Weak loan growth squeezes listed banks' main operations in H1

Bangladesh's listed banks came under mounting pressure in their core banking operations in the first half of 2026, as sluggish private sector credit growth and rising deposit costs squeezed earnings from traditional lending.

Although many lenders posted higher overall profits, the gains were largely driven by investment income from government securities rather than their core business of mobilising deposits and extending loans.

Infographics: TBS

An analysis of the half-year financial statements of 27 listed banks shows a widening gap between core banking performance and bottom-line profitability. Eight banks posted negative net interest income (NII), 13 reported lower NII, and only six increased their core interest earnings during the January-June period.

AB Bank, SBAC Bank, Standard Bank and ICB Islamic Bank have yet to publish their half-year financial statements.

Net interest income, the key measure of a bank's core business, is the difference between interest earned on loans and interest paid on deposits. A decline in NII indicates lending income is failing to keep pace with funding costs.

National Bank posted the largest negative NII at Tk2,034 crore, followed by IFIC Bank (Tk1,542 crore) and Rupali Bank (Tk1,345 crore). Islami Bank reported a negative NII of Tk330 crore, while Premier Bank, Bank Asia, Southeast Bank and NRB Bank also slipped into negative territory.

Another 13 banks recorded sharp declines in NII. NRBC Bank saw the steepest fall, with NII plunging 95% year-on-year, followed by Trust Bank (90%), Prime Bank (82%), Mutual Trust Bank (72%) and Mercantile Bank (69%). United Commercial Bank, Eastern Bank, Dhaka Bank, Midland Bank, NCC Bank, One Bank, Dutch-Bangla Bank and Pubali Bank also reported lower NII.

Only six banks posted growth in core interest income. BRAC Bank led with a 29% rise in NII to Tk1,057 crore, followed by City Bank, Al-Arafah Islami Bank, Jamuna Bank, Shahjalal Islami Bank and Uttara Bank.

Treasury income cushions profits as banks turn cautious

Despite weaker lending income, many banks reported strong profit growth by capitalising on high-yield government securities.

Bangladesh Bank's tight monetary policy has pushed Treasury bill and bond yields into double digits over the past year, encouraging banks to park surplus liquidity in risk-free government instruments instead of expanding private sector lending.

BRAC Bank earned Tk2,656 crore from treasury investments in the first half, followed by Pubali Bank (Tk2,093 crore) and City Bank (Tk1,910 crore). Dutch-Bangla Bank, Rupali Bank, Bank Asia, Eastern Bank, Prime Bank, United Commercial Bank and Mutual Trust Bank also reported substantial income from government securities.

For several banks, treasury income exceeded earnings from traditional lending, highlighting their growing dependence on investment income to sustain profitability.

Industry insiders attribute the pressure on core banking to weak private sector credit demand amid slower economic activity, higher deposit costs, and banks' increasing caution in extending fresh loans because of rising credit risks and growing non-performing loans.

A chief financial officer (CFO) of a private commercial bank, requesting anonymity, said describing banks' core business as weakening could be misleading.

"The banking sector cannot lend out all deposits because of regulatory limits on the Advance Deposit Ratio (ADR). Any idle funds have to be invested somewhere, and government securities provide a safe avenue while still generating returns for depositors," he told The Business Standard.

Under Bangladesh Bank regulations, conventional banks can maintain an Advance Deposit Ratio of up to 87%, while Islamic banks operate under an Investment Deposit Ratio ceiling of 92%.

The CFO also said international accounting standards generally present lending and investment income together as interest income.