Bangladesh’s banking sector is facing significant challenges such as a high level of non-performing loans (NPLs), capital deficiency, provision shortfall, management inefficiency, and other issues, making it highly vulnerable. Moreover, there is a noticeable bias in the sector where capital from rural areas is consistently being diverted to urban areas. Despite a substantial amount of deposits coming from small depositors, a significant portion of these funds ends up in the hands of the wealthy.
In December 2025, the NPL ratio in Bangladesh dropped to 30.60 percent from its peak of 35.73 percent three months earlier. This decrease was attributed to a more lenient loan rescheduling policy by the Bangladesh Bank, allowing defaulted loans to be regularized with just a two-percent down payment.
Compared to other countries, Bangladesh had the highest NPL ratio in the world in September 2025. For instance, Pakistan and India had much lower NPL ratios of 7.4 percent and 2.3 percent, respectively. Even amid economic crises, Sri Lanka managed to maintain its NPL ratio at 12.6 percent, while countries like Ukraine and Lebanon, facing various challenges, had lower NPL ratios of 26.1 percent and 23.8 percent, respectively. In Bangladesh, several banks recorded alarmingly high NPL ratios in 2025, with five banks exceeding a 90 percent NPL ratio, indicating severe operational challenges.
As per the Basel III guidelines, Bangladeshi banks are required to maintain a Capital to Risk-Weighted Assets Ratio (CRAR) of 12.5 percent. However, in 2020, the industry’s CRAR stood at 11.6 percent, dropping to 6.86 percent in September 2024 and further declining to 3.08 percent in December 2024. This significant drop was due to banks revealing their true asset quality, leading to a more accurate assessment of capital ratios. In contrast, countries like Pakistan, India, and Sri Lanka maintained higher CRAR levels well above the required thresholds.
By September 2025, 23 banks in Bangladesh faced a combined capital shortfall of Tk 2.82 lakh crore, with the top five banks accounting for around Tk 1.68 lakh crore, representing 59 percent of the total shortfall. In December 2025, the banking sector’s CRAR plummeted to negative 2.9 percent, marking a historic low.
The efficiency of a bank can be gauged by its expenditure to income ratio, indicating the cost incurred to generate income. Bangladesh’s banking sector experienced fluctuations in this ratio over the years, with a notable improvement in 2024. Additionally, the concentration of loans in specific geographic and sectoral areas highlights vulnerabilities and disparities within the banking system.
Small depositors play a significant role in the banking sector, with deposits below Tk 1 crore constituting a significant portion of total deposits. Notably, smaller loans had lower NPL ratios compared to larger loans. Efforts to address these disparities and reduce financial discrimination between rural and urban areas are essential for fostering a fairer banking environment.
To address the capital shortfall, substantial funds have been injected into state-owned commercial banks between 2009 and 2024, with the burden primarily falling on taxpayers. Implementing measures to strengthen the banking system and reduce NPL volumes is crucial for long-term stability and fairness in the sector.
Addressing these systemic issues requires strong political will and a sincere intention to reform the banking sector. Drawing lessons from successful examples like China, where decisive actions led to a significant reduction in NPL ratios, can guide Bangladesh towards a more resilient banking system. Furthermore, the enactment of the Bank Resolution Act, 2025 in Bangladesh emphasizes the need for responsible governance and accountability to safeguard the sector from potential risks.
