Bangladesh’s banking sector is grappling with a sharp rise in classified loans, raising alarms about credit availability and broader economic stability.

According to Bangladesh Bank report, the gross rate of “bad loans” soared to 24.13 per cent by March 31, 2025, up from 20.20 per cent in December 2024, marking a 3.93 per cent increase in a single quarter.

Compared to March 2024, when the rate was 11.11 per cent, the classified loan rate has surged by a staggering 13.02 per cent.

Alarming loan figures

The report reveals that across 61 scheduled banks, classified loans reached Tk 4,20,334.94 crore in the first quarter of 2025, a significant jump from Tk 3,45,764.86 crore in December 2024.

Defaulted loans, where borrowers have failed to repay, accounted for Tk 3,57,655.24 crore, or 20.53 per cent of total loans, up by Tk 52,581.86 crore since the previous quarter.

The net classified loan rate, after accounting for provisions and suspended interest, also climbed to 15 per cent from 10.57 per cent in December 2024, indicating that banks’ reserves are increasingly inadequate to cover risky loans.

The provision shortfall widened to Tk 1,70,655.32 crore in March 2025 from Tk 1,06,130.82 crore, with the provision coverage ratio dropping to 37.97 per cent from 50.75 per cent.

This decline signals growing vulnerability to potential financial shocks.

Sector-wise breakdown

The report highlights disparities across banking categories:

State-owned commercial banks bear the heaviest burden, with 45.79 per cent of loans classified as problematic, up from 42.83 per cent last quarter.

Private commercial banks saw their classified loan rate rise to 20.16 per cent from 15.60 per cent.

Foreign banks and specialised banks reported smaller increases, with rates at 4.83 per cent and 14.47 per cent, respectively.

Reasons behind the surge

Bangladesh Bank identified several factors contributing to the spike in classified loans:

Extended loan maturities under BRPD Circular No. 09/2024, which redefined term loan maturity periods.

Aggressive loan classification by the central bank’s inspection department, labelling large loans as “adverse.”

Non-renewal of current loans, pushing them into the classified category.

Missed rescheduled payments by borrowers, exacerbating loan defaults.

Accrued interest on bad loans, inflating the total classified amount.

Economic implications

The surge in bad loans threatens to constrain credit availability, hinder economic growth, and undermine confidence in the banking sector. With state-owned banks particularly hard-hit, the financial system faces heightened risks unless robust reforms are implemented.

Analysts warn that without decisive action, the growing provision shortfall could expose banks to significant losses, further destabilizing Bangladesh’s economy.

The central bank has called for urgent policy measures to address these challenges, emphasising the need for stricter oversight and improved loan recovery mechanisms to restore stability to the financial landscape.