Economic crisis in Bangladesh spells trouble for Yunus, known for his anti-India stance
Dhaka: Bangladesh is facing one of its deepest financial crises in recent memory, with the banking system crippled by massive loan defaults, collapsing non-bank financial institutions, and stock market shares trading below face value, according to the Dhaka Tribune.
A toxic mix of bad loans, weak oversight, political meddling, corruption, and dominance of junk companies has left the economy vulnerable. The Asian Development Bank (ADB) recently declared Bangladesh as having the highest volume of defaulted loans in Asia. Central bank figures show defaulted loans of commercial banks reached nearly Tk6 lakh crore by June, with an additional Tk3.18 lakh crore in hidden defaults expected to surface soon.
In a controversial move, the government has proposed scrapping the term “wilful defaulter” from the draft Banking Company Act, arguing that identifying such defaulters is complicated. This comes despite the 2023 law requiring banks to report them to the central bank. In 2024, 20.2% of total loans defaulted — 28% higher than the year before. The ADB labelled Bangladesh’s banking sector the “weakest in Asia.” Economist Selim Raihan warned that without ending political interference and strengthening the judiciary, the crisis will persist.
In an unprecedented step, Bangladesh Bank is merging five Islamic banks — First Security, Social Islami, Global Islami, Union, and Exim Bank — into a new state-owned entity named United Islami Bank, backed by Tk20,000 crore in fresh capital. These banks had default rates between 48% and 98%.
State-owned banks are also in trouble. Loan recovery has almost stopped — out of Tk31,908 crore owed by the top 20 defaulters, only Tk219 crore was recovered in the first half of this year.
The non-bank financial sector is faring even worse. Twenty troubled NBFIs have defaulted on Tk21,462 crore, 83% of their portfolios. The central bank has recommended liquidating nine of them. Experts warn that many institutions are effectively insolvent and unable to repay depositors, putting the entire sector at risk of collapse.
The stock market remains in prolonged decline, shrinking by nearly 38% in 16 years. Adjusted for inflation, investors have lost around 3% of capital annually. Junk shares dominate the market, deterring foreign and institutional investors. The Dhaka Stock Exchange (DSE) reports that 98 out of 397 listed firms are trading below Tk10, with over half priced under Tk5.
DSE Brokers Association president Saiful Islam stressed the need to shut down or merge weak companies and bring stronger firms to the market to restore confidence.
