BB to limit borrower's sector-wide exposure, target each bank's top defaulters to tame bad loans

Highlights

• BB unveiled a five-year, 13-point banking reform roadmap as bad loans hit Tk6.06 lakh crore.
• Short-term plans target major defaulters and improve loan recovery.
• Medium-term measures include publishing defaulter lists and reforming provisioning rules.
• Long-term plans include borrower exposure limits and stronger recovery laws.
• Twenty-two banks have Tk2.54 lakh crore in accumulated losses, while 12 received Tk84,946 crore in liquidity support.

The central bank has unveiled a five-year roadmap to clean up the country's crisis-hit banking sector, after non-performing loans soared to a record Tk6.06 lakh crore, accounting for a third of all disbursed credit.

The 13-point reform plan, presented to the parliamentary standing committee on finance ministry yesterday, sets out short-, medium-, and long-term measures aimed at curbing NPLs, publishing lists of deliberate defaulters, and restricting how much single borrowers can take from the entire banking system.

The plan also involves taking steps to address capital shortages, huge provisioning gaps, accumulated losses, and weak loan recovery at troubled banks, according to the report obtained by TBS.

Short-term measures

For banks with NPL ratios above 10%, Bangladesh Bank is holding quarterly meetings with senior management to review the situation and formulate recovery strategies. Progress in recovering loans from the top 20 defaulters of each bank will be reviewed at these meetings.

The central bank will also introduce guidelines on NPL resolution strategies for banks with high levels of bad loans. Also, credit risk management guidelines will be updated.

These measures are expected to be implemented within one year.

Medium-term measures

Over the next two to three years, the central bank will introduce an expected credit loss-based NPL and provisioning framework in line with International Financial Reporting Standards.

It also plans to publish lists of loan defaulters and wilful defaulters, subject to a review of the legal implications.

A policy will be formulated to provide special incentives to bank officials for improving loan recovery. The existing policy of identifying and rewarding regular borrowers will also be updated to encourage better credit discipline.

Long-term measures

Over four to five years, Bangladesh Bank plans to set a limit on how much a single borrower can take from the entire banking system.

It will also seek legal amendments to extend some measures applicable to wilful defaulters to other categories of defaulters.

The central bank will consult the attorney general on measures to prevent borrowers from using writ petitions to stall loan recovery proceedings.

For financing requirements of Tk1,000 crore or more, banks may be directed to raise funds through bond issuance instead of bank loans.

Bangladesh Bank also plans to facilitate legislation for establishing private-sector asset management companies to deal with distressed assets.

Measures already taken

The report said the central bank has already introduced risk-based supervision. Under the system, banks will be assessed on risk, risk management and governance, internal controls and risk mitigation, followed by a composite risk rating and supervisory action.

The central bank is also working on the Distress Asset Management Act 2026, amendments to the Money Loan Court Act and an Insolvency and Bankruptcy Act 2026 to replace the Bankruptcy Act 1997. Amendments to the Bank Company Act are also being pursued to strengthen governance in the banking sector.

Banking sector in severe financial stress

As of June, the banking sector's total NPLs stood at Tk6,06,555 crore, accounting for 32.78% of total outstanding loans, according to the plan presented to the committee.

Banks were required to maintain Tk4,83,397 crore in provisions against their loans, but could set aside only Tk2,61,039 crore, leaving a provisioning shortfall of Tk2,22,357 crore.

As of March, banks recorded an operating profit of Tk789 crore, against a loss of Tk8,417 crore, while returns on assets and equity stood at negative 1.03% and 44.22%, respectively.

The sector's overall capital adequacy ratio (CAR) fell to negative 3.17% in March from negative 2.64% in December 2025, far below the Basel III minimum requirement of 12.5%.

Only 40 banks met the minimum capital requirement, while 15 fell short. Shariah-based banks were in the weakest position, with a CAR of negative 44.77%.

Bangladesh Bank said weak capital positions were undermining banks' ability to absorb losses, protect depositors and expand lending. It said banks with negative or below-minimum capital need recapitalisation and restructuring.

22 banks accumulate Tk2.54 lakh crore losses

The accumulated losses of 22 banks stood at Tk2,53,938 crore as of March, said the report.

It attributed the losses to high NPLs, provisioning requirements, capital shortages and weak asset quality. Although many banks remain operationally profitable, provisions, other expenses and expected credit losses push them into net losses.

The affected banks include state-owned Janata, Agrani, Rupali and BASIC banks, as well as Rajshahi Krishi Unnayan Bank and Bangladesh Krishi Bank.

Private-sector banks include AB Bank, Bangladesh Commerce Bank, Exim Bank, First Security Islami Bank, ICB Islamic Bank, IFIC, Islami Bank Bangladesh, Meghna Bank, Global Islami Bank, Padma Bank, Shimanto Bank, Social Islami Bank, Premier Bank and Union Bank. Foreign lender National Bank of Pakistan is also running at a loss.

Tk84,946cr liquidity support provided to 12 banks

The Bangladesh Bank has provided Tk84,945.71 crore in liquidity support to 12 banks as of 27 September, the report said.

Islami Bank Bangladesh received the highest amount at Tk17,000 crore, followed by First Security Islami Bank at Tk15,810.32 crore, Exim Bank at Tk12,010.25 crore, Social Islami Bank at Tk10,842.79 crore and National Bank at Tk10,568.35 crore.

The support was provided as lender-of-last-resort assistance, with the banks currently paying only interest while the principal is being rolled over as demand loans, Bangladesh Bank said.

No liquidity shortage despite bank weakness

Despite the liquidity support, the banking sector has a substantial surplus of liquid assets, according to the central bank. Banks are required to maintain Tk2,54,786 crore in statutory liquidity ratio (SLR) assets but hold Tk7,03,354 crore, leaving an excess of Tk4,48,568 crore.

Bangladesh Bank said this indicates no overall shortage of liquidity in the banking sector.

The parliamentary committee reviewed the financial sector's condition and stressed transparency, accountability and economic stability. It asked the ministry to present clearer banking-sector data at its next meeting.