Bangladesh Faces Soaring Non-Performing Loans
In a report from the Asian Development Bank (ADB) released in August 2025, it was highlighted that Bangladesh holds the highest rate of non-performing loans (NPLs) in Asia. By 2024, these defaults are predicted to rise to 20.2% of all outstanding loans.
The NPL ratio climbed to 24.13% in the first quarter of 2025, as hidden weaknesses came to light, continuing to escalate after Bangladesh Bank tightened its loan classification standards to align with Basel III.
As a last measure, banks may resort to legal action to combat the troubling rise in NPLs. The Loan Tribunal, established under the Loan Tribunal Act of 2003, was designed to handle loan default cases swiftly.
Bangladesh Bank’s Roadmap for Confidential Loan Reduction indicates that as of February 2024, Tk1.78 trillion was tied up in 72,543 court cases related to loans, a number that has only grown. Furthermore, many cases are still pending in the Supreme Court, hampered by various challenges during the rehabilitation processes.
In response to this mounting issue, both the Bangladesh government and Bangladesh Bank have initiated steps to tackle the threat posed by NPLs. Five additional loan courts have been established in Dhaka and Chittagong to expedite case handling and mitigate the bad loan situation. To address deficiencies in the existing legal framework for managing NPLs, drafts for the Loan Court Ordinance 2025 and the Insolvency and Bankruptcy Ordinance 2025 are in the works.
However, these initiatives alone likely won’t be enough to halt the NPL increase unless financial institutions build robust legal teams led by capable professionals. This is essential for ensuring timely legal actions and effective case oversight.
Moreover, Bangladesh Bank has instructed each bank to ensure they have an adequate number of qualified personnel based on the volume of pending cases and amounts involved. At least one-third of these staff members should hold law degrees and have relevant banking experience.
Delays in legal processes, poor internal coordination, and insufficient legal infrastructure lead to extended loan defaults and recovery challenges. To address this, Bangladesh Bank issued BRPD Circular No. 14 on August 4, 2024, urging banks to enhance the capabilities of their legal departments to manage NPLs better and speed up debt recovery.
This circular also mandated a restructuring of legal departments, ensuring a strong framework, competent leadership, and well-defined responsibilities. A Chief Legal Officer (CLO) is required to report directly to the Managing Director, possessing a law degree and significant experience in the banking legal sector.
Banks are further directed to appoint enough qualified staff based on their specific case volumes, with one-third needing relevant qualifications. Additionally, bank examiner lawyers must possess law degrees, be registered advocates, and have significant practical experience.
The rapid growth of non-performing loans undeniably poses risks to both financial stability and economic progress, primarily due to procedural delays and institutional shortcomings.
To truly advance in tackling these default loans and restoring order within the banking system, prompt legal responses, diligent case monitoring, and strong legal team coordination are crucial. Banks must bolster their legal divisions with qualified personnel and establish clear reporting systems, as advised by Bangladesh Bank.
