Third of bank loans are default, 80% deemed irrecoverable: Study

A third of the country’s bank loans were default as of June, and at least 80% of these have been flagged as classified or almost irrecoverable, according to a study report unveiled by the think tank Knowledge Hub on Saturday.

Noor Yana Jannat, a research associate at the non-profit, presented the report titled "Banking Sector Assessment and Policy Review: January–September 2026" at an event in Shyamoli, Dhaka.

Knowledge Hub President Khandaker Golam Moazzem and members of its board of trustees attended the event.

The capital provision ratio stood at negative 2.64% at the end of June, while the shortfall in required provisions amounted to around Tk191,441 crore. In addition, Tk182,419 crore remained tied up due to court-ordered stays in 845 cases, as per the report.

Shah Md Ahsan Habib, component lead at Knowledge Hub, said the volume of defaulted loans was exceptionally high, with nearly one-third of total loans remaining unrecovered. An even bigger concern was the banking sector's overall negative capital position, leaving banks short of the capital needed to absorb loan losses, he said.

"In my personal assessment, less than 10% of the 33% defaulted loans involve genuine credit risk. A much larger portion is linked to operational risks, irregularities and criminal activities. Individual commercial banks alone cannot address these offences. The government and the central bank must also play a role alongside banks," he said.

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Highlighting wilful loan defaults, he said a significant portion of defaulted loans resulted from borrowers deliberately failing to repay. This was also acknowledged by regulators and market participants, he said, adding that ordinary depositors, bank officials, sound businesses and well-performing banks were ultimately bearing the cost.

"Ultimately, the entire economy is bearing the burden, as our economy is largely built on a bank-dependent financial system," he said.