Agricultural Bad Loans Surge Tk 939cr in 3 Months as Repayment Stress Deepens

Agricultural bad loans rebounded sharply, rising by Tk 939 crore in just three months to Tk 19,517 crore by September, as mounting production costs, climate-induced crop losses, tighter loan classification and weak recovery pushed farmers and banks under renewed repayment pressure.

The reversal came after a decline in agricultural defaults at the end of the 2025-26 fiscal year, exposing the fragility of loan recovery despite increased credit disbursement to the rural economy.

Bankers attribute the deterioration not only to weaknesses in loan recovery but also to stricter classification rules, soaring fertiliser, fuel and irrigation costs, crop damage from floods and excessive rainfall, and volatile agricultural commodity prices.

Stricter loan classification policies introduced in 2025 have further compounded repayment difficulties, pushing more farmers into default. Many have also struggled to secure fair prices for their produce, eroding their earnings and ability to repay instalments on time.

Allegations of inadequate scrutiny and monitoring during loan disbursement, alongside the diversion of agricultural credit to non-farming purposes, have added to the problem.

According to Bangladesh Bank data, defaulted agricultural loans declined by 5.92 per cent to Tk 18,579 crore at the end of FY26 compared with the previous fiscal year. Overdue agricultural loans also fell by 8.43 per cent to Tk 19,808 crore.

But the improvement proved short-lived. By the end of September in FY27, defaulted agricultural loans had climbed to Tk 19,517 crore, up Tk 939 crore from June. Overdue loans surged by Tk 2,132 crore to Tk 21,939 crore over the same period.

The figures point to mounting repayment stress in agricultural financing, with a substantial volume of credit remaining unrecovered despite higher disbursement and collection.

Shariah-based banks face mounting stress
Shariah-based banks have emerged as a major source of concern, recording sharp increases in both defaulted and overdue agricultural loans.

At the end of FY26, their defaulted agricultural loans surged by 150 per cent compared with the previous fiscal year, while overdue loans increased by 73.11 per cent.

The deterioration continued into the new fiscal year. At the end of August, defaulted agricultural loans at these banks stood at Tk 880 crore, against Tk 460 crore in the corresponding period of the previous year, marking a 91.43 per cent increase, or Tk 421 crore.

Overdue agricultural loans also jumped by 116.29 per cent to Tk 839 crore in August, compared with Tk 388 crore a year earlier.

The figures underscore growing pressure on Shariah-based lenders, despite a slight decline in their defaulted agricultural loans during the initial months of FY27.

State banks also under pressure
State-owned commercial banks are also facing renewed deterioration in agricultural loan quality.

Their defaulted agricultural loans increased by 11.54 per cent at the end of FY26 compared with the previous fiscal year.

By September, the amount had reached Tk 5,167 crore, up 10.31 per cent from Tk 4,684 crore in the corresponding period of the previous year.

Overdue agricultural loans at these banks also reversed their earlier downward trend. After declining by 13.63 per cent at the end of FY26, they rose by 3.87 per cent year-on-year to Tk 6,468 crore by September.

Specialised, private banks show improvement
In contrast, specialised banks recorded a relatively encouraging performance in agricultural loan recovery.

Their defaulted agricultural loans declined by 15.90 per cent at the end of FY26, while overdue loans fell by 8.84 per cent.

The improvement continued into the new fiscal year. By September, defaulted agricultural loans at specialised banks had fallen by 9.85 per cent year-on-year to Tk 12,169 crore. Overdue loans also declined by 9.67 per cent to Tk 13,893 crore.

Private commercial banks likewise showed improvement in the latest available figures. Although their defaulted agricultural loans increased by 15.02 per cent at the end of FY26, the amount fell by 6.34 per cent year-on-year to Tk 802 crore in August.

Overdue agricultural loans at private banks also declined by 23.93 per cent to Tk 742 crore by September.

Credit disbursement rises, recovery gap persists
Meanwhile, banks have continued expanding agricultural and rural credit to support farming activities and inject funds into the rural economy.

During FY26, banks disbursed Tk 42,834 crore in agricultural and rural loans, while recovering Tk 45,627 crore.

However, the volume of loans scheduled for recovery stood at Tk 66,026 crore at the end of the fiscal year. Of this amount, Tk 19,807 crore remained overdue, while classified loans stood at Tk 18,579 crore.

Agricultural credit disbursement and recovery both increased during the first quarter of FY27.

Between July and September, 58 participating banks disbursed Tk 6,858 crore in agricultural and rural loans, up 42.10 per cent from the corresponding period of the previous fiscal year. Loan recovery also increased by 22.16 per cent.

Including disbursement by the Bangladesh Rural Development Board (BRDB), total agricultural credit reached Tk 7,066 crore in September.
Despite the robust growth in credit disbursement and recovery, the renewed surge in defaults and overdue loans raises concerns about the quality of agricultural lending and the sustainability of rural financing.

Bangladesh Bank has stressed the need to strengthen loan recovery mechanisms and exercise greater caution in managing defaulted credit to ensure that agricultural financing reaches genuine farmers and supports productive activities.