Bangladesh (Commonwealth Union)_ Bangladesh is experiencing its most severe economic crisis in decades, with the country’s financial sector under enormous strain. Accordingly, the economy’s fundamental sectors—banks, non-banking financial institutions (NBFIs), and the stock market—are all in crisis, creating concerns about long-term stability. A combination of unregulated loan defaults, lax regulatory monitoring, political influence, and a lack of transparency has resulted in a highly concerning situation. Experts warn that if quick reforms are not implemented, the problem could worsen.
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Banking sector overwhelmed by defaulted loans
The banking sector is at the center of the crisis. According to data from Bangladesh Bank, defaulted loans stood at around Tk6 lakh crore at the end of June. But that is just the visible part. When including loans stuck in legal battles, those written off, and others under court orders, the total could climb to nearly Tk9 lakh crore once updates to the Credit Information Bureau are finalized. Of this, Tk1.78 lakh crore worth of loans are tied up in court cases, Tk80,000 crore have been written off, and another Tk60,000 crore are currently under stay orders. In this troubling position, the government has proposed deleting the definition of “wilful defaulter” from the new Banking Companies Act, citing the difficulty in identifying such cases. However, experts believe that transparency and effective reporting will allow intentional defaulters to be found and held accountable.
ADB flags Bangladesh’s banking system as the weakest in Asia
In its latest assessment, the Asian Development Bank (ADB) called Bangladesh’s banking system the weakest in Asia. In 2024, more than 20% of all granted loans were classed as non-performing, a 28% rise over the year before. While countries like India, Pakistan, and Sri Lanka have made progress through financial reforms, Bangladesh has fallen behind.
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Major bank merger announced
In an extraordinary move, Bangladesh Bank has announced plans to merge five Islamic banks—First Security, Social Islami, Global Islami, Union, and Exim Bank—into a single, state-owned entity called United Islami Bank. The government is expected to inject at least Tk20,000 crore to stabilize the new institution. Some of these banks have default rates as high as 98%, while state-owned banks are also struggling to recover dues. In the first six months of this year, the top 20 loan defaulters owed Tk31,908 crore. Only Tk219 crore was recovered. On a more positive note, bank deposits grew by 8.42% in July, slightly higher than the previous month, offering a faint signal of renewed public trust.
NBFIs on the edge of collapse
The crisis in the banking sector has also spilled over into non-banking financial institutions. The situation is far more serious. Among 20 struggling NBFIs, 83% of loans are in default, totaling Tk21,462 crore. Many of these institutions are currently unable to repay depositors. The central bank has advised that nine of them be shut down. As of December 2024, these 20 NBFIs held Tk25,808 crore in total debt. However, their total collateral was valued at just Tk6,899 crore, only about 26% of what they owe. Bangladesh Bank officials warn that unless immediate steps are taken to safeguard depositors, the entire NBFI sector could face a complete collapse.
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Stock market continues long decline
The stock market, another key pillar of the economy, has been underperforming for over a decade. In the past 16 years, it has shrunk by about 38%. When adjusted for inflation, investors have lost an average of 3% per year. Poor governance, lack of regulation, and the dominance of low-performing companies have driven investor confidence to historic lows. According to the Dhaka Stock Exchange, 98 out of 397 listed companies are now trading below their face value. Among them are 33 banks and NBFIs, 35 mutual funds, and 17 textile firms. More than half of these are priced under Tk5.
Urgent action needed
Experts agree that without serious reforms, increased openness, and protection against political meddling, the situation could deteriorate. The current crisis in banking, NBFIs, and capital markets threatens to destabilize the overall economy. Hence, immediate and aggressive policy action is required to prevent additional damage.
