Introduction to a Growing Concern
There is nothing like being on top, if it is not for the wrong reason. Unfortunately, Bangladesh has made it to the top as home to the worst loan defaulters in Asia. A recent report by the Asian Development Bank (ADB) reveals that Bangladesh has the highest ratio of non-performing loans in its banking sector, a staggering 20% of the total loans advanced.
The Origins of the Problem
The issue began with the practice of rescheduling defaulting big loans during the previous autocratic regime. Loan defaulters, often with connections to the political class in power, would influence bank officials to reschedule their loans. This practice continued and even intensified over time, with the relaxation of loan rescheduling starting immediately upon the previous autocratic regime’s assumption of power in 2009. The requirements of down payment were temporarily suspended, and res eatabling was made available to all export-oriented sectors.
The Master Circular: A Blank Cheque for Defaulters
The banks’ loan rescheduling rules were further relaxed with the 2012 Master Circular, which allowed for up to three reschedulings along with extended payment terms. This essentially gave a blank cheque to delinquent borrowers, who could enjoy multiple reschedulings against a single loan, along with the extension of repayment periods for rescheduled loans. However, these individuals were essentially bank robbers and looters masquerading as bankers or entrepreneurs in the financial sector.
The Consequences of Rescheduling
As of September 5, 2025, the ratio of non-performing loans stood at 20.2% of total loans, making it the highest in Asia. This led to a significant rise in the amount of distressed assets in the banking sector, reaching USD 20.27 billion and marking a 28% jump year-on-year. According to recent reports, close to 39% of the rescheduled loans turned into default ones, exposing the ineffectiveness of the banking tool called rescheduling.
The Ineffectiveness of Rescheduling
The central bank’s financial stability report 2024 showed that by the end of 2024, outstanding rescheduled loans stood at over Tk 3.48 trillion, of which close to Tk 856.8 billion was rescheduled in 2024. Instead of reducing the volume of non-performing loans, rescheduling has been used to mask the non-performing loans (NPLs) and delay the recognition of defaulted loans as NPLs. The volume of NPLs rose from Tk 1.45 trillion in December 2023 to Tk 2.11 trillion by June 2024 and stood at Tk 3.45 trillion by December 2024.
Exposing the Truth
The real picture regarding the health of the banking sector was kept under wraps during the autocratic regime. However, following the political changeover, the newly empowered central bank, Bangladesh Bank (BB), began to expose the actual condition of the banking sector’s health. It became clear that the sharp deterioration in loan quality had pushed many banks to aggressively reschedule loans, making their balance sheets appear better before year-end.
Conclusion
The fallout of the reckless rescheduling and loan defaulting is now in plain sight. Bangladesh is now at the top in Asia as a bank defaulter, with a staggering 20% of its loans being non-performing. The situation is a result of years of mismanagement and corruption, which have hollowed out the banks and put the entire financial system at risk. It is essential to take immediate action to address the issue and prevent further deterioration of the banking sector. The government and the central bank must work together to implement reforms and ensure that the banking system is transparent, accountable, and free from corruption. Only then can Bangladesh hope to recover from this crisis and build a stronger, more stable financial system.
