Bangladesh has climbed to the position of the world's second-highest non-performing loan (NPL) ratio, with nearly one-third of all bank lending classified as defaulted, according to a new report. The country's NPL ratio stands at 32.26 per cent, placing it behind only Ukraine — whose banking sector has been ravaged by ongoing conflict — and ahead of Chad and Guinea on the global rankings.

Where Bangladesh Stands Globally

Ukraine tops the global list with an NPL ratio of 37.35 per cent, a figure that largely reflects the economic destruction wrought by war. Bangladesh follows at 32.26 per cent, ahead of Chad at 31.51 per cent and Guinea at 31.15 per cent. Within the South Asian Association for Regional Cooperation (SAARC) region, Bangladesh holds the dubious distinction of the highest NPL ratio — a reflection, according to the report, of weak credit discipline, politically influenced lending, and poor loan recovery mechanisms.

Scale of the Bad Loan Crisis

Data from Bangladesh Bank showed that non-performing loans climbed to Tk 5.89 lakh crore by end-March 2025, rising by Tk 31,000 crore in just three months. Total outstanding loans in the country stood at Tk 18.25 lakh crore. When restructured loans and special mention accounts are included, stressed assets reach Tk 11.2 lakh crore — roughly 61 per cent of the banking system's entire loan book, according to the report.

Capital Position Deteriorates Sharply

The sector's capital buffer has eroded at an alarming pace. The aggregate Capital to Risk-Weighted Assets Ratio (CRAR) fell to -2.64 per cent at end-2025, down from 3.08 per cent a year earlier — far below the regulatory minimum of 12.5 per cent. By comparison, Pakistan's banking sector maintained a CRAR of 20.8 per cent, followed by Sri Lanka at 19.4 per cent and India at 17.2 per cent, underscoring the scale of Bangladesh's divergence from its regional peers.

Political Lending and Structural Weaknesses

Bankers cited in the report argued that politically influenced lending decisions had systematically weakened credit standards, with many loans reportedly approved on the basis of connections rather than borrowers' actual repayment capacity. Md Touhidul Alam Khan, Managing Director and CEO of NRBC Bank, said Bangladesh's extreme divergence from regional peers showed that 'neighbouring economies insulated their banking sectors through strict macro prudential discipline, while Bangladesh repeatedly absorbed corporate and credit shocks.'

A surge in defaulted loans forces banks to maintain higher provisioning and bear increased litigation costs, in turn reducing profitability and limiting their ability to extend fresh credit to productive sectors of the economy — a cycle that critics argue is now deeply entrenched.

What Comes Next

The findings, published by Dhaka-based The Business Standard, are likely to intensify pressure on Bangladesh's financial regulators to enforce stricter credit governance and accelerate loan recovery. Whether the interim administration can break the cycle of politically driven credit allocation remains the central question for the country's banking sector in the months ahead.