The banking industry in Bangladesh concluded the year 2025 with non-performing loans (NPLs) exceeding Tk 5.57 lakh crore, which accounted for 30.6 percent of the total outstanding loans in the country. The NPL ratio had previously peaked at nearly 36 percent in September 2025. Despite efforts by the Bangladesh Bank to lower this ratio, primarily through loan rescheduling options, the fundamental issue persists.
In 2024, Bangladesh registered one of the highest bad loan ratios in Asia, as reported by the Asian Development Bank. By the end of 2025, more than a dozen banks had default rates surpassing 50 percent. The situation at the Islami Bank Bangladesh PLC, the largest private bank in the country, exemplifies how swiftly the financial condition of a banking institution can deteriorate. In 2023, its classified investment to total investment ratio was only 4.32 percent. However, by 2025, it surged to 49.65 percent, nearly half of the bank’s total investment portfolio. This drastic decline was a result of a concentration of significant loans within a few corporate groups that defaulted abruptly due to a political regime change in 2024. Concurrently, its capital adequacy ratio dropped from 12.62 percent in 2023 to 6.42 percent in 2025, less than the regulatory minimum of 12.5 percent mandated under the Basel III framework.
These statistics represent more than just numbers. Each taka tied up in a defaulted loan hampers the ability to fund new ventures, generate bank revenue, or support depositors. High levels of bad loans diminish profitability, weaken liquidity, and can erode public trust in the banking sector. This issue now affects state-owned, private, and recently merged banks alike, posing a significant threat to financial stability and economic progress, extending beyond the rescue of troubled institutions.
The conventional method of loan recovery is struggling to yield results. Banks predominantly rely on court proceedings and property auctions, both of which are often protracted and ineffective, with numerous cases taking years to resolve. A task force on economic reforms highlighted that as of February 2024, over Tk 1.78 lakh crore was entangled in 72,543 pending cases. Throughout the litigation process, collateral such as factories, machinery, and land frequently depreciate in value. Auctions are frequently held but frequently fail to attract buyers, resulting in banks devoting substantial time and resources to recovery efforts instead of facilitating new financing and attracting new clients.
Globally, countries facing similar challenges with distressed assets have embraced a different approach: establishing a dedicated asset management company (AMC). An AMC acquires troubled loans from banks and specializes in recovering their value. Notable examples include Malaysia’s Danaharta, South Korea’s Korea Asset Management Corporation (KAMCO), and Ireland’s National Asset Management Agency (NAMA), which have successfully managed distressed assets, achieving substantial recovery rates.
By adopting a similar model, Bangladesh could establish a national AMC to acquire large non-performing loans that banks have struggled to recover. These assets would be transferred at independently assessed market values, potentially funded through government-backed bonds. While banks would recognize immediate losses, they would benefit from cleaner balance sheets and increased capacity for regular financing. A dedicated AMC would amalgamate legal, valuation, restructuring, and property management expertise lacking in individual banks, enabling the restructuring of viable businesses, leasing of unused assets, land redevelopment, and targeted property sales when market conditions improve.
The necessity for an AMC is particularly evident in the case of Islami Bank, where S Alam Group and its affiliates borrowed Tk 74,900 crore, constituting 47 percent of its outstanding financing as of March 2024.
Banks grappling with NPLs may have attempted to sell mortgaged collateral such as factories, land, and commercial properties against defaulted loans. However, many such efforts may have been ineffective, as potential buyers often fear future legal disputes, especially with politically influential borrowers involved. Additionally, many of these assets may be too sizable for most investors to purchase in a single transaction.
A national asset management company could address these challenges by consolidating assets from multiple banks into a professionally managed portfolio, dividing large properties into smaller units for easier sale, and leasing idle assets for income generation. Furthermore, the AMC could market assets to a broader pool of domestic and international investors.
While an AMC presents opportunities, it also carries risks observed in certain countries where AMCs became repositories for unsellable assets due to inflated transfer prices or political interference. To mitigate these risks, transparent and independent asset valuation, a professional board, defined performance metrics, a limited lifespan, and public disclosure of activities, recoveries, and losses are crucial. Importantly, the AMC should not facilitate politically connected defaulters in avoiding repayment obligations.
An AMC should be part of a comprehensive reform agenda that includes expediting court procedures, enhancing bank governance, and establishing an
