A recent report from the Bangladesh Bank has revealed a grim and previously concealed picture of the country’s banking sector, exposing staggering volumes of defaulted loans, a ballooning provision deficit, and dangerously low capital buffers among banks-particularly state-owned institutions. The data paints a significantly bleaker picture than previously reported during the final months of the Awami League government, which fell from power on August 5 last year.
According to the central bank’s findings, as of June 30, 2024-just before the Awami League exited office-the volume of defaulted loans stood at Tk 2.11 trillion. The provision deficit, a critical metric reflecting banks’ preparedness to absorb loan losses, was reported at Tk 24,810 crore at the time. However, banking analysts and government officials now allege that these figures were deliberately underreported and that the true depth of the crisis was obscured.
Once the interim government assumed power in August 2024, the Bangladesh Bank began reassessing the data and started disclosing what it calls the “real image” of the financial system. The updated numbers are staggering: defaulted loans now stand at Tk 3.5 trillion, while the provision shortfall has surged to Tk 161 billion-a sevenfold increase in less than a year.
Fraud, Misreporting, and Political Cover-Up: Senior officials within the central bank and Ministry of Finance claim that the previous government suppressed negative financial data to maintain the illusion of economic stability. There are also serious allegations that banks-especially state-owned and politically linked private institutions-were instructed to conceal fraudulent loan disbursements and artificially lower their reported non-performing loan (NPL) ratios.
“Had the Awami League remained in power, the banking sector’s collapse might have been inevitable,” a senior official involved in the audit told this reporter on condition of anonymity. “We now have evidence that loan defaults were much higher than officially reported, and several banks were showing artificially inflated capital adequacy ratios.”
Bank insiders have also confirmed that many large borrowers, including politically influential business groups, were granted loan restructuring facilities and repayment deferrals without proper due diligence. This allowed banks to keep massive volumes of bad loans off their books temporarily.
Capital Adequacy Crashes to Record Low: One of the most alarming findings in the Bangladesh Bank’s report relates to the Capital to Risk-Weighted Assets Ratio (CRAR)-a key indicator of a bank’s resilience to financial shocks. In June 2024, under the previous administration, the reported CRAR was 10.64%, hovering just above the international Basel-III minimum requirement of 10%.
However, by December 2024, the ratio had plummeted to an unprecedented low of 3.08%, putting most banks far below the regulatory threshold and dangerously exposed to potential loan losses or financial market disruptions.
“This is the lowest CRAR ever recorded in Bangladesh’s banking history,” said a senior economist from the Policy Research Institute. “It essentially means that banks do not have enough capital to cover even a fraction of their risk-weighted assets. In a globalized economy, this level of fragility is a recipe for disaster.”
State-Owned Banks: A Capital Black Hole: The central bank’s report highlights that government-owned commercial banks are in the most precarious position. Years of poor governance, political interference in lending decisions, and weak internal controls have resulted in a scenario where state banks have virtually zero usable capital.
“All of their capital has been wiped out by bad loans,” said a former managing director of one of the country’s leading state banks. “These banks are now functioning solely on government guarantees and periodic capital injections from the national budget.”
This raises grave concerns about fiscal stability as well, since taxpayers will ultimately bear the burden of recapitalizing these failed institutions. The Ministry of Finance has already signaled that a bailout package may be needed later this year, which could further widen the budget deficit and limit resources for critical development spending.
Deposit Flow Improving, But Not Everywhere: The Bangladesh Bank report provides a silver lining: overall deposit growth has begun to recover in recent months, particularly in financially healthy private banks. However, weak banks continue to struggle to attract deposits despite offering high interest rates.
“Depositors have lost confidence in these institutions,” said the head of retail banking at a leading private bank. “They are parking their money in safer banks or shifting to non-bank alternatives like gold, real estate, or even holding dollars.”
Several weak banks are now unable to meet daily withdrawal demands from customers and have to rely on interbank borrowing or short-term loans from the central bank. This is creating a high-risk situation where even minor liquidity shocks could cause a bank run.
Banks Offer High Interest to Lure Deposits: To stabilize liquidity, many banks are offering deposit rates that far exceed the market norm. Fixed deposit rates are reportedly touching 10-12% at some struggling institutions-well above the inflation rate.
“This is a double-edged sword,” said a senior official at Bangladesh Bank. “While it may temporarily shore up deposits, it also increases the cost of funds, which will pressure already-weak profit margins. Moreover, banks may be tempted to lend recklessly again to earn higher returns to cover this cost.”
The central bank is currently reviewing the impact of this high-interest-rate strategy and may introduce guidelines to ensure that struggling banks do not overextend themselves in the pursuit of deposits.
Calls for Comprehensive Banking Reform: The current crisis has reignited calls for deep structural reforms in Bangladesh’s banking sector. Economists, business leaders, and development partners have long warned that without changes to governance, loan recovery, and regulatory enforcement, the sector could face systemic collapse.
Among the key recommendations being proposed: Tighten loan classification standards to prevent underreporting of bad loans. Introduce an independent banking oversight body to prevent political interference. Halt recapitalization of failed state-owned banks without structural reforms. Improve digital tracking of credit exposure and borrower history. Implement stricter penalties for loan defaulters and bank insiders involved in fraud.
The Bangladesh Bank has already started strengthening its inspection teams and is considering mandatory forensic audits for banks with high NPLs.
Political Fallout and Public Distrust: The surfacing of these suppressed financial figures is also having a political impact. The Awami League, now in opposition, has rejected the central bank’s new findings as “politically motivated.” In a statement last week, party spokesperson Obaidul Quader claimed that the data is being “deliberately manipulated to smear the previous government’s reputation.”
However, civil society groups and economic think tanks argue that the new disclosures are a step in the right direction. “For years, we were fed a false narrative of banking stability,” said Transparency International Bangladesh Executive Director Dr. Iftekharuzzaman. “The public deserves to know the truth. Only then can meaningful reform take place.” International Implications: The banking crisis also risks damaging Bangladesh’s international financial credibility. Development partners such as the International Monetary Fund (IMF), World Bank, and Asian Development Bank (ADB) are closely monitoring the situation. Bangladesh is currently under an IMF-supported Extended Credit Facility (ECF) program, and the deteriorating banking indicators could trigger a review of future loan tranches.
“The IMF wants transparency and reform,” said a finance ministry official. “If we fail to act now, we risk losing external support and investor confidence.”
What Comes Next: The interim government has vowed to clean up the sector. A high-level task force has been formed to recommend immediate remedial steps. The Bangladesh Bank, for its part, has promised quarterly publication of banking health indicators and is preparing a revised prudential framework to be rolled out in July.
As the central bank pulls back the curtain on the crisis, the banking sector stands at a crossroads. Either bold reforms are enacted to restore public confidence, or Bangladesh risks falling into a deeper financial quagmire.
“The truth is out,” said a senior economist. “Now the question is: will the nation finally fix its banks-or continue papering over the cracks until the collapse becomes irreversible?”
Side Bar: Key Highlights from Bangladesh Bank’s Latest Report: Defaulted Loans: Increased from Tk 2.11 trillion (June 2024) to Tk 3.5 trillion (April 2025), Provision Deficit: Rose from Tk 24,810 crore to Tk 161 billion, Capital to Risk Assets Ratio: Dropped from 10.64% to 3.08%, State Banks: Have effectively zero capital; depend on budget support, Deposit Growth: Improving overall but stagnant in weak banks,
High Deposit Rates: Some banks offering up to 12% to attract liquidity.
