Bangladesh’s banking sector posted a massive loss in the first nine months of 2025 as long-suppressed bad assets surfaced, provisioning needs surged and prolonged macroeconomic stress eroded earnings.

Banks recorded a combined net loss of Tk 24,135 crore in January-September period of 2025, a sharp reversal from a net profit of Tk 12,656 crore in the same period a year earlier, according to Bangladesh Bank data.

Bankers said that the sector had not experienced losses of this scale before.

The collapse in profitability reflected deep structural weaknesses. Non-performing loans rose to historic highs, provisioning remained far below requirements and confidence in the banking system weakened, triggering deposit withdrawals and liquidity pressure.

The Bangladesh Bank’s stress tests showed that 18 banks would fail to withstand five consecutive days of excess deposit withdrawals.

Default loans surged to Tk 6.44 lakh crore by the end of September 2025, accounting for nearly 36 per cent of total outstanding loans.

Defaults stood at Tk 2.85 lakh crore in September 2024.

The jump followed stricter loan classification, on-site inspections and the reclassification of large exposures that had long been rolled over or restructured.

Provisioning gaps widened sharply. Required loan-loss provisions rose to Tk 4,72,535 crore by end-September, but banks had set aside only Tk 1,28,716 crore.

The resulting shortfall of Tk 3,43,819 crore directly hit profits, as banks were forced to recognise losses once hidden by repeated rescheduling.

Experts said that the deterioration reflected years of weak governance, political influence in lending and lax enforcement that allowed large borrowers to avoid repayment.

Many loans accumulated during the previous government under relaxed terms and extended restructuring windows.

Moreover, after the political change on August 5, 2024, several businesses linked to the former ruling network scaled down operations or stopped servicing debt, pushing more accounts into default.

Macroeconomic stress compounded the problem.

Sluggish demand, high inflation and elevated borrowing costs constrained business cash flow, limiting banks’ ability to recover loans or expand credit.

With distress assets rising and loan demand weak, many banks reduced lending and parked funds with the central bank or in government securities.

Returns from these safer placements also declined.

As Bangladesh Bank adopted a cautious stance and cut rates on its instruments, income from treasury bills, bonds and central bank facilities fell.

Combined with weak loan income, banks’ net loss from interest hit Tk 6,100 crore in January–September 2025.

Regulatory tightening further weighed on earnings.

Bangladesh Bank shortened the loan default recognition period from 270 days to 180 days in September 2024 and then to 90 days in April 2025, aligning rules with international standards.

The move sharply increased provisioning needs, cutting into profits.

Capital stress intensified. As of end-September 2025, 21 of the country’s 61 banks failed to meet the minimum Capital to Risk-Weighted Asset Ratio of 10 per cent.

The capital shortfall across 24 banks reached Tk 1.56 lakh crore by June 2025, driven by the recognition of previously concealed bad loans.

Foreign banks stood out as an exception.

Six foreign lenders together earned Tk 7,923 crore in profits during January–September 2025, underlining the contrast with many domestic banks struggling under high defaults, weak capital and eroding confidence.