Bangladesh financial crisis grapples with a deepening banking meltdown that threatens to engulf the nation’s economy, as regulators unveil stark figures on hidden defaults and push for sweeping reforms.
Dhaka, Monday, 22 September, 2025 – Bangladesh is confronting its most severe economic downturn since independence, marked by non-performing loans (NPLs) surging to 20.2 per cent of total lending by December 2024, driven by years of corruption and lax oversight in the banking sector, according to official data from the Ministry of Finance and Bangladesh Bank. This Bangladesh financial crisis 2025 has exposed BDT 6 trillion in defaults as of June 2025, with potential hidden liabilities pushing the figure to BDT 9 trillion, amid efforts by the central bank to merge troubled institutions and recover stolen assets.
The Bangladesh financial crisis 2025 extends beyond national borders, potentially disrupting remittance flows and garment exports that underpin South Asia’s economic stability. As a key player in regional trade, any prolonged turmoil could ripple through supply chains, affecting jobs in India and Pakistan while straining multilateral lenders like the Asian Development Bank (ADB).
The Anatomy of Bangladesh Financial Crisis
At the heart of the Bangladesh worst financial crisis lies a banking sector riddled with defaults, where political interference and embezzlement have eroded trust and liquidity. Bangladesh Bank’s latest Monetary Policy Statement for the first half of fiscal year 2026 (H1 FY26), released in July 2025, highlights persistently high NPLs as a core challenge, exacerbated by deposit withdrawals and governance failures, particularly in Shariah-based banks.
Official figures reveal that defaulted loans stood at BDT 6 trillion by the end of June 2025, encompassing BDT 1.78 trillion tied up in money loan courts, BDT 80,000 crore written off, and BDT 60,000 crore under judicial stays. These numbers, cross-verified with the Ministry of Finance’s budget documents, underscore a systemic issue: NPLs jumped from 10.11 per cent in June 2023 to 20.2 per cent by December 2024, the highest in Asia per an ADB assessment.
The ADB’s April 2025 outlook attributes this escalation to the previous government’s mismanagement, with the real state of the financial sector concealed through repeated loan rescheduling. Finance Minister Abul Hassan Mahmood Ali stated in the FY2025-26 budget speech: “Although non-performing loans (NPL) increased significantly due to unprecedented embezzlement and corruption in the financial sector during the previous government, the real condition of the financial sector was kept hidden through repeated rescheduling of the defaulted loans.”
Non-Performing Loans: A Ticking Time Bomb
The Bangladesh financial crisis 2025 manifests starkly in the NPL surge, with state-owned banks bearing the brunt. Janata Bank alone reports BDT 70,845 crore in defaults, equivalent to 75 per cent of its portfolio. In the first six months of 2025, the top 20 defaulters owed BDT 31,908 crore to public banks, with recoveries totalling just BDT 219 crore.
Bangladesh Bank’s reforms, including stricter loan classification rules effective from April 2025, aim to stem the tide. The central bank has dissolved boards at 15 institutions and initiated an Asset Quality Review (AQR) across 17 banks in phased assessments. Governor Dr Ahsan H Mansur emphasised transparency, declaring: “From now on, no information will be kept secret. All defaulted loans will be made public and strict recovery efforts will be carried out.”
Non-bank financial institutions (NBFIs) fare no better, with 20 troubled entities holding BDT 21,462 crore in defaults, 83 per cent of their loan books and collateral covering only 26 per cent of debts. Nine NBFIs face liquidation recommendations, signalling the depth of the Bangladesh worst financial crisis.
Stock Market Woes Amplify the Turmoil
The equity markets mirror the distress of the Bangladesh financial crisis 2025, shrinking 38 per cent over 16 years. Of 397 listed companies, 98 trade below BDT 10 face value, including 33 banks and NBFIs. Investors have endured an average annual capital loss of 3 per cent, adjusted for inflation, deterring foreign inflows.
Saiful Islam, president of the Dhaka Stock Exchange Brokers Association, warned: “So many junk shares in the stock market are discouraging foreign and institutional investors. Weak companies need to be closed or merged quickly.” This contraction compounds the broader economic strain, as the ADB forecasts GDP growth at just 3.9 per cent for FY2025, provisional figures align closely at 3.97 percent before a rebound to 5.1 per cent in FY2026.
Inflation, meanwhile, eased to 8.48 per cent in June 2025 from 11.66 per cent a year prior, per Bangladesh Bank’s data. Yet the ADB projects an uptick to 10.2 per cent in FY2025, fuelled by taka depreciation and supply constraints. Foreign reserves offer a silver lining, climbing to USD 26.7 billion by June 2025, bolstered by record remittances of USD 30.33 billion in FY2025, a 26.8 per cent rise. Exports grew 8.6 per cent to USD 48.3 billion, led by ready-made garments.
Banking Mergers and Reforms in Response
To combat the Bangladesh worst financial crisis, the government plans to inject at least BDT 20,000 crore into a merger of five Islamic banks, First Security, Social Islami, Global Islami, Union, and Exim forming United Islami Bank. Default rates in these entities range from 48 to 98 per cent.
The Bank Resolution Ordinance, 2025, empowers Bangladesh Bank to resolve failing institutions swiftly, averting systemic collapse. Finance Minister Ali affirmed: “The Bank Resolution Ordinance, 2025 has been promulgated to ensure timely resolution of capital deficit, liquidity crisis, bankruptcy or existential risks and ensure financial stability.”
Three task forces now probe bank assets, enhance regulatory capacity, and chase embezzled funds. The FY2025-26 budget allocates BDT 134 crore for National Board of Revenue automation to broaden the tax base, targeting 9 per cent of GDP in revenues. Fiscal deficit stands at 3.6 per cent of GDP, financed by BDT 1.25 trillion domestically and BDT 1.01 trillion externally.
Economist Dr Zahid Hussain, former World Bank chief, urged bolder steps: “The stricter the rules, the more the number of defaulted loans increases. Without bold reforms like India, this crisis will not end.”
Background
The seeds of the Bangladesh financial crisis 2025 were sown in governance lapses under the prior administration, with widespread loan looting and political meddling inflating defaults. The ADB labels Bangladesh’s banking system as Asia’s weakest, with NPLs 28 per cent higher in 2024 than prior years. Global headwinds, including US tariffs on garments and regional conflicts, have amplified vulnerabilities.
What’s Next for Recovery
As Bangladesh navigates the financial crisis 2025, sustained reforms in governance and transparency will be pivotal. With remittances projected to grow 10 per cent in FY2026 and exports eyeing similar gains, the economy could stabilise if inflation dips below 7 per cent, allowing monetary easing. Yet, without curbing political interference, as noted by Selim Raihan of SANEM. “The problem will not be solved unless political interference is stopped and the judiciary is strengthened”, the Bangladesh worst financial crisis risks prolongation, testing the resilience of South Asia’s emerging powerhouse.
Published in SouthAsianDesk, September 22nd, 2025
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