How did the NPL crisis become this severe?
Referring to LPG projects, he noted that while a bottling plant and cylinder factory cost about Tk450 crore in 2015–16, some companies borrowed up to Tk1,000 crore.
Out of every Tk100 lent by banks in Bangladesh, nearly Tk36 has now turned into defaulted loans. This unprecedented level of financial distress has weakened balance sheets, eroded capital buffers, and restricted fresh lending.
This credit squeeze is slowing private investment, dampening job creation, and weighing on the country's economic recovery.
A former top banker with nearly four decades of experience said fund diversion remains the single biggest driver of rising defaults. Referring to LPG projects, he noted that while a bottling plant and cylinder factory cost about Tk450 crore in 2015–16, some companies borrowed up to Tk1,000 crore.
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Much of the extra money was allegedly diverted to buying land, luxury cars, and financing foreign trips. He said the plant will generate returns of Tk450 crore, but it must repay instalments on Tk1,000 crore, so it will always remain in deficit.
Experts also stress that the NPL problem is not new. They say it was simply hidden for years.
Zahid Hussain, former lead economist at the World Bank's Dhaka office, said the information on non-performing loans had been a game of hide-and-seek for a long time, because the data had not been published for many years.
Agrani Bank Chairman Syed Abu Naser Bukhtear Ahmed echoed the point, stating that many defaulted loans were previously concealed. He said accurate information on NPLs was not disclosed, and there was a bad practice of hiding them. Now that international standards are being followed, the real picture is being revealed.
Bangladesh Bank's asset-quality review, conducted by foreign firms, uncovered the true extent of defaults in several private banks that had been masking their bad loans under the previous regime.
Industry insiders say this review significantly increased default figures in the April to September period.
Bankers also point to massive corruption during the ousted Sheikh Hasina regime, which they say pushed dozens of banks toward collapse and contributed heavily to the surge in NPLs.
For example, S Alam Group has been implicated in loan irregularities amounting to at least Tk1 lakh crore, much of which was allegedly siphoned abroad.
The central bank has now initiated mergers involving five banks, four previously controlled by the group, whose NPL ratios exceeded 90 percent. These five banks alone account for Tk1.5 lakh crore, or 24 percent of total default loans.
The cost of these mergers will ultimately fall on taxpayers.
Ashikur Rahman, principal economist at the Policy Research Institute (PRI), identifies three key factors behind the NPL spike. He said many NPLs were hidden during the previous government and these have now surfaced because of the asset-quality review. They can no longer be concealed through false accounting.
He added that politically connected borrowers under the past regime created a large share of the problem, while fresh NPLs have emerged as the government now enforces existing laws.
"In my opinion, the majority of the default loans are the result of fraud. This did not happen because of economic stagnation, but because economic oligarchs used political influence to take loans and then never repaid them," he again added.
