Capital shortfall in 23 banks hits Tk2.82 lakh crore as default loans drag sector into negative
Capital shortfall of 23 state-owned and private banks almost doubled over the July-September period.
The overall capital position of the country's banking sector has slipped into the negative as the shortfall surged to Tk2.82 lakh crore within just three months, driven by a sharp rise in defaulted loans and long-standing weaknesses in governance and lending practices.
A report by the Bangladesh Bank, based on data up to September 2025 and seen by The Business Standard, shows that the capital shortfall of 23 state-owned and private banks almost doubled over the July-September period.
The sharp deterioration has raised fresh concerns about the stability of the financial system.
Bankers and economists say the situation stems from years of aggressive lending, poor oversight and politically influenced loan approvals. The growing capital gap is also limiting banks' ability to lend and putting pressure on international financing, signalling broader risks for the economy.
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At the end of June 2025, 24 banks had a combined capital deficit of Tk1.55 lakh crore, according to the central bank's latest report.
The report also shows that the sector's capital-to-risk weighted assets ratio (CRAR) – a key measure of financial strength – fell to negative 2.90% at the end of September last year. Under international regulatory standards, banks are required to maintain a minimum CRAR of 12.5%.
By comparison, the sector's overall CRAR stood at 4.47% at the end of June 2025.
The ratio measures a bank's capital relative to its risk-weighted assets, with asset values adjusted according to their level of risk.
Syed Mahbubur Rahman, managing director and chief executive officer of Mutual Trust Bank, said uncontrolled lending – particularly aggressive loan disbursement and director-influenced lending – has played the biggest role in creating the crisis.
"Long-hidden defaulted loans are now coming to the surface, which has further worsened the situation," he said.
According to the latest data, defaulted loans have climbed to Tk6.44 lakh crore as of September 2025, further worsening the sector's financial position.
Deficits across banks
Among banks facing capital shortages, four state-owned lenders together account for a deficit of Tk37,698 crore, according to the central bank report.
Janata Bank has the largest shortfall at Tk19,973 crore, followed by Agrani Bank with Tk8,125 crore, Rupali Bank with Tk5,655 crore and BASIC Bank with Tk3,945 crore.
Meanwhile, nine private commercial banks recorded a combined capital deficit of Tk36,607 crore as of last September.
National Bank Limited has the largest shortfall among them at Tk10,651 crore. Other banks with significant deficits include AB Bank (Tk7,205 crore), Padma Bank (Tk5,837 crore), Premier Bank (Tk4,733 crore), and IFIC Bank (Tk4,455 crore).
Islamic banks account for the largest share of the sector's capital deficit. Eight Shariah-based banks together recorded a shortfall of Tk1.75 lakh crore by the end of September.
The largest deficit was reported by First Security Islami Bank at Tk65,090 crore, followed by Union Bank Limited with Tk27,103 crore.
Other banks with significant capital gaps include Islami Bank Bangladesh Limited (Tk22,982 crore), EXIM Bank Limited (Tk22,625 crore), Social Islami Bank Limited (Tk22,114 crore), Global Islami Bank (Tk13,758 crore), ICB Islamic Bank (Tk2,012 crore) and Al-Arafah Islami Bank (Tk138 crore).
Two specialised banks also reported a combined deficit of more than Tk32,000 crore.
The largest shortfall was recorded by Bangladesh Krishi Bank at Tk29,804 crore, while Rajshahi Krishi Unnayan Bank reported a deficit of Tk2,673 crore.
'Structural crisis' in banking
Bankers and economists warn that the capital shortage reflects deeper structural problems in the sector.
MTB Managing Director Mahbubur Rahman described the situation as a fundamental and structural crisis. "Capital is the backbone of a bank. If it becomes weak, the bank cannot operate normally," he said.
He noted that weak capital limits banks' ability to extend large loans to single borrowers and reduces their capacity to secure international financing, as foreign banks closely assess the financial strength of local partners before providing funds.
He added that in many cases, bank sponsors and directors have little understanding of the importance of capital. "Some believe that having deposits or liquidity is enough. But strong capital is essential for long-term stability," he said.
Banks with better governance and professional management remain in relatively stronger positions, maintaining capital ratios of around 13–14%, he added.
To address the crisis, he emphasised the need for fresh capital injections, either through retained earnings or new share issuance. However, he noted that raising capital remains challenging in the current economic climate due to weak business profits and low investor confidence.
Meanwhile, Zahid Hussain, former lead economist at the World Bank's Dhaka office, described the situation as a "systemic risk".
According to him, the capital shortage has made banks increasingly risk-averse, leading to a noticeable slowdown in private sector credit growth. Many banks are now surviving on liquidity support from the central bank.
He also warned that rising credit risk in Bangladesh is discouraging foreign banks from doing business with local institutions, which is increasing the country's cost of financing.
To tackle the crisis, Zahid suggested swift legal resolution of so-called "zombie" institutions, the introduction of an effective bank resolution framework and stronger risk-based supervision.
He also stressed the importance of publicly identifying major defaulters and ensuring strict punishment to restore discipline in the market.
Analysts say the deepening capital crisis in the banking sector is no longer confined to financial institutions alone. Without urgent structural reforms, improved governance and effective regulatory enforcement, the risks could spread to the wider economy.
