The net interest margin, the main source of income for the country’s banking sector, has fallen to negative levels for the first time in history due to prolonged economic recession, stagnant credit growth in the private sector, unbridled growth in non-performing loans, and stalled interest collection due to Bangladesh Bank’s policy support. Concerned about the profitability of banks and the long-term sustainability of business, the stakeholders think. According to central bank data, the overall net interest margin of the banking sector in 2024 was 1.30 percent. By 2025, it has come down to negative 0.49 percent. At the same time, interest income of banks has decreased by 8.10 percent. On the contrary, interest related expenses including interest on deposits increased by 25.61 percent. As a result, banks’ expenses are increasing faster than their income, which is putting a huge pressure on the profitability and stability of the sector.
Bankers are comparing the current situation to a ‘double-edged sword’. On the one hand, due to economic slowdown, loan disbursement and interest income are decreasing, on the other hand, depositors have to continue paying fixed interest. As a result, the interest margin on loans and deposits or the net interest margin is continuously narrowing.
The situation has been further complicated by the rise in defaulted loans. A large section of banks have virtually become unfunded due to the rise in defaulted loans. At the same time, due to increased risk, banks have also taken a cautious stance in approving new loans. As a result, credit growth in the private sector has slowed further. In addition to this, the benefit of suspending the collection of interest for up to two years under the policy support of Bangladesh Bank for entrepreneurs in crisis is also having a major negative impact on the interest income of the banks. An official of Bangladesh Bank said that even though a large part of the deposits are withheld due to defaulted loans, the banks have to pay interest to the depositors regularly. This is one of the main reasons for the decrease in net interest margin. He said that in 2025, there has been a major deterioration in other profitability indicators of the banking sector. During this period, the sector’s return on assets has decreased to negative 4.81 percent and return on equity has decreased to negative 243.90 percent. According to him, profitability of banks has declined significantly due to deterioration in asset quality, increase in non-performing loans, poor credit management and weak enforcement of regulatory standards. Syed Mahbubur Rahman, managing director and chief executive officer of Mutual Trust Bank, said that currently more than 32 percent of the country’s banking sector is in default. That is, banks are not getting any income from almost one-third of their assets, while depositors have to pay interest. He said that the expenditure has become much higher than the income. This does not bode well for banks. In fact the sustainability of banking business is now at risk. He also said that credit growth in the private sector has slowed significantly in recent months due to the prolonged economic slowdown. At the same time, the defaulted loans in the banking sector have also increased. Currently, banks are focusing more on managing existing borrowers rather than disbursing new loans. Also, to ensure some income, the government is leaning towards risk-free investments like treasury bills and bonds. According to Mahbubur Rahman, due to the central bank’s policy support, the collection of interest from existing distressed borrowers has to be suspended for two years. Due to these reasons net interest margin which is the main source of income of banks is getting seriously damaged. According to stakeholders, if effective measures are not taken to control defaulted loans, restore credit flow to the private sector and increase the interest income of banks, the pressure on the profitability and financial stability of the banking sector may increase.
