Bangladesh's banking sector is facing a severe capital crisis, with 24 banks now reporting significant capital shortfalls that threaten the stability of the country's financial system. The latest report from Bangladesh Bank, the central bank, shows that these shortfalls have escalated alarmingly due to a combination of non-performing loans, inadequate provisions, and mismanagement during previous administrations.
The cumulative capital deficit of these 24 banks now stands at Tk 155,866 crore, up from Tk 110,260 crore at the end of March. The recent addition of NRB Commercial Bank and Al-Arafah Islami Bank to the list of undercapitalized institutions has exacerbated the situation, while foreign-owned Habib Bank has managed to come out of its shortfall.
NRB Bank Sees Loan Defaults Surge: When contacted, NRB Bank Chairman Ali Hossain Pradania acknowledged the deteriorating situation. “As of December last year, NRB Bank's non-performing loans (NPLs) were around 5 percent. That has now surged to 28.5 percent,” he said. “We are maintaining large provisions against these loans, which has resulted in a capital shortfall. We will work to rectify this once the actual picture becomes clearer.”
Bank officials report that during the previous government's tenure, widespread corruption and irregularities allowed large sums
of money to be siphoned off as loans. These loans were often classified as performing, despite being non-recoverable. The interim government, upon taking office, began revealing these hidden NPLs, causing reported NPLs to climb to nearly Tk 7 lakh crore. Insufficient provisions against these loans have, in turn, eroded banks' capital, placing the entire financial sector at risk.
Capital Adequacy Ratio Falls Below International Standards: Bangladesh Bank's report shows that the capital-to-risk weighted asset ratio (CRAR) for the banking sector fell to 4.47 percent by the end of June - far below the internationally recommended minimum of 10 percent. In March, the sector's CRAR stood at 6.74 percent.
Of the 24 banks undercapitalized, four are state-owned, ten are private commercial banks, eight are Shariah-compliant Islamic banks, and two are specialized banks. Among state-owned banks, Janata Bank had the largest shortfall at Tk 17,025 crore, followed by Agrani Bank at Tk 7,698 crore, Rupali Bank at Tk 4,173 crore, and Basic Bank at Tk 3,783 crore.
Basic Bank Chairman Helal Ahmed Chowdhury told Daily Industry, “Basic Bank was performing well at one point, but it suffered significant losses in the middle. We are now attempting to recover.”
Among private banks, National Bank had the largest deficit of Tk 8,459 crore, followed by AB Bank at Tk 6,775 crore, Padma Bank at Tk 5,619 crore, IFIC Bank at Tk 4,051 crore, Bangladesh Commerce Bank at Tk 1,878 crore, Premier Bank at Tk 1,640 crore, United Commercial Bank at Tk 1,385 crore, NRB Commercial Bank at Tk 316 crore, Citizen Bank at Tk 86 crore, and Shimanto Bank at Tk 45 crore.
Islamic Banks Also Severely Under-Capitalized: Union Bank reported the largest deficit among Shariah-compliant banks, with a shortfall of Tk 21,387 crore by June. Islamic Bank Bangladesh follows with Tk 18,504 crore, and First Security Islami Bank at Tk 10,501 crore. Other Islamic banks include Global Islami Bank (Tk 5,552 crore), Social Islami Bank (Tk 2,079 crore), ICB Islamic Bank (Tk 1,975 crore), EXIM Bank (Tk 901 crore), and Al-Arafah Islami Bank (Tk 254 crore).
Among specialized banks, Bangladesh Krishi Bank has the largest capital shortfall in the sector, amounting to Tk 29,161 crore. Rajshahi Krishi Unnayan Bank has a shortfall of Tk 2,620 crore.
Experts Warn of Systemic Risks: Experts have expressed deep concern over the situation, warning that the capital shortfalls could trigger broader financial instability.
A financial analyst told Daily Industry, “This is a wake-up call for Bangladesh's banking sector. If corrective measures are not taken immediately, the systemic risk could escalate, affecting not just banks but the wider economy.”
Dr. Zahid Hussain, former lead economist at the World Bank, commented, “The magnitude of non-performing loans and capital erosion reflects years of mismanagement and inadequate oversight. Recapitalization and strong governance reforms are urgently needed to prevent a financial collapse.”
Prof. Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue, emphasized, “The combination of high NPLs, inadequate provisions, and low CRARs signals that banks cannot absorb additional shocks. The government and regulators need a clear roadmap for restructuring, recapitalization, and recovery to restore public confidence.”
Government and Bangladesh Bank Responses: Bangladesh Bank has urged banks to strengthen their capital base and improve risk management practices. Officials have also called for stringent monitoring of loan disbursement and recovery, as well as the establishment of more robust internal control mechanisms to prevent further deterioration.
The government, meanwhile, is considering various measures to inject liquidity and capital into the sector. These include potential government-backed recapitalization packages, stricter oversight of loan provisioning, and reforms in bank governance structures to curb malpractice and mismanagement.
Looking Ahead: The current situation poses significant challenges for Bangladesh's financial stability, credit growth, and investor confidence. With 24 banks facing capital deficits totaling over Tk 1.55 lakh crore, timely intervention is critical to prevent a full-blown banking crisis.
Mansur of PRI warned, “Delays in recapitalization or restructuring could have severe repercussions, including reduced lending capacity, higher interest rates, and potential contagion across the economy. Immediate, coordinated action by the central bank, government, and bank managements is essential.”
Dr. Hussain added, “This is not just a technical problem; it's a governance and oversight failure. Without reforming ownership, management accountability, and regulatory oversight, the banking sector will remain vulnerable.”
