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Bangladesh’s banking sector is facing a widening imbalance where excess liquidity is rising sharply, yet private businesses—especially industries and CMSMEs—are struggling to access credit, slowing investment and economic activity.

Dhaka Chamber of Commerce and Industry (Dhaka Chamber of Commerce and Industry) President Taskeen Ahmed described the situation as a “paradoxical landscape” while presenting a paper at a discussion in Dhaka on Wednesday.

He said banks are accumulating large volumes of idle funds instead of channeling them into productive lending. According to the presentation, total liquid assets in the banking system have reached Tk 6.26 trillion, while excess liquidity stands at Tk 3.21 trillion.

Despite strong deposit growth, private sector credit growth has slowed to 6.03 per cent, reflecting weak lending activity and tighter credit conditions.

The paper also highlighted rising stress in the financial system. The non-performing loan (NPL) ratio has climbed to 31.2 per cent, while industrial loan recovery has fallen by more than half year-on-year. Overdue industrial loans stand at Tk 71,066 crore, with CMSME overdue loans accounting for 35.43 per cent.

Taskeen said rising defaults, capital shortages and stricter risk controls have pushed banks into a defensive lending stance. He noted that 23 banks are facing a combined capital shortfall of Tk 2.82 lakh crore, further limiting their ability to extend credit.

He also pointed to a growing crowding-out effect from government borrowing. Public sector borrowing from banks surged to Tk 73,035 crore in July–January of FY2025–26, sharply higher than Tk 9,442 crore in the same period last year.

From the borrowers’ side, businesses are under pressure from high interest rates and weak cash flows. With the policy rate at 10 per cent, lending rates have climbed to 14–15 per cent, discouraging new investment, particularly among small and medium enterprises.

The presentation warned that the sector is trapped in a cycle where rising defaults tighten lending standards, which further slows business activity and weakens repayment capacity—ultimately adding to fresh defaults.

To break this cycle, DCCI proposed a three-pillar “synergy framework” focusing on stabilising banks, expanding credit flow and strengthening governance. Key suggestions include reducing non-performing loans, taking action against wilful defaulters, improving capital adequacy and completing asset quality reviews of weak banks.

It also recommended lowering SME borrowing costs through credit guarantee schemes, expanding digital financial services, diversifying lending portfolios and developing alternative financing channels beyond traditional banking.

Taskeen further called for stronger risk-based supervision, improved cybersecurity, digital credit infrastructure and full implementation of Basel III standards to strengthen long-term resilience.

He stressed that better coordination between lenders and borrowers is essential to revive investment, restore confidence and support sustainable growth in the economy.