Nearly one-third of the total loans disbursed by Bangladesh’s banking sector have turned defaulted, with the amount reaching Tk 6,06,555 crore at the end of June, accounting for 32.78 per cent of total outstanding loans.

Of the total non-performing loans (NPLs), Tk 5,45,899 crore, or around 80-90 per cent, is considered highly unlikely to be recovered. At the same time, banks lack sufficient capital to absorb potential losses arising from the massive volume of defaulted loans, putting the banking sector under pressure from both rising NPLs and capital shortfalls.

The findings were presented in a report titled ‘Banking Sector Assessment and Policy Review: January-September 2026′, published by Knowledge Hub Institute at an event in Shyamoli, Dhaka, on Saturday.

Noor Yana Jannat, a research associate at the institute, presented the report. Knowledge Hub President Khandaker Golam Moazzem and members of its Board of Trustees were also present.

According to the report, banks face a provisioning shortfall of around Tk 1,91,441 crore against defaulted loans. Besides, Tk 1,82,419 crore remains stuck due to court injunctions in 845 cases.

Shah Md Ahsan Habib, component lead at Knowledge Hub, said most defaulted loans had been classified as doubtful and bad loans, with recovery prospects of only 10-20 per cent.

In his assessment, less than 10 per cent of defaulted loans were caused by genuine credit risks, while the majority involved operational risks, irregularities and criminal activities.

He said banks alone could not address such offences, stressing the need for effective intervention by the government and Bangladesh Bank.

He added that ordinary depositors, bank employees, honest businesses and well-managed banks were ultimately bearing the cost of willful loan defaults. Even employees who were not involved in loan disbursement were facing the consequences, while legitimate businesses were being forced to borrow at higher interest rates.

As Bangladesh’s economy is heavily dependent on banks, the crisis is affecting the broader economy, he said.

The report also highlighted significant differences in default loan ratios among different categories of banks. The NPL ratio stood at 43.2 per cent in state-owned banks, 31.6 per cent in private banks and 6.5 per cent in foreign banks.

Full-fledged Islamic banks recorded the highest default loan ratio at 58.9 per cent. Deposits in these banks declined by 1.7 per cent, while their loan-to-deposit ratio rose to 127.7 per cent.

Meanwhile, deposit growth has failed to translate into stronger credit flows to the private sector. Bank deposits grew by 11.96 per cent in August, while private sector credit growth stood at 4.75 per cent before declining further to 4.09 per cent in September.

The report said inflation stood at 8.34 per cent in September, while the policy interest rate remained unchanged at 9.50 per cent. Foreign exchange reserves reached $31.20 billion on September 30, while remittance growth stood at 13.28 per cent during July-September.

Banks held excess liquid assets worth Tk 4,41,954 crore in August. However, the report cautioned that such excess liquidity could mask the actual financial distress of weaker banks.

The banking sector is also lagging behind its financial inclusion targets. SME loans accounted for 15.87 per cent of total lending in March against a target of 25.50 per cent. Loans to women entrepreneurs accounted for 7.28 per cent, compared with the target of 15 per cent.

Rural deposits represented 16.25 per cent of total deposits, while rural lending accounted for only 7.42 per cent. In addition, 34.48 per cent of agricultural and rural loans remained overdue in August.

To address the banking sector’s challenges, Knowledge Hub recommended conducting independent credit reviews of risk-prone banks by December. It also suggested taking decisions on bank-specific capital recovery or resolution by March 2027.

The report further stressed the need for regular disclosure of information on cash recovery, capital positions and customer services.

It also highlighted the Bank Resolution Act 2026, the Deposit Protection Act 2026 and the Tk 35,000 crore capital structure announced for Sammilito Islami Bank.

However, the report noted that there was no evidence that the process of returning depositors’ money at Sammilito Islami Bank had been completed.