Bangladesh's Politically Approved Banks Are Sinking Deeper Into Bad Debt

Bangladesh's banking sector has spent the past few years fighting a bad debt problem that keeps getting worse, and a fresh bank by bank look at the industry shows why. Two waves of politically approved banking licences, one issued in 2013 and another in 2018 and 2019, produced a cluster of lenders that are now among the most distressed financial institutions in the country. Several of them are reporting non performing loan ratios above 90 percent, figures that would be unthinkable at an ordinary commercial bank anywhere in the world.

The scale of the damage becomes clear when you look at individual balance sheets. Union Bank, one of the nine banks licensed in the first political round, posted a loss of Tk25,790 crore in 2024, a stunning reversal from the Tk160 crore profit it recorded just a year earlier. Its non performing loans reached 97 percent of its total loan book by June this year, equal to Tk27,134 crore sitting in default. Global Islami Bank followed a similar trajectory, with bad loans jumping from Tk221 crore to Tk14,219 crore over the same period, a ratio of 97.27 percent. Padma Bank, another first round licensee, has not published financial accounts for years and now carries an 89 percent NPL ratio worth Tk4,933 crore.

A Decade of Political Banking Licences

The first batch of banks was approved in 2013 under intense political pressure, with the central bank at the time widely seen as having little independent say in who received a licence. A second, smaller round followed in 2018 and 2019. Bangladesh Bank has never formally admitted that political connections rather than financial soundness drove those approvals, but the pattern in the data is difficult to explain any other way. Banks born of favour rather than merit now make up a disproportionate share of the sector's worst performers.

Below the three worst cases sits a wider group of double digit defaulters. NRB Commercial Bank carries a 21.43 percent NPL ratio worth Tk3,218.78 crore, with profit collapsing from Tk198 crore in 2023 to just Tk7 crore in 2024. SBAC Bank's default ratio stands at 16.27 percent, or Tk1,557.27 crore, after profit fell from Tk54 crore in 2023 to a mere Tk0.70 lakh in 2025, a number so small it barely registers as a real earnings figure. Even banks that remain nominally single digit are struggling to stay under the regulatory five percent threshold. NRB Bank reported 7.58 percent NPLs, or Tk585 crore, as of June and has set itself a target of returning below five percent by the end of the year. Meghna Bank and Modhumoti Bank are both hovering just above that line, at 5.60 percent and 6.88 percent respectively, with profits at both institutions falling from well over Tk100 crore in earlier years to single digit crore figures in 2025.

How Bangladesh Compares to the Rest of the World

These individual bank stories sit inside a national picture that is itself alarming. Bangladesh's overall non performing loan ratio reached 32.78 percent of total outstanding loans as of June this year, according to central bank data reported earlier this month, a level that puts the country first in the world for bad debt, ahead of even Ukraine, whose banking sector has spent years absorbing the shock of a full scale war. In absolute terms, NPLs across the entire banking system stood at Tk6,06,555 crore in June, up Tk17,851 crore over just three months from March, though still below the September 2025 peak of Tk6,44,515 crore. Bangladesh Bank has said that tighter loan classification rules, more rigorous audits and asset quality reviews are now surfacing bad loans that banks had previously kept off their books through repeated rescheduling, which explains some but not all of the recent jump. Five banks currently working through a merger process are each carrying default ratios above 80 percent, and several other state owned and private banks separately exceed the 50 percent mark.

Bank by Bank: Where the Damage Sits

The table below lays out the clearest cases from both rounds of politically approved licences, drawing on figures reported through September this year.

Bank	Licence round	NPL ratio	NPL amount (Tk crore)
Union Bank	2013	97.00%	27,134
Global Islami Bank	2013	97.27%	14,219
Padma Bank	2013	89.00%	4,933
NRB Commercial Bank	2013	21.43%	3,218.78
SBAC Bank	2013	16.27%	1,557.27
NRB Bank	2013	7.58%	585
Modhumoti Bank	2013	6.88%	561
Meghna Bank	2013	5.60%	432.87
Midland Bank	2013	5.67%	412
Shimanto Bank	2018-19	4.88%	133.73
Citizens Bank	2018-19	2.65%	162.46
Community Bank	2018-19	0.33%	5.32

A Few Exceptions Prove Governance Matters

Not every politically licensed bank has ended up in the same position, and the exceptions are instructive. Midland Bank, from the first 2013 round, has managed to stay profitable throughout, with an NPL ratio of just 5.67 percent, or Tk412 crore, as of June. From the second round, Community Bank has performed the best of any politically approved lender by a wide margin, with an NPL ratio of only 0.33 percent, worth just Tk5.32 crore, and profit that actually rose to Tk102 crore in 2025. Citizens Bank, also from the 2018-19 round, kept its NPL ratio at 2.65 percent, though its profit slipped to a thin Tk2 crore. Shimanto Bank tells a more cautionary tale even within the better performing group, with its NPL ratio at 4.88 percent but a swing from a Tk39 crore profit in 2024 to an Tk82 crore loss in 2025, a reminder that even comparatively healthy loan books can mask a sudden deterioration in earnings. Bengal Commercial Bank's managing director, discussing the sector's difficulties, pointed to what was described as a wider business climate weighing on loan quality across the board, not just at the weakest institutions.

Mustafa K Mujeri, a former chief economist at Bangladesh Bank, put the underlying diagnosis bluntly. If you take any policy based on political considerations, he said, then you must fail. He warned that the banking sector will not recover soon unless political influence is removed from both bank approvals and day to day governance, a comment that lands squarely on the pattern the bank by bank figures reveal.

What the Numbers Suggest Going Forward

The gap between the best and worst performers among politically licensed banks is now so wide that it undercuts any simple explanation resting on licensing history alone. Union Bank and Community Bank were approved under comparable political circumstances, yet one carries a 97 percent default ratio while the other sits at 0.33 percent. That gap points toward management quality, board oversight and lending discipline as the real dividing line, rather than the mere fact of political favour at the point of licensing. For depositors and investors, the practical takeaway is that blanket judgments about "politically connected banks" as a category are less useful than looking at each institution's own governance record.

For the wider financial system, the more pressing question is whether Bangladesh Bank's tightened classification and audit regime, credited with helping to expose some of this year's jump in bad loans, continues to run at the same pace, or whether pressure to ease off returns once headline NPL figures start looking politically inconvenient. With the country now carrying the highest non performing loan ratio of any economy tracked globally, ahead of a nation still fighting an active war, the room for half measures looks increasingly narrow. The five banks currently in merger talks, each holding default ratios above 80 percent, will be an early test of whether consolidation actually cleans up bad debt or simply moves it onto a larger, combined balance sheet.