One of the private banks looted through collusion between its board of directors and management is Global Islami Bank. Nearly BDT 120 billion was withdrawn from the bank in the name of various fake companies. Most of the properties mortgaged against these loans (investments), including land, do not exist. After the board was restructured, an initiative was taken to audit the bank’s mortgaged assets and determine their market value. The audit found that selling the properties held as collateral by this fourth-generation bank would recover only 25–30 percent of the money.

The situation at First Security Islami Bank is even worse than at Global Islami Bank. Most of the individuals and organizations in whose names loans were disbursed by this bank do not exist. The total outstanding loans now stand at nearly BDT 620 billion, of which BDT 380 billion is linked to the S Alam Group, according to an audit report. The audit revealed that loans of BDT 266 billion were disbursed against Mudarabah Term Deposits (MTDs) worth only BDT 17 billion. Most of the land and other assets shown as collateral against loans disbursed were also either grossly overvalued or non-existent.

Bangladesh Bank has taken the initiative to merge these two Shariah-based banks along with three others to form a large Islamic bank. The central bank’s board has already approved the roadmap for the merger and the proposal for establishing the new bank. Sources said the value of collateral for all five banks set to be merged is less than half the amount of their outstanding loans.

In addition to these five banks looted through irregularities and corruption, the situation at other banks that disbursed loans against mortgaged assets, including land, is also unsatisfactory. In most cases, the properties pledged as collateral were shown at inflated valuations during loan disbursement. In many instances, rivers, canals, wetlands, forests, government-owned land, disputed properties, and even non-existent assets were pledged as collateral. Some properties were even mortgaged to multiple banks simultaneously.

Bangladesh Bank data shows that the outstanding loans disbursed against collateral such as land or apartments now total nearly BDT 11 trillion. However, no one in the country has accurate information on the actual value of the assets mortgaged against these loans.

Bank executives and industry insiders say that as part of ongoing reforms, the collateralized assets should also be brought under the forensic audits, asset quality reviews (AQRs), and special audits currently underway in banks. The central bank’s Offsite Supervision Department conducts annual audits, which are supposed to include verifying the quality and valuation of collateral assets. However, over the past decade and a half, due to political interference and the influence of oligarchs, the collateral assets of banks have not been properly audited. In this situation, it is now necessary to assess the quality and actual value of mortgaged assets through forensic or special audits.

Bangladesh Bank spokesperson Arief Hossain Khan believes that auditing mortgaged assets is a broad and time-consuming task. He said, “Banks are supposed to verify the collateral for loans on their own responsibility. If there is any lapse, the concerned bank is also responsible. It is very difficult for the central bank to audit the collateral assets for all loans. It is also a time- and cost-intensive process. However, the collateral assets of the top borrowers of banks could be audited. The central bank randomly verifies some assets.”

Over the past 15 years, Bangladesh’s banking sector has faced allegations of unprecedented irregularities, corruption, and looting of hundreds of billions of taka in public deposits. Land, houses, apartments, and other real estate have been used as collateral to withdraw this money from banks under the guise of loans. Yet, loan recovery through the sale of mortgaged properties has been rare in the country. Despite this, banks have continued to expand loan disbursements backed by real estate collateral.

In 2010, loans disbursed against land mortgages amounted to BDT 1.41 trillion, accounting for 47.94 percent of total loans disbursed at the time. By the end of June 2025, loans disbursed against land mortgages had risen to over BDT 10.88 trillion, while the total outstanding loans in the banking sector stood at over BDT 17.34 trillion. In other words, 62.79 percent of bank loans have been disbursed against real estate collateral, including land, apartments, and houses.

According to central bank data, the second-largest portion of bank loans—16.96 percent—was disbursed against bank guarantees. In addition, 7.19 percent of loans were secured by financial obligations, 5.11 percent by export documents and goods, 1.31 percent by capital machinery and fixed assets, 0.70 percent by shares and securities, and 5.94 percent by other assets.

When borrowers fail to repay, the loans are supposed to be recovered by selling the mortgaged assets. But most of these assets held as collateral by banks can no longer be sold. In particular, no one is showing interest in buying properties belonging to powerful and large loan defaulters. In some cases, buyers are found but insist on registering the properties at the official mouza rate. This creates a significant gap between the market value and the official rate. As the sale proceeds cannot be fully declared as legitimate income, banks cannot use the money to recover the loans, according to industry insiders.

Several studies have also found that recovering defaulted loans by selling collateralized assets is proving impossible. A 2023 research report by the Bangladesh Institute of Bank Management (BIBM) stated that banks in the country have been able to recover only 12.77 percent of defaulted loans by selling mortgaged assets. This means more than 87 percent of defaulted loans remain unpaid despite the collateral. The recovery rate for defaulted loans through bank guarantees is even lower at 5.27 percent. The situation is worse for written-off loans backed by collateral.

The research paper, titled “Credit Operations of Banks,” noted that although banks place significant importance on collateral in loan disbursement, they fail to recover defaulted loans through the sale of mortgaged assets. Written-off loans that become unrecoverable through normal processes are also backed by collateral. The recovery rate for such loans is only 10.43 percent, while the rate for written-off loans backed by bank guarantees is just 3.27 percent, the study found.

Industry insiders say the increase in loan disbursements against mortgaged land has grown in line with the rise in irregularities, corruption, and embezzlement in the country’s banking sector. Taking out loans by mortgaging land is comparatively easy. Over the past 15 years, loans have even been taken from banks by mortgaging government-owned land and disputed properties. A portion of these loans was diverted by influential people to buy more land, which was then mortgaged again to secure additional loans. Corrupt bank officials played a facilitating role in this process. In most cases, the value of the mortgaged land belonging to these influential people was shown at several times its actual worth. As a result, defaulted loans cannot be recovered through the sale of collateralized assets. Rising land prices have further widened the gap between the official mouza rate and the market price.

Syed Mahbubur Rahman, Managing Director of Mutual Trust Bank (MTB), said that responsible banks verify the quality and real value of collateralized assets on their own. He told, “Banks where corporate governance is effective should not face problems with the quality of collateral assets. Even then, banks need to be more cautious when accepting collateral. In some cases, despite digitalization, the same property can still be mortgaged at multiple banks. Therefore, alongside loans, collateral assets must also be brought under audit.”

Despite a large portion of loans taken through irregularities over the past 15 years becoming defaulted, these were kept hidden. But after the 2024 mass uprising, loans taken through corruption have begun to be officially recognized as defaults. As a result, the amount of defaulted loans in the banking sector has risen at an alarming rate. In September 2024, the total defaulted loans stood at BDT 2.85 trillion. Within three months, by December, the amount rose to BDT 3.46 trillion, with the default rate reaching 20.20 percent.

In the first three months of 2025 alone, defaulted loans increased by another BDT 745.91 billion. By the end of March, the total had reached BDT 4.20 trillion, accounting for 24.13 percent of all loans disbursed by banks. By June, defaulted loans had surpassed BDT 5.30 trillion. Currently, over 27 percent of all bank loans are reported to be in default.