Bad loans in the country’s banking sector have surpassed Tk 6 lakh crore once again despite a series of policy support measures for defaulted borrowers, indicating the fragile state of the sector.

At the end of June, bad loans in the banking sector stood at Tk 6,06,555 crore, which is 32.78 percent of the total disbursed loans, according to the latest data from the Bangladesh Bank.

In the last three months until June, defaulted loans increased by Tk 17,851 crore, with the bad loan ratio standing at 32.26 percent.

Earlier, defaulted loans in the banking sector stood at Tk 6.44 lakh crore, or nearly 36 percent of disbursed loans, at the end of September 2025.

After the fall of the Awami League-led government in August 2024, bad loans in the banking sector jumped sharply as businesses affiliated with the previous government, such as S Alam Group, Nassa Group, Beximco, Sikder Group and some other businesses defaulted heavily.

The fragile state of the sector was reflected in the December 2024 figure, when bad loans jumped to Tk 3,45,764 crore, up from Tk 2,11,391 crore six months earlier, data showed.

The interim government and the BNP-led government have taken a series of initiatives, including an easier loan rescheduling policy, a one-time exit policy and several other policy support measures to reduce the high amount of bad loans.

Despite those initiatives, defaulted loans have continued to increase.

Banks are unable to implement the central bank’s loan rescheduling policy because many borrowers cannot even afford the required down payments, said BB Spokesman Arief Hossain Khan.

Some borrowers are seeking more time, leaving many rescheduling cases still in process.

Meanwhile, interest on loans continues to accumulate and is added to the sum for defaulted loans, he added.

Due to the fragile state of the sector and the high amount of bad loans, the government merged five crisis-hit banks: EXIM Bank, First Security Islami Bank, Social Islami Bank, Global Islami Bank and Union Bank.

Except for EXIM Bank, the controversial S Alam Group dominated the boards of the other four banks. Those five banks have now been merged into a state-run Shariah-based bank.

The banking sector’s high level of defaulted loans is largely due to several large, government-linked borrowers from the previous regime, many of whom are no longer in business, said a chief executive of a private bank. As a result, banks have struggled to recover their loans.

To reduce defaulted loans, banks need to take borrower-specific measures.

For instance, if a Tk 5 loan has grown to Tk 15 due to accumulated interest and becomes overdue, the bank may consider settling it for Tk 8 instead of demanding the full Tk 15, he said.

The one-time exit policy is unlikely to receive much response unless borrowers are given some repayment time alongside interest waivers, as many may not be able to repay the entire amount at once, he said.

Widespread irregularities, scams and weak oversight in the financial sector in previous years have driven up bad loans in the sector.

Bad loans have yet to decrease because banks have failed to recover loans from some large borrowers, said Tareq Refat Ullah Khan, managing director of BRAC Bank.

“We take different approaches depending on the borrower -- waiving interest in some cases, taking strict action in others, and selling assets where necessary to recover loans.”

Bankers need to adopt a proactive, pragmatic and, where appropriate, unconventional approach to loan recovery while remaining fully aligned with regulatory requirements and sound governance.

The focus should be on finding practical, commercially viable solutions that maximise recovery, preserve enterprise value and protect the interests of all stakeholders, he added.

Repeated regulatory forbearance for the same borrowers and defaulters has created a wrong signal in the market, said Zahid Hussain, former lead economist at the World Bank’s Dhaka office.

It has encouraged borrowers to expect repeated extensions and avoid making the required down payments.

The repeated accommodation of defaulted loans through regulatory measures, including one-time exit facilities and loan write-offs, has already caused significant damage to the banking sector, he said.

With defaulted loans reaching around 32 percent, further regulatory relaxation could worsen the situation.

“The authorities need to change this approach and send a clear signal that repeated regulatory concessions will no longer be provided. Otherwise, it could increase systemic risks in the financial sector and undermine BB’s mandate to ensure financial stability and price stability.”