The banking sector continues to be one of the most fragile segments of Bangladesh’s economy, marked by weak capital adequacy, deteriorating asset quality and falling profitability, according to an assessment by the Centre for Policy Dialogue (CPD).
The findings were presented by CPD Executive Director Fahmida Khatun at a press conference at the organisation’s Dhaka office today (10 January), as part of CPD’s independent review of the state of the economy for the first half of the 2025–26 fiscal year.
CPD warned that persistent weaknesses in the banking system pose risks to overall economic stability and stressed the need for swift enactment and implementation of reform legislation.
It said restoring Bangladesh Bank’s independence and authority, along with consistent application of the bank resolution framework, is essential to bring discipline back to the sector.
According to CPD, most banks are struggling to maintain adequate risk-based capital, with capital positions continuing to weaken across the sector.
Asset quality has also deteriorated significantly, with defaulted loans now accounting for about 36% of total loans, amounting to Tk5,44,549 crore – nearly 12 times higher than the level recorded in 2015.
An asset quality analysis of six banks showed that in some cases, the volume of distributed loans and defaulted loans has become almost equal, indicating severe financial stress.
Loan loss provisioning remains inadequate, covering only around 38% of classified loans, further weakening banks’ ability to absorb losses.
At the same time, CPD noted that although liquidity is available in the banking system, demand for loans remains low due to prolonged stagnation in investment.
High interest rates and political uncertainty have discouraged private investment, leading to a decline in the loan-deposit ratio and leaving many banks with excess liquidity.
Bank profitability has declined sharply, while asset quality has fallen to its lowest level in nearly three decades, CPD said.
To address the crisis, the government has provided Tk20,000 crore in capital support to facilitate the merger of weak banks.
CPD acknowledged that some reform measures have been initiated, including asset quality reviews in six banks, with reviews already underway in three more and plans to extend the process to 17 banks in total.
It also noted steps to strengthen depositor protection by increasing deposit insurance coverage from Tk1 lakh to Tk2 lakh, as well as amendments to the Bank Resolution Ordinance and the Bank Company Act, 1991 to curb excessive family control and improve governance.
However, CPD cautioned that implementation remains the biggest challenge.
Political influence, vested interest groups, limited regulatory capacity and weak depositor confidence continue to undermine reform efforts.
It stressed the need to quickly translate legal reforms into fully enacted laws and ensure Bangladesh Bank’s independence so that reforms are sustained and weak banks are not given concessions.