Sharp Rise in Loan Defaults Hurting Banks
The sharp rise in default loans is causing a serious issue for Bangladesh’s banking industry. According to the latest report titled “Classified Loan and Provisioning” by Bangladesh Bank, the total provision shortfall in banks reached Tk 1.77 lakh crore by March 2025. Just three months earlier, in December 2024, this shortfall was Tk 1.09 lakh crore.
7 New Banks Join the Defaulter List
In just three months, seven more banks have entered the list of those with provision deficits, adding a combined shortfall of Tk 41,000 crore. Now, 17 banks are facing provision shortages.
What Is Provision Shortfall?
Banks are required to set aside a certain amount of money—called provision—to cover possible loan losses. When a bank fails to keep this amount as per regulations, it is called a provision shortfall.
New Banks with Provision Deficits
The following banks have newly entered the list with provision shortfalls:
- Bangladesh Commerce Bank
- NRB Bank
- NRBC Bank
- Premier Bank
- Union Bank
- United Commercial Bank (UCB)
- First Security Islami Bank
However, Sonali Bank and Bengal Commercial Bank have successfully moved out of the list.
Read More: Google Pay Launching in Bangladesh Next Week: A Bold Step Toward Cashless Living in 2025
State-Owned Banks in Trouble
Four of the six state-owned banks continue to experience provision shortages:
- Agrani Bank: Tk 10,031 crore
- Rupali Bank: Tk 7,965 crore
- Basic Bank: Tk 5,315 crore
Top Private Banks with Highest Shortfalls
There are also significant deficits at a number of private banks:
- National Bank: Tk 21,921 crore
- IFIC Bank: Tk 18,918 crore
- Islami Bank: Tk 16,477 crore
- First Security Islami Bank: Tk 15,271 crore
- Union Bank: Tk 14,264 crore
- Social Islami Bank: Tk 10,571 crore
Other banks include:
- Premier Bank: Tk 7,017 crore
- UCB: Tk 2,643 crore
- NRBC Bank: Tk 717 crore
- Bangladesh Commerce Bank: Tk 585 crore
- Dhaka Bank: Tk 575 crore
- NRB Bank: Tk 543 crore
- Standard Bank: Tk 512 crore
Loan Defaults Keep Increasing
During January to March 2025, the total default loans in the banking sector jumped to Tk 4.20 lakh crore. This is Tk 74,570 crore more than the previous quarter.
Experts say this rise is due to stricter loan classification rules and the worsening condition of some large loan accounts.
Right now, 24.13% of all loans are classified as default loans. Out of this, Tk 3.42 lakh crore are considered “bad loans”, meaning they are not being repaid at all. These bad loans require 100% provision, which puts huge pressure on the banks’ capital and ability to give new loans.
Experts Warn About Risks
Mutual Trust Bank CEO Syed Mahbubur Rahman stated that banks are compelled to have more cash on hand as a result of the increase in bad loans. This is lowering their profits and capital strength.
He warned that if this continues, many banks will not be able to pay dividends for years. He suggested that banks must strengthen their loan recovery systems and work with the judiciary to speed up court case resolutions.
CPD Highlights Liquidity Concerns
Dr. Fahmida Khatun, Executive Director of the Centre for Policy Dialogue (CPD), said the high provision requirements are causing liquidity problems. This affects both returning depositors’ money and giving new loans.
Why Is Provision So High?
As per Bangladesh Bank rules, banks must keep 0.5% to 5% provision on regular loans. But once a loan is marked as classified or bad, this amount increases to 20% to 100%, depending on the risk level. The financial stability of the banks is severely strained as a result.
The Way Forward
Experts believe that without politically neutral and accountable management, it will be difficult to solve this crisis. They suggest identifying the root causes of default loans, taking strong legal action, and offering economically sound incentives as part of future reforms.
Source: TBSÂ
