NPLs jump to 34pc as stricter rules expose hidden defaults

Non-performing loans (NPLs) in Bangladesh's agriculture sector have surged to substantial levels, with nearly 34 per cent of outstanding farm credit now classified as defaulted, according to the latest Bangladesh Bank (BB) data.

The sharp rise has heightened concerns over the financial stability of the country's most critical economic backbone.

As of October 2025, outstanding loans in agriculture, fisheries and forestry stood at Tk 598.81 billion. Of this, Tk 203.03 billion -- or 33.91 per cent -- were non-performing.

Economists attribute the spike to deteriorating economic conditions, escalating production costs, repeated climate shocks and the persistent absence of fair prices for agricultural produce -- factors that have weakened farmers' repayment ability.

The central bank's tightened loan-classification rules have further pushed up the figures. Under the new definition, loans are treated as non-performing after three months of non-payment, compared with 12 months previously. Increased BB inspections have also uncovered concealed defaults across manufacturing, construction and trade.

Bankers say failures to renew revolving loans and irregularities in repaying rescheduled instalments have contributed to the sector-wide increase in bad loans.

For FY26, banks set an agricultural loan disbursement target of Tk 390 billion. But in the July-October period, only Tk 119.27 billion -- around Tk 30.58 billion short of the proportional target -- was disbursed. Loan recovery continues to decline as well.

In FY25, six state-owned commercial banks, two specialised banks, 42 private banks and eight foreign banks disbursed Tk 373.26 billion in agriculture and rural loans, achieving 98.23 per cent of the annual target.

State-owned banks remain the most exposed, with outstanding agricultural loans of Tk 399.69 billion. Of this, Tk 187.57 billion -- 46.93 per cent -- are now non-performing, BB data shows.

A senior private bank official told The Financial Express that fertiliser, seed, pesticide and irrigation costs have risen by 10-20 per cent this year, while fish farmers face higher feed, oxygen and pond maintenance expenses. Forestry-related labour and transport costs have also increased.

Economist Dr Masrur Reaz said the stricter NPL framework has improved transparency but also exposed long-standing weaknesses.

"The stricter definition is not the problem -- it is simply revealing the true health of the portfolio," he said.

"But the bigger concern is that agriculture finance has not undergone the institutional reforms seen in other sectors. Without modernising extension services, improving input supply chains, expanding digital credit scoring and strengthening loan monitoring, NPLs will remain persistently high," he added.

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