Bangladesh's banking issues will make it harder for businesses to get financing, weighing down an economy that is dealing with energy deficiencies and high inflation rates. Based on what The Business Standard reported on October 6, out of the World Bank's Bangladesh Development Update, about a third of the country's bank loans were non-performing as of June 2026. It comes as bad news for businesses and investors alike.

Non-performing loans (NPL) are loans that the borrower is not paying back. In Bangladesh, the NPL ratio climbed to 33.2% in June, compared to 20.2% in December 2024, according to a report by the World Bank. NPL accounted for 58.9% of Islamic banks' loans and 43.2% of state-owned commercial banks.

Furthermore, the banks have little capital to protect them against losses. The sector's capital adequacy ratio (CAR) - a measure of a bank's ability to withstand losses - decreased to negative 2.6% in December 2025. The minimum acceptable ratio is 10%. It shows the banking system's overall health.

Banks' lending capacity has been threatened, which has led to a lower credit growth in private sectors. Credit to the private sector rose at the slowest pace in 33 years, at 4.5%, in June. The World Bank warned that the deterioration in credit growth "risks constraining financing for investment and growth in Bangladesh".

The credit crunch in Bangladesh can hurt business confidence and its capacity to make new investments, which are crucial for further economic growth. Even if companies want to expand, they may be unable to do so due to a lack of funds, and it can cause a country to enter recession.

Households are also suffering from a decrease in average inflation by 1.3% in FY26, compared with FY25, when it hit 10%. Energy prices were high in the past fiscal year, causing the country's inflation rate to rise. Wages of low-skilled workers grew at a negative rate, implying that they were unable to keep up with inflation.

The World Bank anticipates Bangladesh's economic growth to be 3.4% in FY27, up slightly from the previous year, and 3.9% in FY28. However, it is below the ten-year average of 5.6%. In addition, the projection takes into account risks, such as Bangladesh's banking problems, energy security, and fiscal constraints, which might limit Bangladesh's capacity to finance its budget.

Restoring trust in the banking system is required to promote economic growth, which has slowed considerably. The World Bank has called for urgent reforms in the financial sector, energy security and governance in order to boost revenues.

Sources