Banks turn to retail as corporate lending piles up bad loans

Infographic: TBS

One in every three taka lent by Bangladesh's banking sector has now turned into a classified loan, exposing the danger of banks' long-standing dependence on large corporate borrowers.

But there is one segment where bad loans are far lower: retail banking.

Classified loans in retail banking were at 7.10% at the end of March, compared with nearly 32% in industry lending, according to Bangladesh Bank data.

The sharp contrast is pushing banks to rethink their business models.

From City Bank and BRAC Bank to Pubali Bank and Bank Asia, lenders are now stepping up their focus on personal, auto, home, and nano loans, while investing in digital platforms and hiring more people for retail operations.

Retail banking is increasingly being seen as "the future of banking" because it shifts banks away from dependence on a small number of large borrowers towards millions of individual customers and small businesses.

Central bank data shows consumer loans accounted for 8.9% of total bank credit as of March this year, up from 8.6% a year ago. For a country of over 170 million people with a large underbanked population, this presents an immense market opportunity.

"Banks have already focused on portfolio diversification due to many irregularities that had happened in the banking sector previously," said Tareq Refat Ullah Khan, managing director and CEO of BRAC Bank.

"The banks that only focused on corporate banking rather than SME and retail are now suffering the problem of huge non-performing loans."

A managing director of a bank, speaking on condition of anonymity, told TBS that several lenders are now turning towards retail because their corporate portfolios had produced huge non-performing loans.

Retail banking is not risk-free. But its loan portfolio is spread among thousands or millions of borrowers rather than concentrated in a handful of large accounts.

That diversification is becoming increasingly attractive to banks.

Banks race to build retail portfolios

City Bank was among the earlier banks in Bangladesh to recognise the potential of retail banking.

Its retail portfolio now accounts for 21% of its total loans, up from 14% five years ago.

The bank's retail portfolio grew 26% in 2025, compared with 8% in the previous year. Total retail loan disbursement more than doubled to Tk8,348 crore in 2025 from Tk3,569 crore in 2024.

Auto-loan disbursement nearly tripled after the Bangladesh Bank relaxed lending rules for consumer finance.

The bank's nano-loan portfolio also surged by a record Tk3,957 crore in 2025 from a Tk855 crore rise a year earlier. It has already crossed Tk10,000 crore. City Bank disburses nano loans through bKash, bringing small-ticket credit to customers who would otherwise have limited access to formal loans.

Arup Haider, deputy director and head of retail banking at City Bank, said the nano loans are helping contribute to economic activity. But he acknowledged that retail banking comes with a major cost.

"Retail banking requires a large workforce to manage various activities, resulting in relatively high operating costs," he told TBS.

City Bank is, therefore, investing in digital platforms to make its services more accessible and efficient while lowering operating costs.

BRAC Bank wants to become 'Amazon of Banks'

BRAC Bank has also made a major strategic shift towards retail banking.

The bank wants to bring millions of unbanked Bangladeshis into the formal financial system through digital services and become "the Amazon of Banks" – a one-stop financial platform where customers can meet their A-to-Z financial needs.

Its retail loans stood at Tk13,500 crore – accounting for 18% of the bank's total Tk76,000 crore loan portfolio as of June this year. The bank has also recruited additional manpower to support the expansion.

In 2024, BRAC Bank's retail deposits grew by 35% and assets grew by 15%. Its deposits also grew by 34% and assets grew by 29% in 2025.

"Banks will have to reach customers for retail banking in a convenient way. Many leading banks have set a plan to reach them this way," said Tareq Refat Ullah Khan. "When demand increases, the growth of consumer loans will increase."

But, he said, the cost of running retail banking remains a major barrier.

"Many banks do not want to concentrate on retail banking because of the cost, because banks need operations both physically and digitally," he said. That is why banks need to prioritise digital lending and make long-term investments in retail infrastructure, he added.

Pubali, Bank Asia set ambitious targets

Pubali Bank's retail banking portfolio grew by more than 42% in 2025.

Retail loans currently account for around 11% of its total portfolio, but the bank wants to raise that share to around 30% within the next three years. It is targeting a retail loan portfolio of Tk13,000 crore by 2028.

"Banks are concentrating on retail banking because the demand has been increasing day by day," said Mohammad Ali, managing director of Pubali Bank.

"Progress of retail banking is very good in Pubali Bank."

He said the bank expects retail loans to account for more than 15% of its total loan portfolio within three years.

Bank Asia is also betting heavily on retail. It wants consumer loans to account for 15% of its total outstanding loan portfolio within three years. It recruited 246 employees for its retail banking division in 2025.

Sohail RK Hussain, managing director of Bank Asia, said the bank wants to expand retail loans faster.

"We have a plan to launch lifecycle products for customers," he said.

DBBL's retail portfolio expands 9%

Dutch-Bangla Bank (DBBL) PLC disbursed Tk875 crore in home loans in 2025, bringing its total housing finance portfolio to Tk4,106 crore. The bank recorded a 9.03% growth in retail banking in 2025, with consumer credit now accounting for 22.05% of its total loan book.

As of December 2025, the bank's total defaulted loans stood at Tk2,898.43 crore – representing 6.4% of total advances – while the default amount in the retail segment was significantly lower at Tk292.30 crore, or just 0.65% of the overall portfolio.

Md Ahteshamul Haque Khan, managing director and CEO of DBBL, said, "The home loan portfolio has achieved consistent and significant growth, reflecting the growing demand for housing finance and the bank's strategic focus on this sector."

Bangladesh Bank opens the door wider

The retail push has gained further momentum after Bangladesh Bank relaxed lending restrictions recently. Banks can now grow their retail portfolios faster than their overall loan books.

Following the change, several top-tier banks have drawn up plans to increase retail loan growth to between 15% and 30% over the next three years.

The central bank also raised the maximum personal loan amount to Tk40 lakh from Tk20 lakh and extended the maximum tenure to eight years from five. Retail banking heads at several banks said the changes are necessary as demand for personal and auto loans is rising.

Bangladesh Bank data shows consumer finance loans reached Tk1.58 lakh crore at the end of March 2026, up from Tk1.47 lakh crore a year earlier. That represents annual growth of 7.50%.

The market is much bigger than loans

Retail banking is not simply about lending. For banks, the real prize is the customer relationship.

A customer may start with a savings account, then take a debit card, credit card, personal loan, auto loan or home loan. Later, the same customer can become a buyer of insurance, investment or wealth-management products.

That makes one customer potentially worth much more over a lifetime than a single corporate loan.

Retail customers also provide banks with a broad base of deposits. Millions of small depositors make a bank less dependent on a handful of large corporate depositors capable of moving huge amounts of money at once.

Banks can also earn fee income from cards, payments, remittances, wealth management, insurance distribution and investment products.

Technology is changing the economics

The biggest problem with retail banking is cost, bankers say.

Unlike corporate banking, where a bank can manage a relatively small number of relationships, retail banking requires employees to open accounts, process loans, verify customers, monitor repayments and provide ongoing services.

Digitalisation could change that.

Mobile apps, agent banking, biometric identification, artificial intelligence and automated credit scoring can reduce paperwork, speed up loan processing and lower transaction costs.

A digital loan can be processed at a fraction of the cost of a branch-based transaction. Technology can also help banks assess customers who lack conventional collateral or a long banking history.

Salary information, utility payments, transaction histories and mobile-wallet activity can increasingly be used to assess creditworthiness.