Bangladesh is facing a deepening banking crisis: defaulted or non performing loans (NPLs) have soared from Tk2.11lakh crore in June 2024 to Tk 5.30 lakh crore by June 2025-an increase of Tk 3.19 lakh crore, revealing one of the most alarming surges in domestic financial history. According to data reported by banks to the Bangladesh Bank, at the end of March 2025, total defaulted loans stood at Tk 4.20 lakh crore, representing 24.13% of all outstanding credit. By June 2025, this figure had climbed to Tk 5.30 lakh crore, pushing the default rate up to 27.09% of total loans issued Quarterly Breakdown: March 2024: NPLs were approximately Tk 1.82 lakh crore (11.11% of total loans). March 2025: NPLs jumped to Tk 4.20 lakh crore, a 130% year on year rise.June 2025: NPLs reached cumulative Tk 5.30 lakh crore, translating to more than one?quarter of all bank loans made defaulted. 
That means within one year-from June 2024 (2.11 lakh crore) to June 2025 (5.30 lakh crore)-defaulted loans increased by an unprecedented Tk 3.19 lakh crore. Key Drivers of the Spike: Policy Reclassification under Bangladesh Bank. A significant portion of the increase stems from tighter NPL classification rules. Previously, loans were deemed non performing after 270 days past due. That threshold has been first shortened to 180 days in late 2024, then aggressively cut to just 90 days from early April 2025, aligning with global banking standards. This move alone immediately rendered many existing loans “defaulted” on paper. Moreover, on site audits by Bangladesh Bank’s inspection teams have re classified numerous previously concealed or rescheduled loans-especially large exposures-to the default category.  
Exposure of Political Patronage Lending: During the now?ousted Awami League government (until August 5, 2024), banks frequently extended large, opaque loans to politically connected individuals and conglomerates-often circumventing due diligence. These loans were routinely rescheduled or kept off the classified books. Once the interim government assumed power and installed financial reformers such as Governor Ahsan H. Mansur, many of those loans began surfacing as defaults.Prominent among the exposed defaulters is the S Alam Group of Industries, which under the previous regime held controlling stakes in several banks, including Islami Bank, First Security Islami Bank, Union Bank, Global Islami Bank, and Social Islami Bank. These institutions reportedly extended huge unsecured loans to S Alam affiliates, many of which are now defaulted.Current Economic Downturn: The broader economic slowdown and rising inflation have eroded many businesses’ capacity to repay loans. Even borrowers with no political ties are struggling-leading to widespread defaults across both “good” and “bad” banks.Failure of Rescheduled & Renewed Loans: A substantial number of previously rescheduled or renewed loans are not being serviced. Interest accrual continues, and without repayment, these facilities lapse into the NPL category. Combined with stricter audit scrutiny, these lapses are driving up default volumes.Banks Under the Microscope: Islamic & State-Owned: Islamic Banks Facing a Merger: Five Islamic banks-First Security Islami Bank, Global Islami Bank, Union Bank, Social Islami Bank Limited (SIBL), and Exim Bank-are at the centre of a planned merger by Bangladesh Bank to stem rising defaults and stabilize operations.Debt and equity shortfalls are staggering: SIBL: 60% default rate, First Security, Union, Global: default rates approaching 95%, Exim Bank: 28% default rate, Combined equity shortfall for the five is around Tk 40,000 crore; government capital support of Tk 10,000–12,000 crore is expected over 2–3 years to facilitate the merger. Deposit?asset ratios have been breached disastrously—with loans far exceeding customer deposits by Tk 55,591 crore (exceeding 92% regulatory limit). As many of these institutions were directly or indirectly tied to S Alam, Bangladesh Bank has already seized sponsor shares, dissolved boards, and appointed independent directors to sever undue influence. 
State-Owned and Major Private Banks: State?owned banks bear the brunt: 45.79% of loans in state banks like Sonali, Janata, Agrani, and Rupali are classified as non-performing by March 2025—a jump from 42.83% in December 2024. Private banks have fared somewhat better but still show severe deterioration: Their NPL ratio climbed from 15.60% in December 2024 to 20.16% in March 2025-totaling Tk 2.64 lakh crore in bad loans.Foreign and specialised banks remain relatively less affected but still show increases: Foreign banks: 4.83% default rate. Specialised banks: 14.37% default rate. Notably, several top defaulting private banks include Union Bank (87.98% NPL ratio), Global Islami Bank, Al?Arafah Islami Bank, IFIC, UCB, NRB Commercial Bank, and Basic Bank—all with substantial shares of total default exposure.When the Awami League came to power in 2009, the total defaulted loans stood at just Tk?22,481 crore. Over the next decade and a half, the value ballooned—initially through high default growth, and later through classification changes and audit reversals—and by June 2025, had reached Tk?5.30?lakh crore—a nearly 240?fold increase in 16 years. Over time, experts have argued that much of this rise stemmed from systemic fraud, political interference in bank governance, and lax regulatory oversight. Siphoning of funds abroad, as well as loan rescheduling used as a tool to hide bad debt, were central to the crisis. Government Responses & Recovery Plans: The interim government under Muhammad Yunus is pursuing aggressive asset recovery efforts. Eleven priority investigations are underway targeting politically connected business groups, including S Alam and Beximco. International litigation is being considered, with potential allies in litigation funders (e.g. Omni Bridgeway) and foreign states. Funding targets for this litigation push are around USD?100 million, expected through a combination of government resources and third?party funding.Bank Governance Reform: Bangladesh Bank has dissolved boards of 14 private commercial banks, replaced management in controllable banks, and appointed independent directors. Liquidity support packages (approx. Tk?30,000?crore) have been extended to distressed banks—six of those have reportedly begun recovery, albeit under watch due to growing NPLs.Regulation and audit protocols have tightened. Loan classification rules have been modernised and enforcement stepped up. For high?risk borrowers, especially repeat defaulters, legal recovery through the specialized Artha Rin Adalat courts is being pursued. Special support or “policy relaxation” has been extended to more than 100 defaulter entities—banks are evaluating how best to support around 1,200 defaulter businesses via tailored schemes.Islamic Bank Mergers: The central bank’s plan is to merge the five failing Islamic banks into one larger entity, recapitalise it with a combination of government injection (~Tk?10,000–12,000 crore) and sale of seized sponsor shares to strategic investors. Lower?level employees are assured job security; this merger is tentatively slated for completion by December?2025.Economic & Financial Risks Ahead: With 27% of all loans now defaulted, banks face escalating risks: Massive provision shortfalls (currently Tk?1.7?lakh crore funding gap), Shrinking capital buffers and potential breaches of regulatory capital adequacy, Possible bank insolvencies without swift remediation.Credit Crunch & Investor Confidence: Shrinking lending capacity and reluctance from new investors—especially after the failure to attract bidders in auctions for defaulting entities like S Alam Group—could choke credit flows to productive sectors.Public trust has eroded sharply. Foreign investors may see rising political risk, tainted financial sector, and weak governance as deterrents to capital inflows. The state’s recourse to litigation and seizures might compound the perception of regulatory unpredictability.Political Fallout & Election Impacts: With a national election scheduled for April?2026, the interim government’s aggressive crackdown on defaulted loan defaulters—especially those tied to the former regime—may fuel political controversy. Critics allege selective targeting and political vendetta; by contrast, supporters argue that accountability is long overdue.