Distressed loans soar to Tk10.87 lakh crore, swallowing 59% of bank credit

Nearly Tk6 out of every Tk10 lent by Bangladesh's banks is now tied up in distressed loans, highlighting the depth of the crisis facing the country's financial sector.

Infographics: TBS

The volume of troubled loans surged by nearly 44% year-on-year to Tk10.87 lakh crore at the end of 2025, according to the Financial Stability Report 2025 released by the Bangladesh Bank yesterday (16 June).

The amount is equivalent to 59% of the banking sector's total outstanding loans of Tk18.20 lakh crore, raising fresh concerns about banks' ability to support the government's goal of boosting investment and economic growth.

The report shows that distressed loans in the banking sector have risen to Tk10.87 lakh crore due to increases in defaulted, rescheduled and written-off loans. Total outstanding loans in the sector stood at Tk18.20 lakh crore at the end of 2025.

According to the report, total distressed loans stood at Tk7.56 lakh crore at the end of December 2024.

Bankers said the sharp rise in distressed loans was largely driven by the recognition of a substantial volume of bad loans that had previously remained hidden in banks' financial statements, along with growth in rescheduled and written-off loans. At the same time, capital shortfalls in the banking sector have widened significantly.

Distressed loans are generally high-risk assets where borrowers are unable to make scheduled principal or interest payments, making them problematic for banks. They are calculated by adding written-off and rescheduled loans to defaulted loans.

The report shows that at the end of December 2025, total defaulted loans stood at Tk5.57 lakh crore, rescheduled loans at Tk4.47 lakh crore, and written-off loans at Tk83,479 crore, bringing total distressed loans to Tk10.87 lakh crore.

At the end of 2024, defaulted loans amounted to Tk3.46 lakh crore, rescheduled loans to Tk3.48 lakh crore, and written-off loans to Tk62,300 crore, according to the Financial Stability Report 2024.

The banking sector's Capital to Risk-Weighted Assets Ratio (CRAR) deteriorated sharply, falling from 3.08% in 2024 to negative 2.64% in 2025, signalling severe capital weaknesses across state-owned, specialised and private commercial banks.

CRAR is a key financial indicator used by regulators to assess a bank's financial strength and ability to absorb losses during economic downturns.

Dr Md Touhidul Alam Khan, FCMA, Managing Director and CEO of NRBC Bank, said regional peers such as India, Pakistan and Sri Lanka had strengthened their banking sectors by consistently building capital buffers.

"In stark contrast, Bangladesh's extreme divergence shows that while neighbouring economies insulated their banking sectors through strict macroprudential discipline, our system repeatedly absorbed corporate and credit shocks. The negative CRAR clearly indicates that unmitigated non-performing loans and persistent provisioning shortfalls have eroded the industry's aggregate capital base, requiring immediate structural reforms rather than temporary regulatory forbearance," he said.

Finance companies deteriorate further

The non-performing loan ratio of finance companies rose sharply to 33.32%, driving their aggregate capital adequacy ratio down to negative 23.19% and resulting in a negative return on assets (ROA) of 1.90%.

Loan rescheduling doubles in one year

Loan rescheduling in Bangladesh's banking sector more than doubled in 2025.

Banks rescheduled Tk1,70,500 crore worth of loans in 2025, compared with Tk85,700 crore in 2024 – an increase of Tk84,800 crore.

For comparison, rescheduled loans amounted to Tk26,800 crore in 2021, Tk63,700 crore in 2022 and Tk91,200 crore in 2023.

The total stock of rescheduled loans stood at Tk4,46,800 crore at the end of December 2025.

Bankers and economists said the true extent of non-performing loans began to emerge in 2025 after Bangladesh Bank reinstated international loan-classification standards. From the beginning of 2025, loans overdue by more than 90 days were classified as defaulted, compared with the previous threshold of 180 days.

As a result, defaulted loans rose to record levels. They argued that before 2025 many banks did not fully reflect the actual volume of non-performing loans. Following the appointment of former governor Ahsan H Mansur, efforts were made to present a more accurate picture of the banking sector.

They also noted that Bangladesh Bank introduced policy support measures toward the end of 2025 that made loan rescheduling easier, leading many companies to take advantage of the facility. Rescheduling activity also increased ahead of the February 2026 election.

Dr Md Ezazul Islam, Director General of the Bangladesh Institute of Bank Management (BIBM), said: "Bangladesh Bank began revealing the actual picture of defaulted loans from 2025. The overdue period for loan classification was reduced from six months to three months, which pushed up the volume of non-performing loans. In addition, many institutions utilised the rescheduling facilities introduced by the central bank at the end of 2025."

Bangladesh Bank data show that most outstanding rescheduled loans were concentrated in the industrial, RMG and textile, and working capital sectors, accounting for 29.56%, 17.56% and 10.19% respectively.

Bank profitability collapses in 2025

According to the Report, Bangladesh's banking sector suffered a dramatic collapse in profitability at the end of 2025, mainly due to the sharp rise in non-performing loans and the resulting increase in provisioning requirements.

The sector-wide return on assets (ROA) plunged to negative 4.81% from 0.43% in 2024. Return on equity (ROE) also collapsed to negative 243.90% from 8.70% a year earlier.

Among the country's 61 scheduled banks, 19 reported negative figures for both ROA and ROE, underscoring deep financial distress across nearly one-third of the sector.