Bangladesh's economic crisis has intensified sharply, with defaulted loans in the banking sector surging to 31 per cent by the end of 2025-up from 20 per cent a year earlier-according to the latest sector-wise data released by Bangladesh Bank.
The figures paint a troubling picture of mounting stress across the economy, as macroeconomic pressures, policy shifts and structural weaknesses combine to weaken credit discipline in nearly all major sectors.
Economists say the most acute strain is visible in business and trade, long regarded as the engine of Bangladesh's growth noting that a number of import-dependent businessmen reportedly have left the country, abandoning substantial unpaid liabilities and deepening the banking sector's exposure.
At the same time, businesses are grappling with rising lending rates and the shift to a market-based exchange rate for the US dollar. For firms reliant on imports-particularly in consumer goods-the combined impact of currency volatility and higher borrowing costs has proved severe.
The trade and commerce sector now accounts for 33.5 per cent of total bank lending, but the quality of those loans has deteriorated sharply. Default rates in the sector have climbed to 42.5 per cent, up from 23.4 per cent a year earlier, signalling acute distress in the country's commercial backbone.
The industrial sector, which holds the largest share of credit at 43 per cent, has also seen a significant deterioration. Defaulted loans in this segment rose from 22.8 per cent in 2024 to 30.8 per cent in 2025, reflecting weakening demand, rising production costs and persistent uncertainty in both domestic and export markets.
Other sectors have followed a similar trajectory. In construction, default rates increased from 18.3 per cent to 26.7 per cent, while transport sector defaults rose from 19.9 per cent to 23.2 per cent. Even smaller segments recorded deterioration, with defaults in "other sectors" climbing from 5.9 per cent to 9.2 per cent.
The most alarming shift, however, has occurred in agriculture, fisheries and forestry-critical to rural livelihoods and food security. Although these sectors account for just 4.4 per cent of total loans, their default rate surged to 28.2 per cent in 2025, nearly three times the 11.3 per cent recorded a year earlier.
Bankers attribute this spike largely to rising interest rates following reforms linked to the International Monetary Fund. Agricultural lending rates, previously capped at around 8 per cent, have moved to market-based levels, rising to as high as 12-13 per cent during repayment periods.
This has coincided with higher production costs-particularly for irrigation and fertiliser-while farmers continue to receive low prices for their produce due to middlemen dominance and weak storage infrastructure. The combined effect has eroded farmers' repayment capacity, heightening concerns over rural financial stability.
In contrast, consumer loans have shown modest resilience. Their share in total lending edged down slightly to 8.5 per cent, while the default rate improved from 3.3 per cent to 3 per cent. Analysts attribute this to tighter lending standards, improved monitoring and more cautious borrowing behaviour.
Banking insiders caution that the sharp rise in defaulted loans is not solely due to worsening credit quality. Stricter enforcement of classification rules and greater transparency have also brought previously hidden non-performing loans into the formal system.
Nevertheless, the breadth and scale of the deterioration underscore deep-rooted vulnerabilities within the financial system.
Looking ahead, the outlook remains uncertain. Ongoing geopolitical tensions, volatile global commodity markets and fragile domestic demand are expected to continue weighing on borrowers' ability to repay.
A senior private banker noted that fluctuations in global consumer goods prices, combined with high inflation at home, have squeezed traders' margins, making it increasingly difficult to sustain business operations and service debt.
The latest data, while offering a clearer picture of the banking sector's health, presents policymakers with a difficult balancing act-tightening financial discipline without stifling an already fragile recovery.
With default rates surging across key sectors and capital flight concerns emerging, the warning is clear: without swift and decisive reforms, Bangladesh's banking sector risks becoming a drag on economic growth rather than its driving force.
