TDS Desk:

Over the past one and a half decades, most of the loans siphoned off from banks through irregularities and corruption have now turned into non-performing loans. A significant portion of these defaulted funds is alleged to have been laundered abroad. Many large defaulters have established permanent residences in Europe, the United States, Malaysia, Dubai, Canada, and Australia using funds allegedly siphoned abroad. According to data from Bangladesh Bank, a total of around BDT 3.04 trillion in default loans is concentrated among just 5,775 borrowers. Among these major defaulters, production-oriented sectors such as readymade garments, textiles, leather, shipbuilding, and shipbreaking are prominent. Businesspeople from Chattogram, the commercial capital, are at the top of the list. Analysts believe recovery of defaulted loans will pose a major challenge for the newly appointed central bank governor in restoring stability to the banking sector and the broader economy.

The volume of defaulted loans in the country’s banking sector crossed BDT 6 trillion for the first time in June last year. In the following three months, an additional BDT 320 billion was added. Bangladesh Bank recently published a report titled Banking Sector Update, outlining the ratio of non-performing loans (NPLs) relative to total disbursed loans. The report shows that although large borrowers are fewer in number, they account for the bulk of defaulted loans. In simple terms, large borrowers are also the largest defaulters. Mid-sized borrowers also hold a substantial share of defaulted loans. By contrast, while small borrowers are far more numerous, their aggregate default amounts remain comparatively low.

An analysis of the central bank report shows that as of the end of September 2025, the number of small and marginal borrowers with loans below BDT 10 million who had defaulted stood at around 4.42 million. Their total defaulted loans amounted to BDT 616.51 billion. Borrowers with loans between BDT 10 million and BDT 100 million numbered 30,104, with total defaults of around BDT 1.03 trillion. Meanwhile, 6,596 borrowers in the BDT 100–200 million category had defaulted loans amounting to BDT 850.40 billion.

On the other hand, around BDT 3.04 trillion in default loans is concentrated among 5,775 borrowers who took loans exceeding BDT 200 million. Of them, 1,740 borrowers in the BDT 200–300 million bracket account for BDT 430.51 billion in defaults. Another 1,044 borrowers in the BDT 300–400 million range have defaulted on BDT 363.09 billion. A further 718 borrowers in the BDT 400–500 million category hold BDT 325.26 billion in defaulted loans. The largest concentration is in the above BDT 500 million category, where 2,273 borrowers account for approximately BDT 1.92 trillion in defaulted loans. The average default per borrower in this category stands at nearly BDT 850 million. In contrast, the average default among borrowers in the below BDT 10 million category is only BDT 139,000.

Sector insiders note that although more than 2,000 borrowers appear in the above BDT 500 million default bracket, ownership of many of these companies is concentrated among a small number of business groups. Some conglomerates own more than a hundred companies, including numerous shell entities. Loans taken out in the names of such shell and briefcase companies have already turned default. Several senior officials at Bangladesh Bank and commercial banks have confirmed this information.

Faruq Moinuddin, vice chairman of BRAC Bank PLC, believes that loans given in the names of shell companies by those banks should not even be classified as defaulted loans. Rather, he argues, they should be termed outright plunder, with virtually no prospect of recovery. In such circumstances, there is little rationale for carrying looted, fictitious loans on banks’ balance sheets year after year. Instead, these loans should be removed from the balance sheet and converted into “protested bills.” At the same time, he stressed, all-out efforts are needed to recover genuine non-performing loans (NPLs).

He further told journalists, “Although the average NPL ratio in the banking sector currently stands at 36 percent, there are still banks in the country where the default rate is only 2–3 percent. The distressed banks didn’t conduct real banking operations in recent years; rather, they were used as conduits for looters. In this situation, along with comprehensive reform of the banking sector, those responsible must be brought to justice. If defaulters continue to enjoy state patronage as in the past, recovery of defaulted loans won’t be possible.”

A review of Bangladesh Bank data shows that a significant share of bank credit is concentrated in the industrial and business sectors, which also account for the bulk of defaulted loans. As of the end of September 2025, the business and trade sector ranked second in terms of total loan disbursement (33 percent), but topped the list in defaulted loans, with an NPL ratio of 45.6 percent. The industrial sector remains the single largest borrowing segment, accounting for 44 percent of total disbursed loans. It also has the second-highest default rate, at 37.5 percent.

According to Bangladesh Bank’s Financial Stability Report, the volume of defaulted loans stood at around BDT 3.46 trillion at the end of December 2024. Of this amount, 14.04 percent originated from the readymade garments sector and 10.54 percent from the textile sector. Over the past year, total defaulted loans in the country have nearly doubled, and bankers say the NPL burden in the readymade garments and textile sectors has increased accordingly.

Dr Mustafa K Mujeri, former chief economist of Bangladesh Bank and executive director of the Institute for Inclusive Finance and Development (InM), told journalists, “The culture and tendency of loan default are more prevalent among the wealthy. Since they are affluent, they have the capacity to repay their loans. However, they’ve developed a culture of non-repayment through abuse of power. There may be some borrowers who are victims of circumstances, but the majority are wilful defaulters. Therefore, there should be no hesitation in taking strict measures to recover loans from them.”

Noting that political will is essential to recover the defaulted loans, he further said, “Because the wealthy are powerful, they also have political connections. Those who have created a culture of default through abuse of power must face strict action. To restore the economy, the current government must take such steps — that’s what the public expects.”

Bangladesh Bank data show that total defaulted loans in the banking sector stood at approximately BDT 6.32 trillion at the end of September 2025, with an NPL ratio of 36.3 percent. A review of data from central banks and reputed research institutions worldwide indicates that Bangladesh’s NPL ratio is currently the highest in the world.

Although small borrowers account for a relatively minor share of total defaulted loans, they reportedly face hardship in accessing credit. From providing extensive documentation to complying with stringent regulatory requirements, smaller borrowers are subject to the strictest scrutiny. By contrast, while due diligence is supposed to be more rigorous in the case of large loans, such standards were often not upheld.

In this regard, Bangladesh Bank Spokesperson and Executive Director Arif Hossain Khan told journalists, “In the past, banks used to sweep defaulted loans ‘under the carpet’. Over the past year, however, those hidden defaults have come to light. The central bank’s effort has been to reveal the true picture of the banking sector. Recovery of funds from large defaulters will require state support.”

He added that genuine entrepreneurs and businesspeople in the country generally repay their bank loans, with CMSME (cottage, micro, small & medium enterprise) entrepreneurs performing particularly well in this regard.

An analysis of Bangladesh Bank data shows that nearly half of the total defaulted loans are concentrated in production-oriented industrial sectors. Many firms in these sectors have become financially distressed after failing to service their loans, affecting employment, banking sector stability, and the broader economy.

Over the past decade and a half, there have been numerous instances of borrowers securing bank loans on easy terms and then fleeing abroad without repayment. A significant number of them are businesspeople based in Chattogram. Defaulted loans owed by Chattogram-based borrowers exceed BDT 500 billion. In the past decade alone, more than 50 businesspeople from the region have reportedly gone missing after failing to repay bank loans.

Asked about the issue, Salim Rahman, managing director of Chattogram-based KDS Group, told journalists, “The fundamental question is why the loans turned default. It’s essential to identify the actual causes. In some cases, businesspeople are unable to repay due to losses, yet they remain in the country, and their financial distress is visible. Had they not been victims of circumstances, they would certainly have performed well. When business was good, banks collected profits without issue; in times of crisis, they should also stand by borrowers. Another issue is that in some cases, funds have left the country. How those funds will be brought back is also a major question. Banks have information on which companies have genuinely suffered business losses. With proper monitoring and attention, many problems could be resolved.”

Questioning whether banks adequately follow up on the terms and conditions under which loans are extended, the Chattogram-based businessman added, “A major reason behind the failure to recover defaulted loans is the lack of sufficient and consistent follow-up by banks. There are also allegations of collusion. Even now, if banks take a firm stance on recovery, a significant portion of the funds can be retrieved. There can be nothing more dangerous than granting loans solely against land or fixed assets. Loans should be extended to viable businesses, not merely against land. Favouritism in loan disbursement must end. This culture of favour has brought the banking sector to its current state.”