Classified loans snowball to Tk6.07t in June

Bangladesh’s banking sector appears to be sinking deeper into a vicious cycle of classified loans, with the volume of troubled credit continuing to snowball despite a series of regulatory interventions, bank mergers and recovery initiatives.

Classified loans surged to Tk6,06,555 crore at the end of June 2026, underlining the deepening crisis in the country's banking sector and raising fresh concerns over banks' financial health.

According to Bangladesh Bank data released on Wednesday, classified loans stood at Tk5,88,704 crore in March, meaning bad loans increased by Tk17,851 crore in just three months.

The classified-loan ratio also rose to 32.78 per cent in June from 32.26 per cent three months earlier, indicating that nearly one-third of all outstanding bank loans have now turned bad or are in serious financial distress.

Total outstanding loans in the banking sector stood at around Tk18,49,192 crore at the end of June.

The deterioration becomes more striking when compared with the situation only six months earlier. Classified loans stood at Tk5,57,217 crore in December 2025. Within six months, the volume swelled by Tk49,338 crore.

The persistent rise suggests that the banking sector has yet to break out of what analysts increasingly describe as a self-reinforcing cycle�"where weak lending practices, poor recovery, repeated restructuring and deteriorating borrower capacity continue to generate fresh defaults.

*    Classified loans in Bangladesh’s banking sector rose to Tk6,06,555 crore in June 2026. 
*    The classified-loan ratio increased to 32.78 per cent. 
*    Bad loans grew by Tk49,338 crore in six months. 
*    Fifteen banks accounted for around 85 per cent of total defaulted loans. 
*    BB introduced a special exit facility for defaulters and provided around Tk75,903 crore in emergency liquidity support to troubled banks. 
*    Despite bank mergers, recovery drives and regulatory measures, classified loans continue to snowball.

The crisis is also heavily concentrated in a relatively small number of banks. Bangladesh Bank data showed that 15 banks accounted for about 85 per cent of total defaulted loans in March, with their combined non-performing loans approaching Tk5 lakh crore.

The concentration highlights the scale of stress facing several weak banks and raises questions about governance, credit discipline and risk management in the sector.

Bangladesh Bank has taken several measures to contain the crisis and improve loan recovery.

In June, the central bank introduced a special exit facility for eligible defaulters, allowing borrowers to repay the principal amount in a single payment while enabling banks, under certain conditions, to waive accumulated interest. The facility will remain available until December 31, 2026.

The central bank has also been extending liquidity support to troubled banks. Banks received around Tk75,903 crore in emergency liquidity assistance up to June 6, reflecting the acute financial pressure confronting parts of the banking system.

Meanwhile, the government and Bangladesh Bank have moved to restructure the troubled banking landscape.

Five financially distressed Islamic banks�"EXIM Bank, First Security Islami Bank, Global Islami Bank, Social Islami Bank and Union Bank�"have been merged to form Sammilito Islami Bank.

The newly formed bank has initiated legal action to recover loans from major defaulters and filed thousands of cases as part of efforts to retrieve funds locked up in defaulted credit.

Despite these interventions, however, the overall classified-loan mountain continues to grow.

The continued accumulation poses a major threat to the banking sector, as bad loans erode banks' profitability, force them to maintain higher provisions, weaken their capital base and constrain their capacity to finance productive businesses.

The problem can also create a wider economic feedback loop. As financially weak banks become more cautious in extending credit, businesses may struggle to secure financing, potentially weakening investment and economic activity and, in turn, further affecting borrowers' repayment capacity.

Banking experts say breaking the cycle will require more than fresh lending facilities or repeated restructuring of loans. Recovering money already trapped in classified accounts, strengthening bank governance, ensuring proper credit appraisal and holding wilful defaulters accountable will be crucial.

Without a decisive improvement in loan recovery and lending discipline, Bangladesh's classified-loan crisis risks continuing its snowball effect, placing an ever heavier burden on an already fragile banking system.