A mounting crisis is threatening the stability of Bangladesh’s banking sector as a massive sum of loan money is trapped in court stay orders, leaving banks unable to show the full extent of defaulted loans. According to sources at Bangladesh Bank, due to these legal hurdles, defaulted loans worth Tk 163,000 crore are not being reflected in official records. As a result, while the actual total defaulted loans should stand at Tk 693,577 crore, banks are only reporting Tk 530,000 crore. This legal loophole is being exploited by influential borrowers, who continue to enjoy the benefits of bank facilities while hiding massive arrears, pushing the country’s financial sector into deeper instability.
Defaulters Exploit Legal Loopholes: Relevant sources reveal that loopholes in the law have allowed large-scale borrowers to maintain the appearance of regularity in their loan accounts despite significant arrears. These borrowers, shielded by court stay orders, are still enjoying facilities such as obtaining new loans, opening Letters of Credit (LCs), and even participating in bank governance as directors. In total, 27,302 loan accounts under 1,086 borrowers across multiple banks are affected. Under the Bank Company Act, a loan becomes classified as defaulted if it is not repaid for six months. Defaulted borrowers are legally barred from taking new loans, opening import-export LCs, or contesting bank elections. However, due to High Court stay orders, these borrowers continue to be recorded as regular in the Central Information Bureau (CIB) list, effectively nullifying the law’s deterrent effect.
“This is a major obstacle to economic discipline,” a Bangladesh Bank source said. “Many intentional defaulters are also suspected of laundering money abroad. Central bank oversight alone cannot solve this. There is an urgent need for a dedicated bench in the Defaulter Loan Tribunal or the Supreme Court to handle these cases.”
The Scale of the Problem: Currently, court stay orders are concealing defaulted loans of Tk 1,63,150 crore belonging to 1,086 individuals. On average, each borrower on the so-called “AOE” list owes around Tk 1.5 billion. In addition to these concealed loans, visible defaulted loans stand at Tk 5,30,428 crore. This represents a sharp increase from June 2024, when visible defaults were only Tk 2,11,392 crore. Within just one year, approximately Tk 3,20,000 crore has been added to the defaulters’ accounts.
Historical data highlights the dramatic rise in loan defaults over the years. At the end of June 2023, defaulted loans were Tk 1,56,390 crore. When the Awami League government took office in 2009, defaulted loans in the banking sector totaled a mere Tk 22,481 crore, showing the long-term accumulation of debt and the increasing challenges in managing bank portfolios.
Policy Laxity and the Impact of Student-Public Movements: Sources indicate that before the 2014 elections, government policies were relaxed in favor of defaulters, allowing many borrowers to bypass repayment obligations. However, following the student-public movement, Bangladesh Bank adopted a stricter stance against loan fraud and money laundering. Policy leniency for defaulters is no longer available as before, and banks have been urged to classify defaulters accurately based on the quality of their loans.
This shift has led banks to intensify efforts to recover defaulted loans. Recently, banks have begun auctioning mortgaged properties of influential borrowers and have introduced stricter policies for provisioning and security reserves. Dividend payments for 2024 were restricted due to a provision deficit, reflecting the financial strain banks are under to maintain solvency while addressing non-performing loans.
Joint Investigations and International Pressure: In addition to stricter domestic measures, joint investigations are underway to pressure borrowers who owe substantial sums. Applications have been submitted in multiple countries to freeze properties of these defaulters, particularly those suspected of moving funds abroad. These initiatives aim to prevent the flight of capital and enforce accountability.
Experts in the banking sector note that it has become more difficult to secure court stay orders than in previous years. Courts are now imposing stricter conditions, including down payments in some cases. Simultaneously, Bangladesh Bank is actively monitoring loans that remain classified as regular due to stay orders and coordinating with banks to ensure compliance. Measures have also been introduced to expedite cases in the Money Laundering Court, with benches allocated specifically for banking-related cases.
“If the current measures continue, there is hope that the problem of defaulted loans can be resolved,” said a central bank official. “We are considering a requirement that any borrower seeking a stay order from the High Court should pay at least 10 percent of the outstanding balance as a precondition. This could deter misuse of legal protections to evade repayment.”
The Governor’s Warning: Bangladesh Bank Governor Dr. Ahsan H. Mansur recently emphasized the urgency of the situation, stating that defaulters should be identified as such, regardless of any court stay orders. “Even if someone obtains a court stay order, they must still be recognized as a defaulter. To implement this effectively, Bangladesh Bank, the government, and the judiciary must work together,” he told the media.
Dr. Mansur warned that without coordinated action, the banking sector could fail to recover from its current instability. The persistence of large-scale defaults threatens not only individual banks but also the overall financial system, limiting the sector’s ability to support economic growth and maintain investor confidence.
Economic Implications: The ongoing accumulation of hidden defaulted loans has serious macroeconomic consequences. Trapped loan money reduces liquidity in the banking system, constrains credit for productive sectors, and increases the risk of financial contagion. It also undermines the confidence of honest depositors and investors, potentially destabilizing the wider economy.
Analysts note that the preferential treatment of influential borrowers through legal loopholes exacerbates inequality and distorts market discipline. While regular businesses and individuals face strict compliance requirements, a small segment continues to enjoy advantages, creating an uneven playing field and undermining economic efficiency.
Moving Forward: Addressing the issue of defaulted loans concealed by court stay orders requires multi-pronged action. Legal reforms are needed to prevent borrowers from exploiting loopholes, while the judiciary and Bangladesh Bank must work together to classify and enforce defaults correctly. Measures such as conditional stay orders, expedited legal proceedings, and international cooperation to freeze assets can help mitigate systemic risks.
Banks have already begun adopting stricter internal policies, including more aggressive loan recovery, enhanced provisioning, and public auctions of mortgaged properties. If these steps are supported by legal reforms and a coordinated enforcement framework, there is potential to gradually restore stability to Bangladesh’s banking sector.
Meanwhile, economic observers emphasize the importance of maintaining a fair and transparent banking environment. “Identifying and penalizing defaulters, even in the presence of legal protections, is critical for sustaining financial discipline and fostering economic growth,” said an economist involved in banking sector research.
The scale of the problem is staggering: Tk 163,000 crore of defaulted loans hidden under court orders, 1,086 borrowers averaging Tk 1.5 billion each, and visible defaulted loans exceeding Tk 5 lakh crore. These figures illustrate both the urgency and complexity of resolving Bangladesh’s defaulted loan crisis. Without decisive action, the risk of prolonged banking instability and adverse economic impact remains high.
Bangladesh’s banking sector is at a crossroads. Legal loopholes, court stay orders, and historical policy leniency have created an environment where influential borrowers can hide large-scale defaults, undermining both economic discipline and financial stability. However, recent stricter policies by Bangladesh Bank, legal reforms, and coordinated enforcement measures offer hope that the tide can turn.
To restore trust and efficiency, all stakeholders-banks, the central bank, the government, and the judiciary-must collaborate to ensure that defaulters are identified and held accountable. Without such coordinated action, the country risks allowing a small group of powerful borrowers to compromise the integrity of the entire financial system. As Dr. Ahsan H. Mansur emphasized, the time to act is now: a defaulter must be called a defaulter, regardless of court orders. The future stability of Bangladesh’s banking sector, and by extension its economy, depends on it.