New Delhi: Bangladesh is grappling with one of its most severe financial crises in recent history, with the banking sector hit hard by massive loan defaults, non-bank financial institutions (NBFIs) teetering on the edge of collapse, and shares of many listed companies trading below face value, according to a report by the Dhaka Tribune.

The crisis is driven by a vicious cycle of loan defaults, weak regulation, political interference, corruption, and the dominance of low-quality companies.

The Asian Development Bank (ADB) recently highlighted that Bangladesh now holds the highest volume of defaulted loans in Asia. According to Bangladesh Bank, commercial banks reported defaulted loans of around Tk6 lakh crore by the end of June, with another Tk3.18 lakh crore in hidden defaults pending disclosure.

In 2024 alone, 20.2% of the country’s total disbursed loans defaulted, 28% higher than the previous year. The ADB labeled Bangladesh’s banking system as the “weakest in Asia.”

Amid the crisis, the government has proposed removing the definition of “wilful defaulter” from the draft Banking Company Act, citing complexities in identifying such defaulters.

Experts, including Selim Raihan of SANEM, emphasized that the problem will persist unless political interference is curtailed and the judiciary strengthened.

In a major intervention, Bangladesh Bank plans to merge five Islamic banks—First Security, Social Islami, Global Islami, Union, and Exim Bank—into a new state-owned entity, tentatively called United Islami Bank, with at least Tk20,000 crore capital infusion.

The default loan rates of these banks range from 48% to 98%. State-owned banks are also struggling, with recovery of defaulted loans nearly stalled; the top 20 defaulters owed Tk31,908 crore in the first half of the year, with only Tk219 crore recovered.

The crisis extends to NBFIs, where defaulted loans total Tk21,462 crore, or 83% of their portfolios. Nine institutions are recommended for liquidation. Public confidence continues to erode as many of these institutions cannot repay depositors.

The stock market is similarly stressed. Over the past 16 years, it has contracted by 38%, and inflation-adjusted investor losses average 3% annually.

Shares of 98 out of 397 listed companies are trading below their Tk10 face value, with over half priced under Tk5. Saiful Islam, president of the DSE Brokers Association, warned that the proliferation of junk shares discourages foreign and institutional investment, urging quick closure or merger of weak companies and the introduction of stronger firms.