Bankers liken it to a double-edged sword cutting both ways as banking-sector profitability plummets for squeezing interest margin (NIM) due to persisting economic sluggishness while they have to pay set deposit interest.
As core business areas of the commercial banks continue to squeeze amid credit atrophy in the private sector, the banks also become very conservative in approving fresh loans from funds eroded by higher non-performing loans (NPLs).
As a result, NIM--the core and sustainable earning source--keeps plummeting, which is a matter of serious concern as far as sustainability of the banking business is concerned, according to the market players.
NIM is a profitability metrics that measures the difference between the interest a bank earns on loans and the interest it pays on deposits, relative to the amount of its interest-earning assets.
The gauge essentially shows how much profit a financial institution makes from its core lending activities.
According to data with Bangladesh Bank, the banking sector's overall NIM declined from 1.30 per cent in 2024 to a subzero -0.49 per cent in 2025.
In the calendar year 2025, Bangladesh's banking sector experienced an 8.10-percent decline in interest income alongside a 25.61-percent rise in interest expenses, according to the data.
This reflects higher funding costs, weak asset returns, and structural inefficiencies, which may reduce profitability, constrain credit growth, and intensify stress in the banking sector.
Seeking anonymity, a BB official says a significant portion of the deposits has got stuck due to NPLs but the banks have to pay the depositors. "This is one of the major reasons behind the plummeting of NIM."
Apart from NIM, the central banker also informs that the banking sector's return on equity (ROE) and return on assets (ROA) both deteriorated markedly in 2025 compared to 2024.
The banking sector's ROA declined to -4.81 per cent, while ROE fell sharply to -243.90 per cent in 2025.
This pronounced deterioration in profitability reflects worsening asset quality, driven by rising non-performing loans, weak credit governance, and squeezed regulatory standards in Bangladesh, according to him.
Managing Director and Chief Executive Officer of Mutual Trust Bank (MTB) Syed Mahbubur Rahman says more than 32 per cent of the loans have become classified, which means banks getting no income from one-third of their assets. But banks keep paying depositors.
"So, income expenses are much higher than the income earnings. This is not a good sign for the banks. In fact, the sustainability in banking business is at risk," the experienced banker told The Financial Express.
Managing Director and Chief Executive Officer of Modhumoti Bank Md. Shafiul Azam points out that private-sector credit growth dropped remarkably in recent months due to prolonged economic slowdown while NPLs in banking industry jumped significantly.
So, commercial lenders are now busy taking care of the existing borrowers instead of focusing fresh loans and keep investing in risk-free instruments like government treasury bills and bonds to make some gains.
Simultaneously, the seasoned banker says, the banks have to suspend interest earnings from the existing struggling borrowers for two years under the central bank's policy-support facility to revive economic activities.
"These are hurting NIM, which is core income of the banks," he adds.
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