Bangladesh's banking sector is grappling with a striking paradox-record-high excess liquidity coexisting with acute credit constraints for private borrowers, particularly in industry and cottage, micro, small and medium enterprises (CMSMEs), undermining investment and growth.
Dhaka Chamber of Commerce and Industry (DCCI) President Taskeen Ahmed sounded the alarm on Wednesday while presenting a paper titled 'Synergising the Banking Sector: Lenders' and Borrowers' Perspective' at a group discussion held at the DCCI auditorium, according to a DCCI official.
DCCI chief highlighted a widening divergence between public and private sector credit, noting that government borrowing from banks surged to Tk 73,035 crore during July-January of fiscal year 2025-26, a dramatic rise from Tk 9,442 crore in the same period a year earlier. The sharp increase, he said, has intensified crowding-out effects on private sector lending.
According to the paper, total liquid assets in the banking system climbed to Tk 6,26,044.90 crore, with excess liquidity reaching Tk 3,21,255.47 crore-signalling that banks are increasingly parking funds as a safeguard against rising credit risks rather than channelling them into productive sectors.
At the same time, private sector credit growth slowed markedly to 6.03 per cent, reflecting a contraction in lending despite robust deposit mobilisation.
The study painted a sobering picture of asset quality. The overall non-performing loan (NPL) ratio surged to 31.2 per cent by December 2025, while industrial loan recovery fell by more than 50 per cent year-on-year, exacerbating stress across the real economy.
Overdue industrial loans stood at Tk 71,066.82 crore, while CMSME overdue loans accounted for 35.43 per cent, underscoring mounting financial distress among borrowers.
Taskeen observed that escalating NPLs, capital shortfalls and tighter risk governance have driven banks towards defensive lending strategies.
Capital deficits in 23 banks-amounting to Tk 2.82 lakh crore-have further heightened risk aversion, slowing credit disbursement and restricting access to finance for productive sectors.
From the borrowers' perspective, the paper pointed to severe revenue pressures, elevated lending rates and constrained access to working capital. With the policy rate at 10 per cent, lending rates have risen to around 14-15 per cent, significantly increasing repayment burdens and dampening fresh investment, particularly among SMEs operating on thin margins.
The paper warned that the sector is trapped in a vicious cycle: rising defaults prompt stricter lending standards, which curb business activity and weaken repayment capacity-ultimately fuelling further defaults and tightening credit conditions.
To break the cycle, Taskeen proposed a three-pillar "synergy framework" centred on stabilising the banking system, expanding credit flow and strengthening governance.
Key recommendations include enforcing time-bound NPL reduction targets, prosecuting wilful defaulters, restoring capital adequacy and completing rigorous asset quality reviews of vulnerable banks.
He also urged targeted measures to ease SME financing, including lowering lending rates through credit guarantee schemes, expanding digital financial inclusion, diversifying lending portfolios and developing alternative financing channels to reduce overreliance on bank credit.
The DCCI president further stressed the need for risk-based supervision, enhanced cybersecurity, investment in digital credit infrastructure and full compliance with Basel III standards to ensure long-term resilience.
Emphasising the urgency of coordinated action, Taskeen noted that stronger alignment between lenders and borrowers is critical to restoring confidence, reviving private investment and sustaining Bangladesh's economic growth trajectory.
