In the corridors of Bangladesh's banks, a crisis of confidence is brewing. According to a Prothom Alo report published on 29 July 2125, over one in every four taka lent by the financial sector has turned into a non-performing loan (NPL), with the total amount soaring to a staggering Tk 5.3 trillion. This marks a sharp increase from Tk 2.1 trillion just a year earlier, as reported in Bangladesh Bank's Quarterly Loan Report from June 2024. Global economic headwinds, as noted in the IMF World Economic Outlook (2024) and policy missteps by the ousted Awami League regime, played their part, but the rot runs deeper. And while regulators scramble to merge failing banks and roll back lax classification policies, a deeper diagnosis reveals a disease that can't be cured by cosmetic policy tweaks.
A large part of this crisis is rooted in a unique pathology of Bangladeshi corporate culture: the obsession with becoming a 'group of companies.' Across the country, successful businesses rarely stop at one sector. Instead, they aggressively expand into unrelated industries — from garments to banking, from construction to media. The goal often appears to be not strategic growth, but influence, asset leverage, and market power.
This culture of unchecked expansionism has led to a situation where many conglomerates operate with dozens of subsidiaries, only a handful of which are profitable. The rest survive through internal financial looping — using loans obtained by one company to cover the mortgage obligations or losses of another. In many instances, these loans are taken with little intent to repay, relying instead on regulatory leniency, political connections, or eventual debt rescheduling.
The result is a financial shell game that artificially inflates economic performance while quietly eroding the health of the banking sector. Of 30 companies under a typical business group, perhaps 5 generate consistent profits. The remaining 25 operate with little transparency and collectively contribute to the swelling Tk 5.3 trillion default burden Bangladesh is facing right now.
Even when these loans are collateralised, recovery remains elusive. In theory, mortgaged assets should protect the banks. But in Bangladesh, the typical mortgage-to-loan ratio — 1:1 for long-term and 1:1.5 for short-term (as per Bangladesh Bank's Loan Classification & Provisioning Guidelines) — does not account for market volatility, sector-specific risks, or project saturation. Many defaulters' assets are overvalued or located in sectors that are already oversupplied. As a result, even fire-sale auctions struggle to attract buyers. In this system, corporate or personal guarantees have become meaningless formalities — routinely waived, rarely enforced, and utterly ineffective against willful defaulters backed by influence rather than integrity.
A recent investigation by The Financial Express BD in March 2025 revealed that many mortgaged properties linked to defaulted loans remain unsold for months, if not years, as prospective buyers steer clear of failed projects that signal over-optimism or poor feasibility from the outset. There is a lack of trust that these assets can generate the expected returns. When buyers doubt the underlying project's logic, no discount is steep enough.
To mitigate this, Bangladesh must implement a more dynamic, risk-adjusted approach to mortgage valuation. One proposal is to adopt graded mortgage requirements: for example, requiring a 2:1 to 3:1 mortgage coverage for long-term loans in volatile sectors, and up to 4:1 for short-term loans in speculative industries. This would better shield public money and disincentivise groups of companies from irresponsible, cross-sector sprawl.
Globally, Bangladesh's predicament is far from unique. In India, the 2018 collapse of IL&FS (Infrastructure Leasing & Financial Services) showed how complex intra-group financing can bring down a network of companies (Reserve Bank of India's report on the IL&FS crisis). Similarly, South Korea's post-1997 economic reforms forced large conglomerates, or chaebols (as documented in OECD Economic Surveys: Korea 2018), to reduce debt-financed expansions and dismantle cross-guarantees. Even in China, recent crackdowns on property giants like Evergrande (as covered by Reuters in 2023) highlight the need to monitor over-leveraged corporates.
The OECD and IMF have both warned of the growing threat posed by 'zombie firms' (IMF Working Paper 2023), entities that continue operating solely through repeated loan rollovers, rather than productivity. These firms crowd out credit for real entrepreneurs and productive investments. In weak regulatory environments, such as Bangladesh, the risk is even higher that public money is diverted to fuel speculative expansion, instead of sustainable development.
The new interim administration has made some early moves to tackle the problem. Bangladesh Bank's plan to merge five Shariah-based banks with staggering default rates — some exceeding 70% — is a step toward consolidation. But unless deeper reforms accompany these mergers, the structural weaknesses will simply migrate into larger institutions.
The time has come to prioritise loan quality over loan volume. That requires reform on several fronts: mandatory stress tests before loan approvals, independent and verifiable asset valuations, and a forensic audit of all group-based financing. Perhaps most importantly, the central bank must be insulated from political interference, enabling it to act decisively against high-profile defaulters.
According to a press briefing by Bangladesh Bank in August 2024, around 1,200 business entities have applied to Bangladesh Bank for special restructuring — a tacit admission that default is now the norm, not the exception. If these entities are granted blanket relief without public scrutiny, it sets a dangerous precedent: in Bangladesh, failing upward pays.
A strong and transparent financial sector is not a luxury — it is the backbone of inclusive growth. Until we address the group-of-companies culture, revise our mortgage risk frameworks, and enforce credible loan recovery mechanisms, Bangladesh's Tk 5.3 trillion problem will only grow. The country deserves a financial system where lending is based on merit, not muscle.
Ali Ahmad is a PhD Candidate in the Department of Civil & Environmental Engineering at Rutgers, the State University of New Jersey -New Brunswick
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