Agencies
Dhaka
Bangladesh’s economy is facing one of its most severe crises in recent history, with all three pillars—the banking sector, non bank financial institutions (NBFIs), and the stock market—mired in instability.
A vicious cycle of defaulted loans, weak regulation, political influence, corruption, and the dominance of junk companies has left the economy in a precarious state, deepening uncertainty about the future.
The Asian Development Bank (ADB) recently reported that Bangladesh now has the highest volume of defaulted loans in Asia.
In 2024, 20.2 percent of the country’s total disbursed loans defaulted—28 percent higher than the previous year.
The ADB described Bangladesh as having the “weakest banking system” in Asia.
By contrast, India, Pakistan, and Sri Lanka have managed to reduce non-performing loans through reforms.
Former World Bank chief economist Dr Zahid Hussain said: “The stricter the rules, the more the number of defaulted loans increases. Without bold reforms like India, this crisis will not end.”
Selim Raihan, executive director of South Asian Network on Economic Modeling (SANEM), added: “The problem will not be solved unless political interference is stopped and the judiciary is strengthened.”
In an unprecedented move, Bangladesh Bank has decided to merge five Islamic banks—First Security, Social Islami, Global Islami, Union, and Exim Bank—into a new state-owned entity, tentatively named United Islami Bank.
The government will inject at least Tk20,000 crore in capital. The default loan rates of these banks range between 48 percent and 98 percent.
In the first six months of this year, the top 20 defaulters owed Tk31,908 crore, of which only Tk219 crore wasrecovered.
Janata Bank is in the worst condition, with defaulted loans of Tk70,845 crore—75 percent of its total loan portfolio.
There are, however, some positive signs.
Growth in bank deposits rose to 8.42 percent in July, a slight improvement over the previous month.
Bankers view this as amodest sign of returningconfidence.
The instability in the banking sector has spilled over into non-bank financial institutions. Here, the situation is even more alarming.
According to Bangladesh Bank, defaulted loans of 20 troubled NBFIs total Tk21,462 crore, representing 83 percent of their loan portfolios.
The central bank has recommended liquidation of nine of these institutions.
Experts say the sector has effectively gone bankrupt, with many unable to repay depositors, further eroding public confidence.
As of December 2024, the total debt of these 20 institutions was Tk25,808 crore, but collateral stood at only Tk6,899 crore—just 26 percent of the total debt.
Central bank officials warn that unless swift action is taken to protect depositors, the sector could collapse entirely.
The third pillar of the economy, the stock market, has also been under prolonged stress.
Over the past 16 years, the market has shrunk by about 38%. Adjusted for inflation, investors have lost capital at an average rate of 3% annually.
Meanwhile, an influential group has reportedly exploited the market to amass wealth.
According to the Dhaka Stock Exchange (DSE), shares of 98 out of 397 listed companies are now trading below the face value of Tk10. More than half of these are priced under Tk5.
The list includes 33 banks and NBFIs, 35 mutual funds, and 17 textile companies.
“The fact that the price of such a large number of shares has fallen below face value proves that the performance of these companies is not good. As a result, investors are leaning towards a few strong companies,” said Kazi Monirul Islam, CEO of Shanta Asset Management.
Saiful Islam, president of the DSE Brokers Association of Bangladesh, added: “So many junk shares in the stock market are discouraging foreign and institutional investors. Weak companies need to be closed or merged quickly, and new strong companies must be brought into the market.”