Tighter loan classification reveals systemic banking flaws: ICCB

Recent regulatory moves forcing banks to more accurately recognise and report defaulted loans have laid bare deep weaknesses in the banking system, underscoring the need for stronger discipline, risk management and governance, the International Chamber of Commerce-Bangladesh (ICCB) has said.

As these vulnerabilities come to light, it is essential to distinguish between wilful default and genuine business distress, the chamber observed in an editorial in the ICCB’s latest News Bulletin (October-December 2025) published yesterday.

Viable enterprises should receive structured support, while deliberate financial misconduct must be addressed firmly and transparently, it also said.

The ICCB said the banking system remains the backbone of Bangladesh’s economic journey. It mobilises national savings, finances trade, supports entrepreneurship and underpins employment generation.

As the country moves towards upper-middle-income status, the strength, credibility and resilience of the banking sector will play an increasingly decisive role, the ICCB stated. 

It noted that the effectiveness of the regulator will also shape future growth prospects and determine the economy’s capacity to absorb shocks.

Describing high levels of non-performing loans (NPLs) as one of the most pressing structural challenges for the country, the chamber noted that total NPLs in the banking sector have exceeded Tk 6.44 lakh crore, accounting for about 35.7 percent of outstanding loans. 

Such a large volume of bad loans is alarming by international standards, ICCB said, adding that it weakens bank balance sheets, erodes capital, constrains lending, raises borrowing costs and discourages new investment.

At the same time, NPLs increase risks to depositors and overall macroeconomic stability, the chamber further noted.

The editorial points to global experience showing that strong, professional and independent central banks are critical to safeguarding financial stability.

The Bangladesh Bank plays a pivotal role not only in monetary policy, but also in prudential regulation, crisis management, payment systems oversight and maintaining confidence in the financial sector.

Over the past two years, the central bank has taken extraordinary measures, including liquidity support, guarantees and refinancing facilities, to preserve stability during periods of stress.

While such interventions are appropriate in times of volatility, the ICCB emphasised that emergency funding cannot substitute for robust governance and prudent lending.