Non-performing loan (NPL) is that portion of loan which has already became default or close to be default. When a bank fails to collect the interest payments or the principal amount of loan then that loan is considered as NPL. Bangladesh Bank has been defined eight stages of loan in terms of classification which includes Superior, Good, Acceptable, Marginal/Watchlist, Special Mentioned Account (SMA), Sub Standard (SS), Doubtful (DF) and Bad & Loss (BL). As per classification guideline of Bangladesh Bank, Sub Standard (SS), Doubtful (DF) and Bad & Loss (BL) are considered as non-performing loan (NPL).
NPL is one of the burning problems of the banking sector in Bangladesh for last two decades. The international standard of NPL is 2 percent or below but in our country it was much higher in early days and now reaches to the mountain. The NPL percentages in Bangladesh are almost 14 times higher than the standard which is alarming for the sector. The NPL data is updated and reviewed quarterly by Bangladesh Bank in the light of the existing classification circular.
The central bank revised loan classification policy by issuing a circular on November 27, 2024 through BRPD Circular No. 15 and tighten the classification policy which was fully come into force from June quarter 2025. Earlier, the classification policy was reviewed on April 21, 2019 which was come into force on June 30, 2019. In that circular, there was a clause that term loans treated as overdue after six months installment due. But in present circular this policy is tightened as earlier circular of 2012 and as well as global standard; now overdue is considered after following day of installment due date for term loan and following day of expiry for continuous loan. Moreover, all loans are classified as sub-standard for overdue three months or more. Subsequently according to present circular, loans overdue for equal or more than nine and twelve months are classified as doubtful and bad respectively.
According to Bangladesh Bank data, NPL ratio stood 27.09 percent in June 2025, 24.13 percent in March 2025 and 20.20 percent in December 2024. Year end data NPL for last 10 years was 9.00 percent in 2023, 8.16 percent in 2022, 10.70 percent in 2021, 8.06 percent in 2020, 9.30 percent in 2019, 10.30 percent in 2018, 9.31 percent in 2017, 9.23 percent in 2016, 8.79 percent in 2015 and 8.21 percent in 2014. Data shows that the lowest ever NPL percentage of Bangladesh was 6.10 percent in 2011. This data exhibits that the NPL ratio is up growing by the passing of time and it is out of grasp now.
In 2001, Bangladesh Bank made a policy decision not to issue any new banking licenses as per directives of international donor agencies like IMF. But political pressure lead to change the decision, even believing, the existing number of Banks and financial institutions was burden on economy. The central bank's board finally approved a policy to grant new banking licenses in 2012. Total 14 new banks were approved from 2009 and onward. Thousands of crores of money from our economy shifted to outside of our country was the prime intention behind granting these politically motivated banking licenses and these was ultimately fulfilled smoothly by few hands as we well known by this time.
According to Bangladesh Bank data, NPL ratio stood 27.09 percent in June
2025, 24.13 percent in March 2025 and 20.20 percent in December 2024.
Year end data NPL for the past few years was 9.00 percent in 2023, 8.16
percent in 2022, 10.70 percent in 2021 and 8.06 percent in 2020
Political decision and political influence was the main factor for giving license of fourth generation bank. These banks make the sector more vulnerable since those are riddled serious challenges from the very beginning of conducting business operations. Direct political influence in recruitment and other activities weakened the governance structure of these fourth generation banks that leads to poor corporate culture, unethical practices and lack of transparency in transactions. These malpractices ultimately hit to credit mismanagement and to retain quality assets back portfolio. As a result, NPL growth rate these fourth generation bank is high.
According to the latest Global Competitiveness Report by the World Economic Forum, Bangladesh ranked 130 out of 141 countries in banking system soundness-the lowest among South Asian nations. The decline of the banking sector began in 2009. Another global economic study ranked Bangladesh's banking sector a 22 steps behind compared to 2009 and ranked 85 out of 136 countries. Bangladesh now ranks fifth within SAARC countries, whereas, it was in second place in 2005.
Aggressive, unscrupulous and target oriented banking indirectly increases NPL. The bankers could not scrutinize and fine tuned the loan file due to pressure of achieving target. Most of the banks forced upon huge individual day to day target to the employee which is totally intolerable for them. Sometimes they sanction and disburse the loan by hiding some backdrops to save their job. The unhealthy and bad competition and practices are exercised between the banks and between the bankers. Even, uncontrolled deposit rates have destroyed the market structure of the banks as a whole.
Some of the cases, due to unrest competition in the market, banks enhance the excess loan facilities to the existing customer or sanctioned excess limit to the new customer despite of increasing business volume. Then the customer invests the excess amount outside the business and the fund is diverted from the business which is strongly prohibited in sanction clause of any loan. Since the business volume is not increased, the customer can not bear or service the interest burden of the enhanced amount. The excess interest burden would push the customer to the line of loan default. Most of the cases NPL rise in this way.
Presently our banking sector is passing a crucial time and over burdened with mountainous percentage of NPL. This amount of NPL is not aggregated in a day, step by step political influence and decision lead the way to launder a large amount of money to outside of the country by disbursing loan in pseudonymous name and these loans are now visible to us as NPL. At this moment Banks should develop corporate governance and be precautious for managing NPL at tolerable level. As a regulatory authority, Bangladesh Bank should create level playing fields for Banks in loan management by introducing common collateral security valuation database and strictly handled loan taken over policy, loan enhancement policy and other related credit policy to manage the NPL.
The writer is a banker & researcher
