The Bangladesh Bank has intensified efforts to contain the country’s mounting default loan crisis through a series of regulatory, legal and policy measures, but economic weakness, lengthy legal processes and poor recovery rates continue to pose major obstacles to meaningful improvement.
Data from the Bangladesh Bank showed that classified loans rose to Tk 5,88,704 crore at the end of March 2026 from Tk 5,57,216 crore three months earlier. Defaulted loans now account for 32.26 per cent of total outstanding loans, one of the highest ratios globally.
Although non-performing loans fell from a record Tk 6,44,518 crore in September 2025, the decline was largely driven by loan rescheduling and regulatory adjustments rather than a significant improvement in borrowers’ repayment capacity.
Compared with March 2025, defaulted loans increased by nearly Tk 1.68 lakh crore within a year, from Tk 4.20 lakh crore.
Bangladesh Bank spokesperson and Executive Director Areif Hossain Khan said reducing non-performing loans remained one of the governor’s highest priorities.
He said the central bank had taken several initiatives, including a Tk 60,000 crore stimulus package aimed at reviving closed factories and businesses, which could help restore production, improve cash flows and enhance borrowers’ repayment capacity.
BB officials said that Bangladesh Bank has prepared short-, medium- and long-term strategies to reduce default loans and strengthen recovery efforts.
The central bank plans to hold quarterly meetings with senior management of banks whose classified loans exceed 10 per cent of their total loan portfolios, they said.
It will also seek explanations regarding the recovery status of the top 20 defaulters of each bank.
Officials said Bangladesh Bank was preparing detailed recovery guidelines and monitoring frameworks, including setting benchmark ceilings for default loans.
Banks exceeding those limits may be required to follow additional corrective measures.
The central bank has also introduced the Expected Credit Loss framework, which will become effective from 2028. The system requires banks to estimate potential future losses and maintain provisions before loans actually become non-performing.
Bangladesh Bank and the government are also working on legal reforms, including amendments to the Bank Company Act and related regulations, with a focus on strengthening recovery mechanisms and discouraging wilful default.
Other planned measures include establishing an asset management company to handle distressed assets, creating a central database for collateral valuation, introducing incentives for bank employees involved in loan recovery and rewarding good borrowers with stronger repayment records.
Officials said the central bank was also considering seeking government approval to publish the names of defaulters and wilful defaulters.
Despite the wide range of initiatives under consideration, economists said the success of the strategy would ultimately depend on whether banks could recover large overdue loans, improve governance standards and restore lending discipline across the financial sector.
Syed Mahbubur Rahman, managing director and chief executive officer of Mutual Trust Bank, said the broader economic environment remained a major challenge.
He said some businesses were becoming defaulters because of prolonged economic difficulties, while banks were struggling to sell collateral or recover funds through legal channels.
Although banks were pursuing negotiations, litigation and asset auctions, recovery progress remained slow, he said, adding that reforms to the legal system were essential for improving recovery outcomes.
Mustafa K Mujeri, executive director of the Institute for Inclusive Finance and Development, said sustainable improvement would depend on actual recovery of defaulted loans rather than repeated rescheduling, waivers or temporary support measures.
He said the government should strengthen legal mechanisms, accelerate court procedures and take necessary action to recover assets from defaulters, including those who had left the country or were facing criminal proceedings.
Economists said that the long-running crisis was rooted in politically influenced lending, weak credit assessment, repeated rescheduling facilities, poor recovery efforts and prolonged regulatory forbearance over the past decade.
The problem became more visible after the political transition in August 2024, when many businesses linked to the previous power structure either scaled down operations or stopped servicing their debts.
The situation was further exposed as Bangladesh Bank gradually tightened loan classification rules, reducing the overdue period required for loan classification from 270 days to 180 days in September 2024 and then to 90 days in April 2025, bringing the system closer to international standards.
Bankers and analysts also noted that a significant portion of the increase reflected the recognition of previously unreported or under-classified bad loans after stricter supervision by the central bank.
