Bangladesh Bank has expressed concern that up to 30 percent of total disbursed loans could turn into defaults, posing a serious risk to the banking sector.
Financial regulators attribute this vulnerability to administrative shortcomings and inadequate central bank oversight. These concerns were highlighted in the monetary policy statement for the second half of FY 2024-25, released on Monday.
As per the latest data from the September quarter, 12.5 percent of total outstanding loans have already been classified as non-performing.
On the same day, Bangladesh Bank Governor Ahsan H Mansur unveiled his first monetary policy, setting the policy interest rate at 10 percent for January–June 2025 to counter rising inflation.
The central bank acknowledged that the increasing volume of defaulted loans remains a critical issue for the banking sector, with many banks struggling due to sluggish deposit growth and weak loan recovery.
To mitigate the crisis, liquidity support was initially provided through interbank lending and later extended directly by Bangladesh Bank.
Regulatory Reforms in the Pipeline
According to the latest central bank report for the September quarter, non-performing loans (NPLs) in the banking sector have surged to Tk 2.84 trillion, representing 16.93 percent of total disbursed loans. This marks a significant rise from June, when NPLs stood at Tk 2.11 trillion or 12.56 percent of total loans.
To address this alarming trend, the central bank has proposed a comprehensive framework aligned with global best practices for loan classification and recovery.
“We are prepared to enforce strict regulations in line with international best practices to enhance governance,” Bangladesh Bank stated.
The central bank also reaffirmed its commitment to strengthening regulatory oversight and implementing reforms to restore stability and public confidence in the banking sector.
Governor Mansur emphasized ongoing banking sector reforms, stating that forensic audits are being conducted on multiple banks to provide deeper insights into their overall condition.
Liquidity Support and Depositor Protection
Bangladesh Bank reiterated its commitment to providing liquidity support to struggling banks while ensuring depositor protection.
“Liquidity support will be extended to banks facing crises. Protecting depositors’ interests remains our priority, and additional support will be provided if necessary,” the central bank stated.
Governor Mansur estimated that resolving the ongoing liquidity crunch could take one to one-and-a-half years. “Since assuming office, I have already addressed liquidity issues in several banks,” he added.
Meanwhile, Deputy Governor Md Habibur Rahman warned banks against over-reliance on treasury bills and bonds, cautioning that their recently high returns would not be sustainable in the long term.
“Yields on treasury bills and bonds have already started declining. Bangladesh Bank will implement policies to prevent excessive profits from these investments,” he noted.
