial performance and economic reality. Market analysts argue that while the central bank's intention was to ensure short-term stability, the long-term consequences of masking Tk1.16 lakh crore in losses could prove far more damaging. By permitting banks to overstate their assets and equity, the regulator has effectively postponed a crisis that continues to deepen as non-performing loans climb further.
The auditors' repeated warnings of "going concern" and "material uncertainty" serve as a stark reminder that these institutions are surviving on regulatory life support — not sound banking practice.
