Capital shortfall in 23 banks hits Tk2.82 lakh crore as default loans drag sector into negative

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.
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.
















