Poonam Sharma
Once regarded as a promising economic contender in South Asia, Bangladesh is now facing a banking crisis of unprecedented proportions. As of March 2026, around one-third of all loans given by Bangladeshi banks have turned into non-performing assets (NPAs), making the country second in the world – right behind war-torn Ukraine – for the number of bad loans. The scale of the crisis is staggering. Policymakers, businesses and citizens should be ringing alarm bells over defaulted loans that amount to ₹4.54 lakh crore. A system on the brink of collapse Latest data showed 32.26 percent of total bank loans in Bangladesh are defaulted. Globally, only Ukraine’s beleaguered banking sector is doing worse with 37.35% NPAs, a situation blamed largely on the ongoing war. Bangladesh, in contrast, is facing a crisis that is largely of its own making. The country’s non-performing asset (NPA) ratio is now higher than even struggling African economies such as Chad (31.51%) and Guinea (31.15%).Much of this instability is the result of the political upheaval following the departure of Sheikh Hasina. Since then, Bangladesh’s financial system has been exposed to serious weaknesses as its economic discipline has deteriorated.
The Price of Political Patronage
Investigative reports, like those published by The Business Standard, show the corrosive effect of political patronage and weak regulation. The loans have been made not on the basis of the ability to pay, but on political connections and personal relationships. This has resulted in the weakening of the foundation of the nation’s financial sector by default of many loans given on the recommendation of powerful people. A sizeable portion of the 18.25 lakh crore taka in outstanding loans in Bangladesh is today in the danger zone. Niche categories of distressed loans bring the figure to more than 61% of all money lent by Bangladeshi banks – a situation almost unheard of for an economy of this size.
Banking Health Plummeting
The dramatic fall in the Capital to Risk-Weighted Assets Ratio (CRAR) of the banking sector also brings its health into focus. The CRAR currently stands at -2.64% as against the regulatory minimum of 12.5%. The contrast is sharp when we examine neighbouring countries. Pakistan (20.8%), Sri Lanka (19.4%) and India (17.2%) have been able to maintain better ratios, aided by tighter regulatory regimes and more cautious lending practices.
The Greater Economic Impact
The effects of this crisis go far beyond the banking sector. So much of the loaned capital is now tied up in default that banks have to spend more time and resources in legal battles and loan recovery. This eats into profits and limits their ability to lend more. The credit squeeze is hitting the nation’s factories, businesses and ordinary citizens. It threatens to bring economic growth to a halt. NRBC Bank’s Managing Director and CEO Touhidul Alam Khan described the situation as “very alarming compared to other countries in the region”. What Bangladesh does differently from its neighbours is to repeatedly fail to impose financial discipline, making its banks vulnerable to repeat shocks from both corporate and retail defaults.
Growing Debt Burden
Making matters worse, Bangladesh’s debt-to-GDP ratio has surged to over 39% from 34% during the 2017-18 fiscal year. Renowned economist Mustafizur Rahman stated: “The government is alarmingly changing its spending priorities from education and agriculture to debt repayment.” The World Bank’s International Debt Report 2025 says: “External debt increased by 42% in the last five years to $105 billion, an amount equal to 192% of the country’s export earnings. ”What Lies Ahead for Bangladesh? ”The road ahead is full of uncertainties. What is needed urgently is sweeping reforms — strengthening regulatory oversight, transparent and merit-based lending, and depoliticizing the banking sector. The danger of a total financial catastrophe is always there without such measures. This crisis is a warning to other developing countries. You can not build sustainable economic growth on a weak financial base. Bangladesh’s experience emphasizes the need for discipline, transparency and good governance to secure the future of any economy.
