Here’s a shocking truth: Bangladesh’s banking sector just saw a dramatic drop in non-performing loans (NPLs) to 30.6% in the fourth quarter of 2025, but this victory might be more fragile than it seems. And this is the part most people miss—while the numbers look promising, the underlying risks could still spell trouble for depositors and the economy at large. Let’s dive into what’s really going on.
During the last three months of 2025, NPLs plummeted by a staggering Tk87,298 crore, largely thanks to an aggressive debt rescheduling campaign backed by relaxed central bank policies. By the end of December, NPLs stood at Tk5.57 lakh crore, down from Tk6.44 lakh crore in September. Sounds like a win, right? But here’s the catch: banks have only set aside Tk2.49 lakh crore in provisions for defaulted loans, leaving a whopping Tk1.91 lakh crore shortfall. Analysts warn this gap poses serious risks, raising questions about the sector’s long-term stability.
Mohammad Ali, managing director of Pubali Bank, explained that many borrowers took advantage of the central bank’s regulatory support to reschedule their classified loans, effectively moving them out of the default category. But here’s where it gets controversial—is this a genuine improvement, or just a temporary fix? Critics argue that rescheduled loans often yield limited recovery and could revert to non-performing status in the coming years, potentially reigniting instability by 2027.
The roots of this crisis run deep. After the political transition following the fall of the Sheikh Hasina-led government, the true scale of defaulted loans began to surface. In September 2024, defaulted loans were reported at Tk2.11 lakh crore, but reassessments later uncovered an additional Tk4.33 lakh crore in hidden bad loans accumulated over previous years. By September 2025, defaulted loans had peaked at Tk6.44 lakh crore, driven by widespread irregularities, fraud, and corruption involving major business groups like S Alam Group, Beximco Group, and Hallmark Group.
Central bank officials credit stricter supervision, foreign audits, and alignment with international standards for forcing banks to disclose the true extent of bad loans. Since April 2025, loans are classified as defaulted after just three months of non-payment, a stark contrast to the earlier relaxed rules. But is this enough to fix the system? While the policy changes have helped, the sector’s vulnerabilities remain, especially with rescheduled loans hanging in the balance.
Breaking it down by sector, state-owned commercial banks saw defaulted loans drop to Tk1.46 lakh crore by December 2025, with a default rate of 44.44%. Private commercial banks fared better, with defaulted loans falling by Tk73,606 crore to Tk3.89 lakh crore, or 28.25% of total loans. Specialised banks also saw modest reductions, but the overall picture is far from rosy.
The decline was fueled by a special policy introduced in September 2024, allowing borrowers to reschedule classified loans for up to 10 years with just a 2% down payment and a two-year grace period. Over 1,500 companies applied, and nearly 1,300 have regularised their loans so far. Recently, the Bangladesh Bank further relaxed terms, cutting the down payment to 1% and extending the implementation period by three months.
Syed Mahbubur Rahman, managing director of Mutual Trust Bank, praised the policy support for enabling banks to slash their NPL ratios. However, not everyone is convinced. Here’s a thought-provoking question for you: Are these policies genuinely addressing the root causes of the crisis, or are they merely kicking the can down the road? Share your thoughts in the comments—we’d love to hear your take on whether this improvement is sustainable or just a temporary band-aid.
