Bangladesh’s financial sector is facing a multifaceted crisis. Surging non performing loans, failing non?bank institutions, distressed insurance companies, and stagnant revenue collection are converging to create systemic instability. Analysts warn that decades of mismanagement under the previous government have pushed the sector to the brink of collapse.
Non?Performing Loans Spiral Out of Control: The banking sector’s distressed asset base has nearly doubled. As of June 2023, non-performing loans (NPLs) stood at just 10.11% of total loans, but by December 2024, this had surged to 20.20%-a figure now openly acknowledged by Finance Adviser Dr. Salehuddin Ahmed. Bangladesh Bank’s stability report further revealed that total distressed assets-encompassing rescheduled, written-off, and impaired loans-now total Tk?3.78 lakh crore. The rate of NPLs in some banks is estimated at 80%, with up to Tk?16,000 crore lost in just one institution over short periods. The central bank asserts that loans which were once rescheduled and hidden are now being accurately classified under stricter Basel III guidelines, exposing the true magnitude of defaulted debt.
Banks Made Vulnerable by Decades of Misrule: Dr. Ahmed has criticized the previous 15-year Awami League administration for systematically dismantling governance within the banking sector, enabling a wave of looting and fraud. He stated that millions of crores in public deposits were siphoned off via politically connected borrowers and shell companies. Central Bank Governor Ahsan Mansur further alleges that $17 billion (about Tk?2?trillion) was embezzled from the banking sector by business figures linked to the former regime, often facilitated by the powerful intelligence agency DGFI. In turn, the interim government has launched forensic audits through international firms to recover these funds.
In response, the interim leadership is implementing the Bank Resolution Ordinance 2025, restructuring bank governance, firing compromised board members, and planning mergers or recapitalizations via new asset management vehicles.
Non?Bank Financial Institutions Near Collapse: Non-Bank Financial Institutions (NBFIs) are also in deep distress. By the end of September 2024, defaulted loans across 35 key institutions totaled Tk?26,163 crore, with an average NPL rate of 35%. Seven firms reported shockingly high rates-from 90% to 99% in bad loans.
Major institutions like Bangladesh Industrial Finance and People’s Leasing remain virtually non-operational due to widespread fraud, mostly linked to the notorious cases of former embezzler Proshanta Kumar Halder. Deposit flows have dried up, liquidity has collapsed, and public trust has evaporated.
Insurance Sector Facing Collapse: More than half of Bangladesh’s 82 insurance companies-both life and general-are currently categorized as high-risk, with another significant group facing medium risk. Regulatory inaction has allowed operators to collect premiums without honoring claims. This extends the crisis beyond banks into broader financial intermediation. Revenue Shortfalls Deepen Fiscal Stress: A separate front-line stressor is plummeting revenue collection. The National Board of Revenue (NBR) reported a shortfall of nearly Tk?92,600 crore in the 2024-25 fiscal year, a record deficit. Delays caused by nationwide unrest and strikes, including disruptions in the final month of the fiscal year, significantly hampered tax inflows.
Trade Risks Paired with Financial Fragility: The looming imposition of a 35% countervailing duty by the U.S. on Bangladesh exports-especially ready-made garments-poses additional risk. Rating agency S&P Global warns this could severely impact competitiveness and labor-intensive exports, compounding existing systemic shocks in the financial sector.
Expert Perspectives: A Crisis Rooted in Mismanagement: Prominent economist and DU professor Dr. Shahidul Zahid warns that the entire economic ecosystem is under threat. He notes that recovery appears distant and the risk of prolonged recession looms unless accountability is enforced and governance restored.
Meanwhile, Professor Abu Ahmed of the Investment Corporation of Bangladesh highlights the acute difficulties in loan recovery: many villains have fled, loans were disbursed without due diligence, and the regulatory system failed to act until it was too late.BSEC Chairman Abdur Rahman Khan points to systemic failures in coordination between customs and banks, facilitating rampant over-invoicing and capital flight.
Reform Measures Underway: Despite the severity of the crisis, the interim administration has launched a number of reform initiatives:Asset Quality Review (AQR): Conducted with the help of Big Four accounting firms to assess bank health and identify hidden liabilities. Implementation of Loan Lease Classification and Provisioning under Basel III, aimed at fully exposing distressed assets. Formation of three specialized task forces to oversee asset review, regulatory strengthening, and recovery of stolen or laundered assets. Enactment of the Bank Resolution Ordinance 2025, enabling swift action against insolvent or insolvent banks. Plans for an Asset Management Company (PAMC) to buy bad loans from banks, restructure them, and sell them as tradable securities-a model inspired by East Asia’s post-crisis reforms.
Funding Challenges and External Support: Dr. Ahmed and the IMF estimate that restructuring the banking sector could cost between $18 billion and $35 billion. The interim government is seeking to achieve initial stabilization within $5-6 billion, but acknowledges that further international aid and capital may be required for a full recovery.
International institutions including the IMF, World Bank, ADB, and IRA have pledged support and are monitoring reform implementation closely.
Crisis or Critical Inflection: Without swift enforcement and transparency, Bangladesh’s financial sector remains in deep jeopardy. Experts argue that restoring depositor confidence and financial stability hinges on:Enforcing accountability-through prosecutions, asset recovery, and director removals.Adopting modern governance protocols, including board vetting and rule compliance.Strengthening regulatory institutions, enabling proactive oversight and risk detection.Enabling merger-driven consolidation, trimming the number of weak financial institutions.Adjusting macroeconomic drivers, such as trade policy and interest rate flexibility, to restore investor confidence and support private-sector credit flows.As Dr. Salehuddin Ahmed has underscored, this is not merely an economic problem-it’s a foundational crisis requiring both immediate action and long-term policy overhaul 
Final Thoughts: A Turning Point for Bangladesh: Bangladesh stands at a financial crossroads. The sector’s fragility-a result of endemic corruption, political interference, and poor governance-now demands bold correction. The interim government and central bank have initiated promising reforms, but structural reform must accelerate and expand.If successfully executed, these reforms could rebuild institutional trust, attract strategic investors, and restore financial sector resilience. However, failure will risk prolonged recession, weaken export competitiveness, and lose economic momentum.As external conditions-like US tariff threats and global headwinds-compound domestic vulnerabilities, successful recovery may prove to be a pivotal determinant of Bangladesh’s economic trajectory in the next decade.