Bangladesh's non-bank financial institutions (NBFIs) are facing an unprecedented crisis, as non-performing loans (NPLs) climb to historic levels and expose long-standing vulnerabilities in the sector. With defaulted loans reaching Tk 29,500 crore by the end of September 2025, over 37 per cent of total outstanding loans, the NBFI sector is now under greater stress than the formal banking system. This troubling reality signals not a short-term disruption, but a deep-rooted structural failure that can no longer be ignored.
The rapid acceleration of NPLs is particularly alarming. In just nine months, defaulted loans increased by Tk 4,500 crore, including Tk 1,800 crore in the last quarter alone. Nearly two dozen NBFIs are now reporting default rates ranging between 50 and 99 per cent, rendering many institutions virtually insolvent. As liquidity dries up, depositors remain unable to withdraw their savings, while new loan disbursements have nearly come to a halt. The resulting loss of public confidence threatens the very foundation of the sector.
In this context, Bangladesh Bank's decision to liquidate or close nine distressed NBFIs under the Bank Resolution Ordinance is both timely and necessary. Institutions such as FAS Finance, People's Leasing, and International Leasing had long struggled with severe capital erosion, high default ratios, and persistent governance weaknesses. Bringing them under a structured resolution framework is essential to protect depositors, prevent disorderly collapse, and reduce systemic risk.
Yet regulatory intervention alone will not be sufficient. The crisis has been years in the making, driven by chronic mismanagement, weak internal controls, excessive loan rescheduling, and preferential lending practices. Inadequate regulatory oversight allowed these problems to fester, while repeated forbearance delayed corrective action. The economic slowdown and stagnation in business activity have only intensified these vulnerabilities, turning bad loans into an overwhelming burden.
The central bank's assurance that depositors will receive their full funds is crucial to maintaining financial stability. However, depositor protection must be matched with accountability and reform. Strengthening corporate governance, enforcing strict loan classification standards, improving recovery mechanisms, and enhancing supervisory vigilance are imperative if confidence is to be restored. Regulatory tolerance for repeated violations must give way to firm and consistent enforcement.
NBFIs were created to support financial inclusion and serve segments often underserved by banks, particularly small and medium enterprises. That role remains important. But the sector's future depends on decisive reforms implemented without delay. If addressed with seriousness and integrity, the current crisis could become an opportunity to rebuild a leaner, more transparent, and resilient NBFI sector. Failure to act decisively, however, risks allowing mounting NPLs to destabilize the wider financial system and undermine broader economic stability.
