Bangladesh’s banking sector has been drowning in a sea of bad loans for decades by this point, and it does not appear as if the situation is going to subvert anytime soon. Indeed, if a recent Asian Development Bank report is anything to go by, Bangladesh’s non-performing loan (NPL) diagnosis makes it the absolute sickest across not only the sub-continent but that of wider Asia.
According to the report, Bangladesh has the highest NPL ratio in Asia, soaring to 20.2% of total loans in 2024. The value of these bad loans reached $20.27 billion, a 28% year-on-year increase. Indeed, our finance sector’s situation is worsening dramatically, as the NPL ratio jumped by 11.2 percentage points in just one year. This contrasts sharply with neighbouring countries such as India, Pakistan, and Sri Lanka, which have all managed to reduce their NPL ratios.
The report correctly points to structural weaknesses in credit underwriting and resolution as causes, but to call them mere “weaknesses” is generous, as local economists have long argued that they a direct product of calculated political interference. For years, loan classification rules were treated as malleable suggestions, bent and diluted under political pressure to provide a facade of stability – the previous administration’s habit of repeatedly rescheduling loans for favoured conglomerates was not an economic strategy but a sanctioned mechanism for masking the true extent of the rot it had allowed to fester.
However, at the heart of this catastrophe are willful, serial defaulters, vested business groups and individuals who borrowed heavily with no intention of repayment, secure in the knowledge that their political connections would grant them immunity. It is an open secret that many of these entities are embroiled in corruption, with some even being fugitives from justice.
This is the de facto issue plaguing our finance sector which requires political action, with the legal framework for loan recovery being bolstered and implemented without hesitation with the help of a central bank that enjoys unprecedented autonomy. This must be one of the key pledges of the next elected government, anything less would see our nation continue drowning.
