Bangladesh’s banking sector endured a catastrophic year in 2024, grappling with an acute liquidity crisis and record-high non-performing loans (NPLs).

Depositors’ trust in banks has been severely shaken as many faced unprecedented difficulties withdrawing their hard-earned savings.

Economists and bankers have described 2024 as one of the worst years for the sector.

Defaulted loans soared to an unprecedented Tk 2.84 lakh crore, while total bad loans exceeded Tk 7.0 lakh crore by September.

For the first time in years, the Bangladesh Bank (BB) operated more independently as a regulator following the political changeover in August. But this independence also exposed deeper systemic issues.

Experts fear that the defaulted loans could rise to 30 per cent of total loans once calculated using IMF standards, which include previously hidden debts.

Hidden Debts Reveal Crisis Depth

The sharp rise in defaulted loans stems from a revised default-counting mechanism for term loans, which shortened the overdue classification period from nine months to six months.

The Bangladesh Bank plans to further revise this system in March 2025, reducing the classification period to just three months.

According to BB’s latest statistics, NPL volumes jumped nearly 96 per cent in less than a year, reaching Tk 2.84 lakh crore as of September 30, compared to Tk 1.45 lakh crore on December 31, 2023. Manufacturing accounts for 55 per cent of these defaulted loans.

Selim RF Hussain, managing director and CEO of BRAC Bank and chairman of the Association of Bankers, Bangladesh (ABB), acknowledged the severity of the issue:

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"The hidden loans are now coming out gradually as Bangladesh is now pursuing international best practices for the banking industry. The defaulted loans volume will be much higher once there is conduct of forensic audit."

Economic and Political Turmoil Contribute

The rise in NPLs has also been linked to broader economic and political factors.

Political unrest in July and August, coupled with floods in Cumilla, Feni and Noakhali, disrupted industrial operations and supply chains.

Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank (MTB), said,
"During the period, goods transportation across the country faced problems while the demand side was weak under higher inflationary pressure on the economy."

Interest rate hikes under a tighter monetary policy aimed at curbing inflation further compounded the problem. The central bank raised the policy rate to 10 per cent, increasing borrowing costs and pushing more businesses into default.

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Musrur, a former World Bank economist and chairman of the Policy Exchange of Bangladesh, cited political changes as another significant factor, “"There were many businessmen loyal to the ousted Awami League government, and they are now absconding. Their loans have become defaulted, which may be one key reason behind the rise in NPL volumes."

Implications for the Banking Sector

The share of classified loans has risen sharply, from 9 per cent at the start of 2024 to 16.93 per cent by September.

Experts warn this could climb to over 30 per cent once hidden loans are fully accounted for.

The implications are severe for the economy, as rising defaults threaten to limit access to credit for potential borrowers and erode confidence in the banking system.