Published: 11:56 PM, 24 October 2026
33.2% NPL exposes deep-rooted fault lines in banking sector: BIBM
Weak credit appraisal, governance deficiencies, related-party lending and delayed recognition of problem loans are among the major factors behind Bangladesh’s persistent non-performing loan (NPL) crisis, according to a study presented at a roundtable discussion organised by the Bangladesh Institute of Bank Management (BIBM) on Monday.
The study found that the gross NPL ratio in the country’s banking sector stood at 33.2 percent as of June 2026, highlighting persistent weaknesses in lending practices, risk management, regulatory discipline and loan recovery.
The findings were presented at a roundtable titled *“Default Loan in the Banking Sector in Bangladesh: Policy Expectations and Market Realities”* at the BIBM Auditorium in Mirpur, where researchers, academics, Bangladesh Bank officials and senior bankers discussed the structural causes of loan defaults and possible reforms to restore discipline in the banking sector.
Speaking at the event, BIBM Director General Dr Md Ezazul Islam said the high NPL ratio raised serious questions about the quality of credit appraisal, the independence of lending decisions, post-disbursement monitoring and the effectiveness of loan restructuring and recovery mechanisms.
“A high NPL ratio is a symptom; our task today is to examine the causes, and to identify reforms that can be implemented,” he said.
According to the study, 68.8 percent of respondents said cash-flow analysis was frequently compromised during credit appraisal, while 43.8 percent identified weaknesses in industry and sector risk analysis.
The findings point to a gap between formal lending policies and their implementation, particularly in assessing borrowers’ repayment capacity and the risks associated with specific businesses and industries.
The paper recommended moving away from collateral-based lending towards cash-flow-led credit assessment, arguing that loan decisions should be guided primarily by a borrower’s ability to generate sufficient income to repay the debt rather than the availability of collateral alone.
It also highlighted significant shortcomings in post-disbursement monitoring, including difficulties in obtaining reliable cash-flow information, verifying the end-use of loans and conducting regular site visits.
The researchers identified overdue instalments, unusual transactions, declining cash flows, diversion of funds and deteriorating risk grades as key early-warning signals that banks should monitor to detect potential defaults before they become serious problems.
Delayed recognition of bad loans emerged as another major concern. Respondents cited provisioning burdens, concerns over management accountability and pressure to maintain favourable asset-quality indicators as key reasons for postponing the classification of problem loans.
Such delays can obscure the actual condition of bank portfolios and weaken the timely identification of financial risks, making effective supervision and recovery more difficult.
Governance-related concerns were also prominent. Around 60 percent of respondents considered related-party lending a major problem, while 80 percent believed regulatory forbearance or repeated policy interventions weakened lending discipline.
The study, however, clarified that these figures represented respondents’ perceptions and should not be interpreted as measured sector-wide incidence.
On loan rescheduling and recovery, the findings pointed to a complex picture involving both genuine attempts to rehabilitate financially distressed borrowers and incentives to improve reported NPL and provisioning indicators.
The paper identified negotiation, restructuring, collateral realisation, legal action and alternative dispute resolution as possible recovery mechanisms, depending on borrowers’ financial viability and the enforceability of recovery measures.
Respondents identified loan approval and governance as the largest gaps between policy expectations and actual banking practices, followed by credit appraisal and loan rescheduling and restructuring.
The findings underscore the need for stronger accountability in lending decisions, more rigorous borrower assessment, effective post-disbursement supervision and timely recognition of bad loans. Consistent regulatory enforcement and transparent restructuring practices were also highlighted as important elements in addressing the crisis.
BIBM Director (Research, Development and Consultancy) Professor Md Shihab Uddin Khan delivered the welcome address.
The keynote paper was presented by a research team comprising BIBM Associate Professor Dr Md Shahid Ullah, BIBM Professor (Selection Grade) Mohammad Mohiuddin Siddique, and Bangladesh Bank officials Md Nurul Alam and Md Rashel Hasan.
The designated discussants were former BIBM A K Gangopadhyay Chair Professor S. A. Chowdhury, BIBM Supernumerary Professor Md Ali Hossain Prodhania, University of Dhaka Department of Banking and Insurance Chairman Professor Dr Md Shahidul Islam Zahid, and Pubali Bank PLC Deputy Managing Director Mohammad Esha.
Bangladesh Bank Deputy Governor Dr Md Kabir Ahmed attended the event as the chief guest. Dr Ezazul Islam chaired the session and delivered the concluding remarks.
