The continued rise in non-performing loans in Bangladesh’s non-bank financial institution (NBFI) sector is no longer a problem that can be addressed through isolated corrective measures. It has become a serious issue for depositors, the financial system and the credibility of financial regulation.
Bangladesh Bank’s latest figures show that NBFIs had Tk18,432.19 crore in classified loans at the end of June 2026, against total loans and advances of Tk78,114.56 crore. This means nearly one-fourth of the sector’s loans were classified. At the same time, NBFI deposits stood at Tk52,356.48 crore. These figures demonstrate the scale of the responsibility facing regulators and the institutions themselves.
The deterioration in asset quality did not happen overnight. Classified loans have increased substantially over the years, reflecting persistent weaknesses in lending, loan recovery, corporate governance and regulatory supervision. Allegations of irregular lending and questionable connected lending have further complicated the situation.
The most important question now is not simply how to recover bad loans, but why such loans were allowed to accumulate in the first place.
Financial institutions are subject to extensive rules and supervision. Their boards and managements have responsibilities, but regulators and supervisory officials also have an important role in ensuring compliance and identifying risks at an early stage. When serious irregularities continue for years without effective intervention, accountability must extend beyond the institutions that incurred the losses.
The government should therefore make financial-sector discipline a clear policy priority. Stronger laws and enforcement mechanisms are needed to hold accountable those responsible for deliberate violations, negligent supervision or failure to take required regulatory action. Such accountability should, however, be based on evidence, due process and clearly defined legal responsibilities rather than arbitrary punishment.
Depositor protection must remain at the centre of any reform programme. Ordinary depositors should not be made to bear the consequences of governance failures or reckless lending decisions. The decision to provide limited repayment support to depositors of institutions being liquidated may provide some immediate relief, but a sustainable system cannot depend on public funds to repeatedly absorb private-sector losses.
At the same time, financially sound NBFIs should not be treated in the same manner as institutions facing prolonged financial distress. Regulatory measures that distinguish institutions according to asset quality, capital strength and governance can encourage stronger companies to operate responsibly while allowing weak institutions to be restructured or resolved.
The authorities should also strengthen early-warning mechanisms. Problems must be identified before an institution reaches the point where liquidation becomes unavoidable. Regular stress tests, closer monitoring of large and related-party loans, stronger disclosure requirements and effective inspection systems can help prevent further deterioration.
Where institutions remain viable, restructuring or consolidation may be considered. Where they are no longer viable, an orderly resolution process should be pursued without unnecessary delay.
The simultaneous deterioration in the banking and NBFI sectors shows that Bangladesh needs a broader financial-sector reform strategy. Restoring credit discipline will require not only stricter rules but also consistent enforcement.
The objective should be clear: bad loans must be recovered, irresponsible lending must be deterred, weak institutions must be dealt with transparently and depositors must be protected.
Above all, regulation must be accompanied by accountability. Without identifying and addressing failures in oversight and governance, efforts to restore confidence in the NBFI sector will remain incomplete.
