Private sector credit growth in Bangladesh edged up to 4.98% in May from 4.75% in April, per figures cited by The Business Standard on 5 July. The reading followed a 24-year low of 4.72% in March and confirms that private demand for bank credit in the country remains stuck near historic lows. That weakness is reshaping what Bangladesh banks earn a living from, with lenders leaning harder on treasury bills and bonds than the loans they used to make, a shift detailed in the Bangladesh banks’ shift to government securities in May.
“Income from treasury bills and bonds is recorded as investment income,” a treasury head at a commercial bank told the paper, requesting anonymity. The shift marks a sharp reversal from 2021, when the country’s 52 major banks generated combined income of Tk40,793 crore and interest income contributed 47% of the total. Bankers and analysts attribute the rotation to sluggish private investment, rising non-performing loans, weak loan recovery from several large business groups, and persistent political and economic uncertainty. Those pressures have pushed lenders to park excess liquidity in government paper, which they say offers attractive yields and virtually no credit risk.
Three Banks, Three Reversals
The pattern shows up in the audited books of the three lenders named in the report: state-owned Sonali Bank and the two local private banks Eastern Bank and BRAC Bank. State-owned Sonali Bank’s net interest income fell by more than Tk1,100 crore in 2025 to Tk337.23 crore from Tk1,490 crore a year earlier, according to Sonali Bank’s 2025 audited financial statements. In contrast, its investment income rose to Tk9,799 crore from Tk6,414 crore.
| Bank | Net interest income, 2024 | Net interest income, 2025 | Investment income shift |
|---|---|---|---|
| Sonali Bank (state-owned) | Tk1,490 crore | Tk337.23 crore | Tk6,414 crore to Tk9,799 crore |
| Eastern Bank | Not stated in source | Down 7% | Non-interest income up 32% |
| BRAC Bank | Down 24% | Down 13% | Up 181% in 2024, up 78% in 2025 |
Eastern Bank’s annual report showed net interest income declined 7% in 2025, while non-interest income increased 32%. BRAC Bank reported a 13% fall in net interest income in 2025 after a 24% decline in 2024. Meanwhile, its investment income jumped 78% in 2025 following a 181% surge the previous year. The three names cut across ownership types, with one state-owned and two local-private lenders posting the same shape in their 2025 books.
Why Loan Demand Has Stalled
Bankers and analysts point to four forces pulling down private-sector borrowing. They cite “sluggish private investment, rising non-performing loans (NPLs) and weak loan recovery from several large business groups,” according to the report. Political and economic uncertainty sits on top of that list. With the cost of doing business, inflation and logistics policies largely unchanged, fresh investment has stayed on the shelf, and banks have less appetite to underwrite new exposure to thin-margin borrowers.
Where recovery rates from distressed corporate exposures have fallen, banks have been reluctant to roll over working-capital lines even to existing clients. Several managing directors of private banks told the paper they remain unclear about Bangladesh Bank’s policy direction on interest rates, exchange rates and inflation trends. Lending decisions depend heavily on broader policy clarity, they said, and the absence of it has put new private-sector origination in a holding pattern.
One private bank managing director questioned how feasible a rate cut would be at a time of high inflation. Another criticised Bangladesh Bank for holding the dollar exchange rate at Tk122.75 despite pressure on the local currency. A third said the central bank’s decision to cap trade finance interest rates at 3% had created concerns about foreign-currency lenders, since the cost of foreign borrowing stands at SOFR plus 2.5%.
With the policy outlook unresolved, the loan pipeline has thinned out at the customer end. That dynamic forms the bridge to the next question: which borrowers have actually stepped back, and how visibly?
The Factories Behind the Slump
A deputy managing director of a private bank said many businesses scaled back or shut operations following the fall of the Awami League government, sharply reducing demand for bank credit. The collapse in private borrowing is not an abstraction: it shows up in the operating rates of large industrial groups that used to anchor Bangladesh’s credit books.
Several factories owned by large business groups, including Nassa Group, Beximco Group and Gazi Group, have closed, while many others are operating at only 30-40% of capacity, the deputy MD said. The same groups that once took sizeable working-capital and term loans are now running far below installed capacity, which means fewer letters of credit, fewer import bills to finance, and a thinner pipeline for fresh lending.
“When factories were operating normally, they imported capital machinery. Now even those that remain open have cut production by 60-70%.”
Capital machinery imports have shrunk along with output, and that line item historically fed a steady stream of bank-financed trade and term lending. With the same groups operating at one-third to two-fifths of capacity, the size of the loan that any one of them can support has fallen roughly in step.
How Banks Are Filling the Income Gap
With demand for private-sector loans weak, banks have turned to treasury bills and bonds for a steadier stream of revenue. The shift is partly an accounting move, since income from treasury bills and bonds is recorded as investment income. It is also a yield decision. Limited opportunities for private investment have allowed banks to earn nearly 11% interest on what are effectively risk-free government securities.
The government has been borrowing heavily from banks through treasury bills and bonds, including an additional Tk10,000 crore outside the regular borrowing calendar during the October-December quarter. Bangladesh Bank data showed the government collected Tk33,000 crore through treasury bills in March. In April, the amount rose 39% month-on-month to Tk46,000 crore. Of that, Tk32,800 crore was used to repay liabilities from previously issued treasury bills, leaving net borrowing through treasury bills at Tk13,200 crore in April.
That absorption capacity is what makes the rotation workable. Loans to businesses carry non-performing-loan risk and the cost of chasing recoveries from large groups. Treasury bills and bonds carry neither. They settle on issue, yield a known return, and let the bank recognise the income without setting aside provision against future default. Stronger private banks have posted higher profits largely through earnings from government securities rather than loan expansion, even against concerns at the start of 2025 over rising deposit rates, high inflation, political uncertainty and weak loan demand.
The question the 2025 books raise is whether this is a deliberate business model or a temporary fill-in for a missing loan book.
A Sharp Reversal From 2021
The contrast with 2021 is stark. In 2021, the country’s 52 major banks generated combined income of Tk40,793 crore, with interest income contributing 47% of the total. Five years on, the balance has shifted, with two of the three named lenders reporting double-digit declines in net interest income and investment-income growth of comparable magnitude. Sonali Bank alone has seen its net interest income fall by more than Tk1,100 crore in a single year.
Outstanding loans to the private sector stood at Tk18 lakh crore in March, according to Bangladesh Bank data, even as growth in those loans has cooled.
- Private sector credit growth: 4.98% in May 2026 (Bangladesh Bank, cited 5 July).
- Private sector credit growth: 4.75% in April 2026 (Bangladesh Bank, cited 5 July).
- Private sector credit growth: 4.72% in March 2026, a 24-year low (Bangladesh Bank, cited 5 July).
- 2021 income mix for 52 banks: Tk40,793 crore combined; interest income 47% (cited 5 July).
- Outstanding private-sector loans in March 2026: Tk18 lakh crore (Bangladesh Bank data, cited 5 July).
The single biggest reason is the demand side: businesses are not asking for as much credit. Banks are not lending less on purpose; they are lending less because the customers are not borrowing. The shift to government paper is the consequence, not the strategy.
A Fragile Substitute for Lending
A senior commercial banker said sustainable banking growth ultimately depends on expanding credit rather than investment in government securities. While treasury bills and bonds currently provide attractive returns, lower yields in future could reduce banks’ investment income, he cautioned.
That warning reframes the 2025 results. The investment-income gains at Sonali, Eastern and BRAC banks are priced off a treasury-bill cycle that the same bankers expect to compress. If yields on government paper fall back toward historical norms while private-sector borrowing stays weak, the cushion that allowed the three lenders to post investment-income growth would erode.
Stronger private-sector borrowing, he said, remains essential for both banks and the broader economy.
Frequently Asked Questions
What is private credit growth and why does it matter?
Private credit growth is the year-on-year change in loans extended by banks to businesses and individuals outside the government. Bangladesh Bank has published the data series since 2003, and March’s reading of 4.72% was the lowest in the 24-year span. A falling reading signals that businesses are borrowing less, which compresses traditional interest income at banks.
What is a non-performing loan?
A non-performing loan is a loan on which the borrower is in default or close to it, typically defined as past due for 90 days or more. Rising NPLs make banks cautious about new lending and force recoveries onto groups that may not pay back in full, both of which are flagged as drivers of the current slowdown.
What is a treasury bill?
A treasury bill is a short-term government debt instrument, typically maturing in 91, 182 or 364 days, sold to banks and other investors. Returns on Bangladeshi treasury bills have been running at about 11%, and banks record the income they earn as investment income rather than interest income.
Why are Bangladesh businesses borrowing less?
Bankers and analysts cite sluggish private investment, rising non-performing loans, weak loan recovery from large business groups, and political and economic uncertainty. Nassa, Beximco and Gazi group factories have closed, while other large groups are operating at only 30-40% of capacity and have cut production by 60-70% since the fall of the Awami League government.
