The nation's banks have seen a significant drop in bad loans, but is this a sign of true recovery or just a temporary fix?
In the final quarter of 2025, the banking sector witnessed a substantial decrease in non-performing loans (NPLs), with a remarkable reduction of Tk87,298 crore. This impressive feat was largely orchestrated by a widespread debt rescheduling initiative, empowered by more lenient policies from the central bank.
According to a recent report from the central bank, NPLs at the close of December 2025 stood at Tk5.57 lakh crore. This figure represents 30.60% of the total outstanding loans, a notable improvement from the Tk6.44 lakh crore, or 35.73%, recorded at the end of September.
However, despite this apparent progress, a significant concern remains: banks have only set aside Tk2.49 lakh crore as provisions for these defaulted loans. This leaves a substantial provision shortfall of Tk1.91 lakh crore. Experts are sounding the alarm, suggesting this situation could pose considerable risks to the safety of depositors' funds.
Mohammad Ali, the managing director of Pubali Bank, shared that many borrowers were able to bring their troubled loans under new rescheduling arrangements. This was made possible by crucial regulatory support from the central bank, which effectively allowed a large volume of loans to be reclassified, moving them out of the default category.
But here's where it gets controversial... Banking sector data reveals a more complex picture. Following a political shift after the departure of the Sheikh Hasina-led government, the true extent of previously hidden defaulted loans began to surface. In September 2024, the reported defaulted loans were Tk2.11 lakh crore (12.56% of total loans). However, subsequent reassessments uncovered an additional Tk4.33 lakh crore in concealed bad loans that had accumulated over earlier years.
Looking at the trend, statistics from Bangladesh Bank show a steady climb in defaulted loans: from Tk3.45 lakh crore in December 2024 to Tk4.20 lakh crore in March 2025, then to Tk6.08 lakh crore in June, and finally peaking at Tk6.44 lakh crore in September 2025.
Officials at the central bank explained that more stringent oversight and meticulous verification of loan data, including audits by international firms, compelled banks to disclose the actual scale of their bad loans. This was particularly evident with several Islamic banks that were later merged.
Since April 2025, a more internationally aligned definition of defaulted loans has been implemented, classifying them as such after three months of non-payment. This replaces the previous, more lenient rules that allowed for extended grace periods.
Bankers have pointed to widespread irregularities, fraud, and corruption as the primary culprits behind the deteriorating loan quality. These issues, accumulated over the past decade and a half, have involved major business conglomerates like S Alam Group, Beximco Group, Nassa Group, Bismillah Group, and Hallmark Group, alongside significant banking scandals that have severely weakened both Islamic and conventional financial institutions.
Sector-wise Breakdown of NPLs:
- State-owned commercial banks saw their defaulted loans decrease to Tk1.46 lakh crore by December 2025, down from Tk1.58 lakh crore three months prior. This brought their default rate to 44.44%.
- Private commercial banks demonstrated a more pronounced improvement, with defaulted loans dropping by Tk73,606 crore to Tk3.89 lakh crore, representing 28.25% of their total loans.
- Specialised banks also experienced a modest reduction, with NPLs falling from Tk19,298 crore to Tk18,546 crore during the same period.
Policy Support Fueling the Decline:
The recent reduction in NPLs is directly linked to a special policy introduced in September of the previous year. This policy enabled affected borrowers to reschedule their classified loans for up to 10 years, requiring only a 2% down payment and offering a grace period of up to two years.
Around 1,500 companies and business groups took advantage of this facility, and nearly 1,300 have since regularized their loans under the scheme, according to central bank officials.
More recently, Bangladesh Bank further eased the terms, allowing loan rescheduling with a mere 1% down payment and extending the implementation deadline by an additional three months.
Syed Mahbubur Rahman, managing director of Mutual Trust Bank, emphasized the pivotal role of policy support in reducing defaulted loans, enabling many banks to significantly improve their NPL ratios. He noted that some banks, which previously had NPLs as high as 10%, have managed to bring them down to 5% through these supportive policies.
And this is the part most people miss... A managing director from a private commercial bank issued a cautionary note, suggesting that this improvement might be short-lived. They highlighted that many of these rescheduled loans yield minimal returns and could easily revert to non-performing status in the coming years. This potential recurrence could reintroduce instability into the banking sector, possibly by 2027.
What do you think? Is this aggressive rescheduling a sustainable solution, or are we just kicking the can down the road? Share your thoughts in the comments below – do you agree with the cautious outlook, or do you believe these policies are effectively steering the banking sector towards stability?
