Bangladesh’s banking sector recorded a negative capital adequacy ratio of minus 2.64 percent at the end of 2025, the weakest in South Asia, after hidden bad loans surfaced following political change. Analysts warn that expiring regulatory relief and rising non-performing loans could further deepen the financial crisis.
Bangladesh’s banking sector has entered a severe financial crisis, recording the weakest capital adequacy position in South Asia after a large volume of previously concealed bad loans came to light, according to a report published by Bangladesh-based newspaper The Daily Star.
At the end of 2025, the country’s banking sector posted a capital adequacy ratio of minus 2.64 percent, far below international standards and significantly weaker than neighboring countries. In comparison, India’s capital adequacy ratio stood at 17.20 percent, Pakistan’s at 20.80 percent, and Sri Lanka’s at 19.40 percent during the same period.
The report said the deterioration became evident after the fall of the Awami League-led government in August 2024, when a substantial amount of previously hidden non-performing loans surfaced in the banking system. The revelations exposed deep financial weaknesses that had remained concealed for years.
Syed Mahbubur Rahman, Managing Director and Chief Executive Officer of Mutual Trust Bank and former chairman of the Association of Bankers, Bangladesh, attributed the negative capital position to widespread financial scams and poor governance within the sector.
He said many banks had relied on regulatory deferral facilities that allowed them to postpone recognising losses or meeting certain regulatory requirements. According to him, the actual financial condition of several banks could become even worse once these temporary facilities expire.
The capital adequacy ratio, also known as the Capital to Risk-Weighted Assets Ratio (CRAR), measures the amount of capital banks hold as a safety buffer against risky lending. Under international Basel III standards, banks are generally expected to maintain a minimum capital adequacy ratio of 10 percent, along with an additional 2.5 percent capital conservation buffer to withstand financial stress.
Bangladesh’s banking sector is currently far below these requirements, raising concerns about its ability to absorb future losses if borrowers fail to repay loans.
Non-performing loans have become the central pressure point for the industry. Data from Bangladesh Bank showed that bad loans reached Tk 5,57,217 crore, or 30.60 percent of total loans, by the end of 2025. The figure rose further to Tk 5,88,704 crore, representing 32.26 percent of total loans, by March 2026.
Economists warn that such a high level of bad loans threatens the stability of the entire financial system and could limit banks’ ability to lend to businesses and households.
Mustafa K Mujeri, Executive Director of the Institute for Inclusive Finance and Development and former chief economist of Bangladesh Bank, said policymakers must take strong corrective measures if they want to restore confidence in the banking sector.
He stressed that there was no alternative to decisive reforms aimed at improving governance, recovering defaulted loans, strengthening supervision, and ensuring greater transparency in bank balance sheets.
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The report paints a troubling picture for Bangladesh’s financial sector, with analysts warning that without urgent policy action, rising bad loans and weakening capital positions could deepen the banking crisis in the months ahead.
