A paradox has emerged in Bangladesh’s banking sector: record-high liquidity is sitting idle in banks, even as private sector credit growth continues to slow, intensifying a financing squeeze for industries and small and medium enterprises.
At the end of December 2025, total liquidity in the sector exceeded Tk 626,000 crore, marking a 6.8 percent year-on-year increase. Excess liquidity alone crossed Tk 321,000 crore. Despite this, private sector credit growth fell to 6.03 percent from 7.15 percent earlier, while deposit growth rose to 10.44 percent. The issue was highlighted at a roundtable organized by the Dhaka Chamber of Commerce and Industry in Motijheel.
Analysts say banks are increasingly holding onto funds instead of lending, as they seek to limit exposure to risk. At the same time, government borrowing from banks has surged. Between July and January of the current fiscal year, government borrowing reached Tk 73,035 crore—up sharply from Tk 9,442 crore during the same period a year earlier, an increase of about 673 percent.
Mounting non-performing loans (NPLs) are further straining the sector. By the end of 2025, the NPL ratio climbed to 31.2 percent. Among large loans exceeding Tk 50 crore, the rate of willful default rose to 41.3 percent, underscoring deep-rooted weaknesses in credit discipline.
The capital position of banks is also under pressure. A total of 23 banks are facing a combined capital shortfall of nearly Tk 282,000 crore. The sector’s overall capital adequacy ratio stands at just 4.47 percent—well below the required minimum of 12.5 percent.
In response, banks have tightened lending standards, slowing the pace of loan disbursement. The contraction in credit has hit the industrial and CMSME sectors hardest. Recovery of term loans in the industrial sector has dropped by nearly 50 percent, with outstanding industrial loans exceeding Tk 71,000 crore.
High borrowing costs have added to the strain. Although the policy rate stands at 10 percent, effective lending rates have climbed to 14–15 percent. Entrepreneurs say elevated interest rates, strict lending conditions, and collateral requirements are discouraging new investment and limiting access to finance.
Experts warn that the sector is caught in a vicious cycle: rising NPLs lead banks to cut lending, which slows business activity and weakens repayment capacity—further driving up bad loans and tightening credit conditions.
To stabilize the system, the DCCI has proposed a series of reforms, including reducing NPLs in state-owned banks to below 10 percent and in private banks to below 5 percent, taking firm action against willful defaulters, addressing capital shortfalls, curbing excessive lending, easing borrowing costs for small businesses, expanding digital financial inclusion, and strengthening risk-based supervision.
DCCI President Taskin Ahmed said the issue is not a lack of liquidity but a deficit of confidence and weak risk management. Without meaningful reforms and stronger governance, he warned, pressure on the broader economy could intensify.
BD Pratidin English/ Jisan
