Anti-India Yunus Cornered as Bangladesh Banks, NBFIs and Stock Market Crumble

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by

Himanshu
in ,

Bangladesh is facing one of the worst financial crises in its modern history, and the developments spell serious trouble for interim leader Muhammad Yunus. Often seen as maintaining an anti-India stance, Yunus now finds himself at the center of a storm as the country’s banking sector, non-banking financial institutions, and stock market teeter on the edge of collapse.

This article takes a deep dive into the crisis, analyzing its roots, current scenario, and the implications for Bangladesh’s economy and politics.

The Banking System on the Brink

At the heart of the crisis lies the banking sector, plagued with record levels of defaulted loans. Bangladesh Bank’s latest data indicates that:

  • Defaulted loans of commercial banks stand at Tk 6 lakh crore.
  • Hidden defaults worth Tk 3.18 lakh crore are also in the process of disclosure.
  • Around 20.2% of the country’s disbursed loans defaulted in 2024, a sharp 28% rise compared to 2023.

The crisis has reached such proportions that the Asian Development Bank (ADB) has described Bangladesh as having the weakest banking system in Asia.

To make matters worse, the government is considering a removal of the definition of “wilful defaulter” in the draft of the new Banking Company Act. Critics argue this will weaken accountability and encourage further irregularities.

Merging Islamic Banks: A Desperate Attempt

In an unprecedented move, Bangladesh Bank has decided to merge five Islamic banks:

Bank NameDefault Loan Ratio
First Security48%
Social Islami72%
Global Islami85%
Union90%+
Exim98%

These banks are being consolidated into a single state-owned entity tentatively named United Islami Bank, with the government injecting at least Tk 20,000 crore in fresh capital. Analysts say this move may buy time but does not solve the root causes of poor governance, political interference, and corruption.

State-Owned Banks: Recovery Stalled

State-owned banks are no better off. The top 20 loan defaulters alone owe nearly Tk 31,908 crore, but in the first half of this year, recovery was a mere Tk 219 crore. This is less than 1% of the outstanding amount. Such a scenario highlights how entrenched political influence and weak enforcement mechanisms have crippled the financial sector.

Non-Bank Financial Institutions: On the Verge of Collapse

The non-bank financial institutions (NBFIs) have entered what experts describe as an effective bankruptcy.

  • Defaulted loans of 20 troubled NBFIs stand at Tk 21,462 crore, representing 83% of their portfolios.
  • The central bank has already recommended the liquidation of nine NBFIs.
  • Many are failing to repay depositors, eroding public confidence in the system.

This collapse in NBFIs not only threatens depositors but also poses a contagion risk to the wider economy.

The Stock Market: Years of Decline

Bangladesh’s stock market, once viewed as a growth driver, is also showing alarming weakness:

  • The market has shrunk by 38% over the past 16 years.
  • Adjusted for inflation, investors have lost an average of 3% capital annually.
  • Out of 397 listed companies, 98 are trading below the face value of Tk 10, with more than half priced under Tk 5.
IndicatorStatus
Total listed companies397
Companies trading below Tk 1098
Companies trading below Tk 550+
Market contraction (16 years)38%

The dominance of junk shares and weak corporate governance is discouraging both institutional and foreign investors, further worsening the crisis.

Structural Weaknesses in the System

Several deep-rooted structural issues lie behind this crisis:

  1. Political Interference: Loan decisions often influenced by political connections rather than creditworthiness.
  2. Corruption: Widespread misuse of bank funds and poor oversight.
  3. Weak Regulation: Regulatory authorities have repeatedly failed to enforce accountability.
  4. Judicial Ineffectiveness: Loan defaults drag on in courts for years without resolution.
  5. Stock Market Manipulation: Influential groups exploit weak companies to amass wealth.

Unless these issues are addressed, no amount of government bailouts or bank mergers will restore stability.

Why This Is Bad News for Muhammad Yunus

Muhammad Yunus, now leading the interim government, has long maintained a difficult relationship with India. With Bangladesh’s financial system collapsing under his watch, Yunus risks losing both domestic and international credibility.

  • For India: The crisis weakens bilateral trade flows and raises concerns about repayments of cross-border power and infrastructure deals.
  • For Yunus: His perceived anti-India posture could make it harder to seek help or concessions from New Delhi at a time when Bangladesh badly needs regional cooperation.
  • For Bangladeshis: The ordinary people are bearing the brunt, with depositors at risk, businesses struggling for loans, and investors losing money in the stock market.

This combination of financial chaos and diplomatic missteps may prove to be Yunus’s biggest challenge yet.

The Road Ahead

Experts suggest that Bangladesh’s recovery will require:

  • Immediate restructuring of defaulted loans with strict enforcement.
  • A transparent list of wilful defaulters and stronger judicial processes.
  • Closure or merger of weak banks and companies.
  • Restoration of investor confidence by ensuring accountability.
  • Depoliticization of financial decision-making.

Unless these steps are taken, Bangladesh’s economic crisis could deepen, with long-lasting consequences for its financial stability and regional standing.

Conclusion

Bangladesh’s financial turmoil has exposed the fragility of its banking sector, non-bank institutions, and capital market. With defaulted loans hitting record highs, NBFIs collapsing, and investors fleeing, the country is in urgent need of bold reforms. For Muhammad Yunus, who already faces criticism for his stance towards India, this crisis has added a new layer of political and economic challenges.

Disclaimer

This article is based on publicly available reports and expert opinions. It is intended for informational purposes only and should not be taken as financial or investment advice. Readers are encouraged to consult professional sources before making any economic or investment decisions.