Bangladesh’s banking sector encountered a crisis by the end of 2025, as the capital adequacy ratio dropped to minus 2.64 percent due to the exposure of previously undisclosed bad loans. This situation has rendered them the weakest in South Asia in terms of withstanding financial shocks, as reported by Bangladesh-based The Daily Star.
Comparatively, India recorded a CRAR of 17.20 percent, Pakistan at 20.80 percent, and Sri Lanka at 19.40 percent by the end of 2025, according to The Daily Star’s report. The revelation of a significant number of previously concealed bad loans followed the collapse of the Awami League-led government in August 2024.
Syed Mahbubur Rahman, the Managing Director and CEO of Mutual Trust Bank and a former ABB Chairman, attributed the banking sector’s negative capital status to widespread financial irregularities. He highlighted that many banks have utilized regulatory deferral provisions, allowing them to postpone acknowledging losses or meeting specific regulatory obligations, cautioning that the financial condition of banks may deteriorate further post the expiration of these facilities.
The Capital Adequacy Ratio (CRAR), also known as the Capital to Risk-Weighted Assets Ratio, serves as a measure of the capital banks hold as a protective buffer against risky lending practices. It gauges a bank’s capital reserve to absorb losses in case borrowers default on loans. As per international Basel III guidelines, banks are required to maintain a minimum capital adequacy ratio of 10 percent, along with an additional 2.5 percent buffer to mitigate financial strain.
Non-performing loans pose a significant challenge for Bangladeshi banks, with bad loans escalating to Tk 5,57,217 crore or 30.60 percent of total loans by the end of 2025, and further rising to Tk 588,704 crore (32.26 percent) by March 2026, as per data from the Bangladesh Bank. Mustafa K Mujeri, Executive Director of the Institute for Inclusive Finance and Development (InM) and a former chief economist of the Bangladesh Bank, emphasized the necessity for robust and decisive corrective actions to restore the banking sector to a stable and sustainable position.
