More loans than deposits: 7 banks struggle as 16 exceed lending thresholds

One of the banks issued loans worth 140 percent of its deposits

Sixteen banks in Bangladesh—both state-owned and private—are grappling with a growing financial crisis triggered by months of aggressive loan disbursement far beyond regulatory limits.

According to Bangladesh Bank, all 16 institutions exceeded the Advance Deposit Ratio (ADR) limit at the end of December, with one bank reportedly issuing loans worth 140 percent of its deposits.

Of them, at least seven banks lent more than 100 percent of their total deposits, effectively outstripping their capacity to recover the funds.

Among these seven, six were controlled by the S Alam Group, a conglomerate closely tied to the previous Awami League government.

The other bank’s board was led by a top figure in the Bangladesh Association of Banks (BAB) during the same administration.

Bankers and senior central bank officials in Bangladesh warn that this breach of lending discipline has deepened a liquidity crisis and placed depositors at considerable risk.

"The CAMELS rating of banks that have disbursed loans in excess of the limit will be reduced," Arief Hossain Khan, executive director and spokesperson of Bangladesh Bank, told bdnews24.com.

“If this rating is bad, the banks face many problems. Bangladesh Bank does not get refinance facilities. The cost of funds increases. As a result, customers do not want to keep money in that bank.”

“Therefore, they have to reduce this limit for lending, at least for themselves. Otherwise, they will have to bear the consequences themselves,” said Arief.

He further noted that there is no legal provision for financial penalties in such cases.

Of the 16 banks under scrutiny, seven lent more than 100 percent of deposits, while another seven pushed the ADR limit to between 91 and 98.5 percent.

Two conventional banks stood at the threshold of the regulatory ceiling—87 percent.

The group includes two state-owned institutions, with the remainder privately owned.

Meanwhile, four are Islamic Shariah-based banks.

Under current regulations, conventional banks in Bangladesh may lend up to 87 percent of their total deposits, while Islamic banks may invest up to 92 percent.

This means a deposit of Tk 100 in a conventional bank can be disbursed at a maximum of Tk 87 in loans. Whereas Islamic banks can invest Tk 92.

The remaining funds must be allocated to meet the Cash Reserve Ratio (CRR) and the Statutory Liquidity Ratio (SLR), which include holdings in cash, gold, or bonds.

After the fall of the Awami League government, the newly appointed BB Governor Ahsan H Mansur moved to implement sector-wide reforms.

After taking office, Mansur installed new boards at 14 of the troubled banks.

Nonetheless, 11 of those institutions had already surpassed the ADR limit by December 2024.

By the end of December 2023, 10 banks were found to have exceeded the limit.

Senior banking officials attribute the current crisis to reckless loan disbursement practices under the influence of politically connected board members.

Loans were issued under different names and to well-placed beneficiaries, often without adequate scrutiny, eroding the integrity of the ADR framework.

With many of these aggressively distributed loans now unrecovered, non-performing loans are piling up, heightening the banks’ financial burdens.

Loan disbursement has largely been suspended, and there is growing concern over deposit withdrawals.

Banks are increasingly unable to overcome their cash crunch, let alone issue new loans.

Despite growing instability, critics say Bangladesh Bank failed to intervene when it had the opportunity, allowing banks to breach ADR regulations unchecked.

This perceived inaction has fuelled widespread fear and mistrust among depositors and stakeholders across the banking system.

Officials from the newly appointed boards argue that the legacy of poor lending decisions made before the change in government continues to weigh heavily on operations.

Confidence in these institutions remains low, hampering both deposit inflows and loan recoveries.

The ADR remains high as a result, and new lending remains limited.

One of the most prominent violators is First Security Islami Bank, whose board was previously under the control of the Chattogram-based S Alam Group.

Abdul Mannan, now serving as chairman under the new board, said, “We are trying to reduce the issue of giving excess loans. We will reduce it by the end of March. In fact, deposits have been withdrawn more. This is why the ADR ratio has increased. Another reason for the increase in the ADR ratio is the addition of profits to the customer account.”

“But deposits are coming back again. So there will be no problem with the ADR ratio going forward,” Mannan added.

Another S Alam-controlled entity, Global Islami Bank, also exceeded the lending threshold.

Mohammad Nurul Amin, its newly appointed chairman, acknowledged the issue.

“These banks had already given more loans. The same thing has happened to Global Islami Bank. Now those loans are not coming back, but the interest is being added,” he said.

“These banks have stopped giving large loans except to SMEs. So the banks are suffering the consequences of the loans they gave earlier.”

In a written statement, AB Bank said it had kept within the regulatory limit in 2023, when deposit growth exceeded 11 percent.

However, that changed in 2024 amid public speculation about bank mergers and the classification of banks into red, yellow, and green zones.

“This confused depositors in the entire banking sector,” the statement read.

“As a result, in 2024, along with corporate customers, individual depositors also started withdrawing their deposits from the bank in significant quantities. This also affected AB Bank.”

“To overcome such a situation, the senior management is making every effort to restore the confidence of depositors and ensure growth in deposits. Currently, the bank is maintaining its existing deposits and is working on developing new deposit products, with special emphasis on collecting retail deposits to increase the bank’s core deposits.”

Highlighting its efforts to recover previously disbursed loans, the bank added: “The advance deposit ratio will improve by the end of 2025 as a result of the steps we have taken.”