State-owned Banks Face Rising Loan Defaults

Highlights

• Classified loans at state-owned banks reached TK146,362 crore in June, a 10% increase over six months.
• A staggering 90% of these loans, totaling TK132,499 crore, are categorized as bad loans, indicating poor recovery prospects.
• Janata Bank stands out as the weakest, with a 76% default rate and a capital adequacy ratio of -3.25%.
• In contrast, Sonali Bank shows resilience with a 20% default rate, a capital adequacy of 10.10%, and profits reaching TK591 crore.
• Agrani and Lepali Banks are struggling as well, facing default rates between 40% and 44%, along with significant capital challenges and low profits.

A Troubling Picture for State-run Banks

While the central bank and the Treasury are working on rescue plans for struggling private lenders, state-owned banks are experiencing internal turmoil. Recent data from Bangladesh Bank reveals that classified loans at four state banks surged by 10% in just six months, hitting TK146,362 crore in June. Alarmingly, over 90% of these loans—equivalent to TK132,499 crore—are classified as bad, suggesting little hope for recovery.

This issue isn’t just about numbers; it’s linked to deeper problems like corruption, severe capital shortages, and insufficient risk management, all contributing to dwindling profits. The financial cushion meant to absorb shocks is, it seems, wearing thin.

Banking experts express concern, indicating that the focus has shifted from profitability to mere survival. They stress that without timely intervention from the central bank—be it through restructuring or mergers—these state-run institutions may soon become too weak to uphold the country’s economic framework.

Long-term Effects of Improper Management

Syed Abu Naser Bukhtear Ahmed, chairman of Agrani Bank, attributed the spike in bad loans to previous years’ inadequate reporting practices. He emphasizes the need to prioritize loan recovery over merely attracting new deposits or loans.

Bukhtear further pointed out that establishing robust corporate governance is crucial for banks’ sustainability. He estimates that reversing the “looting over the past 15 years” will take time and a concerted effort to address regulatory gaps.

When discussing Agrani Bank, he noted, “While many state-owned banks receive capital infusions from the government, they need to focus on recovering unpaid debts from government institutions to improve their financial health.”

Janata Bank’s Defaults Are Worrying

Janata Bank, the most vulnerable among the four, reported a default rate of 76% as of June 2025. The bad debts, totaling TK72,107 crore, have risen from TK67,884 crore since December. Notably, 93% of these loans are already marked as bad.

The bank’s capital adequacy position is alarming, at -3.25%, significantly below the required 12.5%. Janata also recorded a net loss of TK2,071 crore in the first half of 2025, a decline from TK3,070 crore in the previous six months.

Relative Stability at Sonali Bank

In contrast, Sonali Bank presents a more favorable picture. Its classified loans have risen to 20% of the total, up from 18.20% in December 2024. Notably, the bank meets capital preservation requirements, boasting a capital adequacy ratio of 10.10% and net profits of TK591 crore in the first half of 2025.

Agrani Bank’s Challenges

Agrani Bank reported a default rate of 40.5%, amounting to TK32,257 crore, with 87% of these loans falling into the bad category. Its capital adequacy ratio is concerning at just 1.97%, significantly below the regulatory minimum. However, the bank returned to profitability, achieving net profits of TK114 crores in the first half of 2025 after incurring losses of TK936 crores previously.

Lepali Bank’s Deteriorating Situation

Lepali Bank recorded an increase in default loans, rising to TK22,179 crore in June, marking 44% of its overall loan portfolio. A staggering 91% of these are categorized as bad loans. Moreover, its capital adequacy ratio is only 2.86%, well below the required 12.5%, while net profits have sharply declined to TK8.34 crore in the first half of 2025 from TK64.49 crore previously.