Tk 6 lakh cr default loans: Banking sector needs management overhaul
Bangladesh’s banking sector is in crisis as default loans cross Tk 6 lakh crore, while weak banks fall short of capital and provisioning and hold excess liquidity.
Not only is the crisis a matter of money, but also of confidence, governance and management.
The government and Bangladesh Bank are now focused on restoring confidence, restructuring weak banks, recovering defaulted loans and boosting financing for productive sectors.
Finance Minister Amir Khosru Mahmud Chowdhury has made restoring confidence and good governance a priority in the banking sector, while Bangladesh Bank Governor Md Mostaqur Rahman has stressed on the need to recover default loans, manage distressed assets and provide affordable financing to genuine entrepreneurs.
A Centre for Strategic and Economic Research (CSER) study, led by chairman and economist Sakif Shamim, has also stressed that simply injecting fresh capital will not resolve the crisis.
Shamim said the culture of lending, risk management, supervision and the framework for recovering default loans must change along with providing fresh capital.
According to the CSER analysis, default loans now account for nearly one-third of total loans, thus not just a banking-sector issue, but a direct threat to investment, employment, production and the wider economy. He said weak banks need restructuring and an effective mechanism for recovering defaulted loans.
As of June 2026, default loans in Bangladesh’s banking sector stood at Tk 6,06,555 crore or 32.78% of total loans. The amount went up by Tk 17,851 crore in just three months.
The CSER analysis said the figure needs to be viewed carefully given the stricter loan-classification rules, reassessment of rescheduled loans and asset-quality reviews that have made banks’ actual risks more visible.
The default-loan ratio stood at 35.73% in September 2025, fell to 30.6% in December and rose again to 32.26% in March 2026 and 32.78% in June.
Shamim argued that the key question is not how much money has defaulted but how this large volume of loans could not be recovered for years, why risks were not identified while loans were sanctioned and why recovery mechanisms did not respond quickly after loans became defaulted.
He also questioned why bank boards, management, internal controls and supervisory mechanisms failed to identify warning signs before capital was eroded.
According to the CSER analysis, the banking crisis is therefore as much a crisis of governance, incentives, risk management and institutional capacity as it is a financial crisis.
Default loans reduce bank profits, increase provisioning requirements and weaken capital, thereby affecting the banks’ capacity and willingness to provide new loans, investment and business financing.
The sector’s provisioning shortfall stood at around Tk 2.22 lakh crore at the end of June 2026, up from Tk 1.91 lakh crore six months earlier.
The capital position is also concerning. According to Bangladesh Bank’s Financial Stability Report 2025, the banking sector’s Capital to Risk-weighted Assets Ratio (CRAR) was negative 2.64% at the end of 2025, against a minimum requirement of 12.5% under the Basel III framework.
Meanwhile, the banking system cannot simply be described as suffering from an overall liquidity shortage. Bangladesh Bank’s Monetary Policy Review showed excess liquidity against the Statutory Liquidity Ratio reached Tk 3,32,944 crore at the end of December 2025, up 54.84% from a year earlier.
This indicates the problem is also about the location and distribution of liquidity and confidence among banks.
Finance Minister Amir Khosru recently said restoring confidence, increasing investment and establishing good governance are among the government’s priorities. He stressed a loss of depositors’ confidence would negatively impact not only banks but also the economy.
The government is therefore considering restructuring weak banks based on their actual condition rather than keeping them alive indefinitely. At the same time, it wants to ensure that genuine businesses and investors continue to have access to credit.
Governor Mostaqur said in an event that Bangladesh Bank has initiated measures to amend the Distressed Asset Management Act and the Money Loan Court Act to prevent default loans and money laundering. The aim is to speed up loan recovery and reduce the pressure of distressed assets on banks’ balance sheets.
He also outlined plans for lower-cost financing. Under the proposal, banks could raise funds from inactive deposits at around 4% interest and provide loans to SMEs and the agriculture sector at 7-8%. A new fund for young entrepreneurs is also being considered, combining grants with relatively low-interest loans.
The CSER analysis says international experience shows banking crises cannot be resolved through capital injections alone.
The United States, Sweden and European countries strengthened banking systems through stress tests, transparent assessment of losses, capital discipline, distressed-asset management, loan recovery and stronger supervision.
Bangladesh has also taken steps in this direction. The Bank Resolution Act 2026 has given Bangladesh Bank clearer authority to restructure and resolve troubled banks through recapitalisation, transfer of assets and liabilities, mergers, acquisitions, bail-ins, restructuring or liquidation.
However, the analysis warned reforms must not remain on paper. In 2025, a record Tk 1,70,503 crore in loans was rescheduled, yet default loans crossed Tk 6 lakh crore by June 2026.
The report therefore suggests a comprehensive restructuring strategy, including asset-quality reviews, time-bound capital recovery plans for viable but undercapitalised banks, mergers or resolution mechanisms for unsustainable institutions and professional loan-recovery operations.
It also calls for stronger accountability of bank management, risk-based supervision, stress testing and closer monitoring of large and related-party loans.
Ultimately, the banking crisis cannot be solved by government support alone, the analysis said. Capital and liquidity support may be necessary to protect depositors and maintain stability, but the decision-making culture inside banks must also change.
“Capital can keep a bank alive and liquidity can keep it operating; but confidence, discipline and good governance make a banking system sustainable in the long run.”
For Bangladesh, the immediate challenge is therefore not just reducing the amount of default loans, but preventing new bad loans, rebuilding capital, restructuring weak banks and ensuring accountability in management.