Bangladesh’s banking sector has joined an exclusive club. The country’s gross non-performing loan ratio stood at 32.26% at the end of March 2026, the second-highest in the world after war-torn Ukraine, which topped the global list at 37.35%. Bangladesh leads Chad by 31.51% and Guinea by 31.15%. It has the highest NPL ratio among all SAARC countries by a huge margin. In practice, almost one-third of taka that a Bangladeshi bank lends is going bad.
How Fast the Figures Have Changed
What is alarming about the figure is not just its size, but its speed. The NPL ratio was a mere 12.2% in June 2024. It climbed to 24.6% by March 2025 and briefly peaked near 36.73% by September 2025 before settling back to about 32% in early 2026. Bangladesh Bank data showed total outstanding loans stood at Tk18.25 lakh crore by end-March, while non-performing loans increased Tk31,000 crore in three months to Tk5.89 lakh crore. Stressed assets in total, including restructured loans and special mention accounts, are at about Tk11.2 lakh crore, or some 61% of the entire loan book of the banking system.
What’s Really Driving the Defaults
A study by the Center for Policy Dialogue has found that currency depreciation is the single most consistent factor in raising bad loans and the impact is about 2.5 times higher in periods of high financial stress than normal times. Similarly, real interest rates rise, squeezing borrowers’ ability to repay at a time when economic growth slows.
“This is a vicious cycle, as weaker demand, higher financing costs and lower profitability erodes the repayment capacity of businesses which further drags down credit quality,” said CPD Distinguished Fellow Fahmida Khatun. The same study found that stronger institutional oversight and less political interference have the most powerful dampening effect on NPLs, but only during high-stress periods, suggesting that governance gaps are magnified precisely when the system can least afford them.
Other bankers and financial experts cite more specific culprits such as political interference, connected lending, weak regulatory enforcement and years of loan rescheduling that allowed the underlying rot to build up instead of forcing it into the open.
State Banks Bear the Brunt
The pain is not shared equally. The combined non-performing loans of the five major state-owned commercial banks of Bangladesh – Janata, Agrani, Rupali, Sonali and Basic Bank – surged Tk6,304 crore in the first six months alone of 2026 to around Tk151,000 crore or over $12.8 billion.
That default volume remains heavily concentrated amongst a handful of politically connected business conglomerates, posing pointed questions over the safety of public deposits and the long-term stability of state-run banking. Six months of governance reforms have failed to stem the tide of large corporate defaults, weak legal enforcement and large provisioning shortfalls that continue to hold back debt recovery across these banks.
A Cleanup That Made the Numbers Look Worse First
Some of the sharp rise is due to real transparency, not new damage. Independent asset quality reviews by global firms in 2025 uncovered defaults masked by repeated rescheduling.
Bangladesh Bank also tightened its classification rules to conform to international Basel III standards, classifying a loan as bad after just three months of non-payment instead of six. By the end of 2025, 19 banks could not maintain the minimum capital adequacy ratio. The Bank Resolution Scheme of the central bank merged five ailing Islamic banks, Exim, First Security, Global Islami, Social Islami and Union Bank, into one bank called Sammilito Islami Bank PLC in January 2026.
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Where This Leaves The Economy Of Bangladesh
The effects go well beyond bank balance sheets. The more defaults there are, the more provisions lenders need to take and the more they have to pay on the legal side. All this affects profitability and their ability to lend to productive sectors of the economy.”
Bangladesh has taken a starkly different path from its regional neighbours, noted Md Touhidul Alam Khan, managing director and CEO of NRBC Bank. While its neighbours have guarded their banking sectors with strict macroprudential discipline, Bangladesh has repeatedly absorbed corporate and credit shocks.
The next year will be a test of whether Bangladesh’s banking sector is really stabilising or just learning to see its problems more clearly without yet solving them. “Exit” Scheme With reform measures like a new loan-rescheduling “exit” scheme now in place along with stricter audits.
FAQ
Where does Bangladesh’s bad loan ratio stand globally?
Bangladesh is second in the world with non-performing debt ratio at 32.26% after Ukraine with 37.35% and has the highest among SAARC countries.
What is causing the increase in bad loans?
According to both Bangladesh Bank data and independent research, the main factors are currency depreciation, high real interest rates, weak institutional oversight and politically influenced lending.
Do state-owned banks fare worse than private banks?
In the first half of 2026, the five largest state-owned commercial banks in Bangladesh alone registered new non-performing loans of over Tk6,304 crore with defaults concentrated among politically connected business groups.
Summary: Bangladesh has the world’s second-highest ratio of non-performing loans after Ukraine, with almost a third of all bank lending in default, a consequence of currency depreciation, weak institutional oversight and years of politically influenced lending.
