24 banks in capital crisis amid widening corruption scandal

Bangladesh’s banking sector is facing one of its worst-ever capital crises, with 24 banks suffering severe shortfalls amid years of irregularities, loan scams, and weak oversight under the previous Awami League government.

As of the end of June, the combined capital deficit in the sector stood at Tk1,55,866 crore, a sharp rise from Tk1,10,260 crore in March, according to Bangladesh Bank data.

Two new banks – NRBC and Al-Arafah Islami – slipped into deficit during this period, while foreign-owned Habib Bank managed to recover.

For more than 15 years, critics say, politically connected businesses exploited regulatory loopholes to launder money, secure dubious loans, and engage in insider dealings. The result, analysts warn, is a system drained of billions and burdened with fragile institutions.

S Alam Group, IFIC among worst hit

The worst-affected banks are tied to the Chattogram-based S Alam Group, known for its close ties to former prime minister Sheikh Hasina. Both its Shariah-based and conventional lenders are now facing record capital shortfalls.

IFIC Bank, controlled by Salman F Rahman, the former prime minister’s adviser, has also plunged into a deep deficit.

Bangladesh Bank figures show the sector’s capital-to-risk-weighted asset ratio (CRAR) fell to just 4.47% by June, far below the international standard of 10%.

In March, it was 6.74%. The CRAR reflects the ratio between a bank’s capital and its risk-weighted assets.

By June, four state-owned banks, 10 private banks, eight Shariah-based banks, and two specialised banks were in deficit.

Defaulted loans have meanwhile surged to Tk6,67,000 crore, despite temporary “deferral facilities” that allowed banks to delay classifying overdue loans as non-performing, a measure that masked deeper risks in 2023.

Economists warn of systemic collapse

Economists say the crisis has reached systemic levels, requiring urgent government intervention.

“This disaster is the result of years of irregularities and corruption,” said Mustafa K Mujeri, former chief economist of Bangladesh Bank. “While the new government has taken some steps to curb malpractice, accountability remains weak, and no meaningful restructuring has begun.”

He warned that without swift and comprehensive reform, “restoring stability will be impossible.”

Public confidence in the banking system is eroding fast, with depositors fearing further instability and investors hesitant to inject new funds into politically entangled institutions.

Dr Zahid Hussain, former lead economist at the World Bank’s Dhaka office, said between 15 and 20 banks are “effectively bankrupt.”

“They must be resolved through mergers, sales, or liquidation. Until that happens, depositors remain at risk,” he said. “The question is no longer whether these banks are weak, but how the state plans to ensure their survival.”

He added that politically influenced loans have long defaulted, dragging many banks below minimum capital thresholds. “These are wounds accumulated over many years. Now that loan deferrals are ending, the extent of the damage is becoming clear.”

Hussain also warned that a new rule requiring loans to be classified as non-performing after 90 days will likely push NPL volumes even higher in the months ahead, deepening the sector’s distress.