Staff Correspondent

Bangladesh's banking sector continues to be in ailing health, as new figures reveal a significant jump in classified loans, painting a challenging picture for the sector and the economy.

As of March (quarter) 31, 2025, the gross rate of these "bad loans" has surged to 24.13 percent, a notable increase that could impact everything from credit availability to economic stability.

This recent report indicates that across 61 scheduled banks, the total amount of classified loans hit a staggering Tk4,20,334.94 crore in the first quarter of 2025. This is a considerable jump from Tk3,45,764.86 crore just three months prior, in December (quarter) 2024.

In simpler terms, the percentage of loans at risk has gone up by 3.93 percent in just one quarter. Looking back a year, the situation appears even more concerning, with the classified loan rate ballooning by 13.02 percent since March 2024, when it stood at 11.11 percent.

The problem isn't just with the gross figures. When we look at "net classified loans" – after accounting for provisions and suspended interest – the rate also climbed to 15 percent by March 31, 2025, up from 10.57 percent in December 2024. This means a larger portion of the risky loans are not fully covered by the banks' reserves.

Defaulted Loans See Sharp Rise

A major component of these classified loans are "defaulted loans" – money that borrowers have failed to repay. This category alone amounted to Tk3,57,655.24 crore by the end of March 2025, representing 20.53 percent of all loans. This figure has surged by Tk 52,581.86 crore since December 2024, indicating that more borrowers are struggling to meet their obligations.

Growing Provision Shortfall

Banks are also facing a widening "provision shortfall," meaning they haven't set aside enough money to cover potential losses from these bad loans. This deficit grew to Tk1,70,655.32 crore in March 2025, a significant increase from Tk1,06,130.82 crore in December 2024. Consequently, the "provision coverage ratio," which measures how well banks are prepared for loan losses, has dropped sharply to 37.97 percent from 50.75 percent. This indicates that banks are becoming less insulated against potential future shocks.

Where Are the Loans Hitting Hardest?

The report also breaks down where these problematic loans are concentrated:

State-owned commercial banks continue to bear the heaviest burden, with a staggering 45.79 percent

of their loans classified as problematic. This is up from 42.83 percent just last quarter.

Private commercial banks also saw a notable increase, with their classified loan rate rising to 20.16 percent from 15.60 percent.

Even foreign banks and specialized banks experienced slight increases, though their overall percentages remain lower at 4.83 percent and 14.47 percent respectively.

Why the Spike? Key Factors Identified

The central bank's report points to several key reasons behind this worrying trend.

Extended Loan Maturities: Changes in rules, specifically BRPD Circular No. 09/2024, which re-determined the maturity periods for term loans, may have played a role.

Aggressive Classification: The Bangladesh Bank's inspection department has been classifying large loans of certain customers as "adverse," contributing to the increase.

Non-Renewal of Loans: Many "current loans" are not being renewed, pushing them into the classified category.

Missed Rescheduled Payments: Borrowers who had their loans rescheduled are failing to make timely installment payments.

Interest on Bad Loans: Even loans already classified as adverse are still accruing interest, further inflating the total classified amount.

These figures underscore the persistent challenges within Bangladesh's banking sector, signaling a need for continued vigilance and robust policy measures to stabilize the financial landscape.