Defaulted Loans Surge by Tk 17,851 Crore in Just 3 Months

Bad loans in the banking sector reached Tk 606,555 crore at the end of June, with the bad loan ratio rising to 32.78 percent

The amount of bad loans in the country’s banking sector has increased further. At the end of June this year, bad loans stood at Tk 606,555 crore. The ratio of bad loans to total loans rose to 32.78 percent. Just three months earlier, at the end of March, bad loans stood at Tk 588,704 crore, while the ratio was 32.26 percent.

According to the latest data from Bangladesh Bank, bad loans in the banking sector increased by Tk 17,851 crore during the three months from March to June. During the same period, the bad loan ratio increased by 0.52 percentage points. This indicates that despite various initiatives to recover loans and control bad loans, the pressure of distressed loans on the banking sector has not yet eased.

Experts say the rise in classified loans is being driven by the reclassification of long-overdue loans, weaknesses in loan recovery and declining financial capacity among some borrowers. As a result, additional pressure is being created on banks’ earnings, capital and liquidity management.
At the end of March, bad loans stood at Tk 588,704 crore. Over the next three months, the amount rose to Tk 606,555 crore. Calculations show that bad loans increased by about 3.03 percent during this period. The ratio of bad loans to total loans also increased during the same period.

The biggest concern for the banking sector is that nearly one-third of total loans are now classified. This means a significant portion of loans disbursed by banks is not being regularly recovered or has become subject to recovery risks. This could also affect banks’ ability to provide new loans.

When bad loans rise, banks have to maintain higher provisions against potential losses. This reduces bank earnings and increases pressure on capital. In some cases, the risk of capital shortages may also arise. At the same time, prolonged delays in recovering bad loans could further weaken the quality of banks’ assets.
Bankers say one of the banking sector’s key challenges at present is recovering old bad loans and preventing new loans from becoming classified. To this end, proper verification during loan approval and disbursement, monitoring the use of loan funds and stronger oversight of large borrowers are necessary.

Economists say bad loans are not only a problem for the banking sector but also affect the overall economy. If a large amount of banks’ funds remains tied up in bad loans, the flow of funds available for new investment in productive sectors may decline. This could hinder private investment, employment and economic growth.
They say the problem should not be addressed solely through loan rescheduling or restructuring. Instead, genuine defaulters must be identified and effective recovery measures strengthened. At the same time, strict action against willful loan defaulters and ensuring good governance within banks are essential.

Although Bangladesh Bank and commercial banks have taken various measures to reduce bad loans, the June figures show that the crisis remains significant. Both the amount of bad loans and the bad loan ratio increased in June compared with March. Therefore, strengthening loan recovery and establishing good governance in the banking sector remain major challenges for the regulators in the days ahead.