Bangladesh Apparel Sector Faces Growing Export and Financial Crisis

Dhaka, August 3, 2026 — Bangladesh's ready-made garment (RMG) and textile sectors are entering a critical phase, facing a sharp slowdown in export orders that is creating serious pressure on both manufacturers and the banking sector. Total bank exposure has surged close to BDT 400,000 crore, raising systemic financial risks as export performance has weakened steadily throughout the current fiscal year.

What began as a gradual slowdown has now turned into a broader industry concern. Factories are struggling to maintain production, while lenders are increasingly exposed to rising financial risks that could have cascading effects across the entire economy.

💰 Rising Bank Exposure and Systemic Risk

According to Bangladesh Bank data and report analysis, outstanding loans reached an estimated BDT 212,000 crore in the RMG sector and BDT 181,000 crore in textiles by the end of 2025. Industry insiders now estimate total credit has grown close to BDT 400,000 crore. This rising exposure is becoming a major concern for financial stability.

⚠️ Critical financial concerns:

• Nearly one-third of these loans were already non-performing before the current export downturn
• Bangladesh Bank data shows total NPLs stood at BDT 644,515 crore in September 2025 (35.73% of total loans)
• Although this ratio declined to 30.6% by December due to policy support, risks remain high
• Around 35 percent of non-performing loans are linked to the RMG and textile sectors
• Even financially stable companies are under stress due to reduced cash flow and lower profit margins
• Policy measures like loan rescheduling may not be enough if the situation continues

📊 Export Decline Signals Deeper Challenges

Data from the Export Promotion Bureau (EPB) shows that Bangladesh's exports fell by 4.85 percent during July to March of FY 2025-26. Total exports reached $3.538 billion, compared to $3.719 billion in the same period last year. RMG and textile exports dropped even more sharply, with earnings declining by nearly 5.5 percent, falling from $3.122 billion to $2.953 billion.

👕 Monthly trend data:

• July 2025: Strong growth of 24.9% (exceptional base year)
• August 2025 onwards: Eight consecutive months of decline
• March 2026: Steep 18.07% drop compared to same month last year
• January and February: Also showed double-digit declines

🧱 Energy Shortages and Global Pressures Intensify

Industry leaders highlight multiple factors behind the slowdown. Energy shortages remain one of the most critical challenges. Many factories are operating at half capacity, while some have shut down completely. The gas crisis has forced manufacturers to either reduce production or rely on expensive alternative energy sources that erode profitability.

Global conditions are also unfavorable. Trade barriers in key markets like the United States and the European Union have increased costs. The 19 percent US reciprocal tariff and ongoing USTR forced labour investigation have made buyers cautious. At the same time, geopolitical tensions in the Middle East have driven up fuel prices, raising production and shipping expenses for Bangladeshi exporters.

📝 Declining LC Activity Signals Weak Future Demand

Back-to-back letter of credit (LC) data confirms the slowdown. Between July and January, new LC openings declined by 10.69 percent. LC settlements also fell by 6.69 percent compared to the previous fiscal year. This decline suggests weaker import of raw materials and reduced production planning. It also indicates that export demand is unlikely to recover quickly.

Despite the challenges, some positive signals exist. Increased use of locally produced yarn is supporting parts of the textile sector. However, this is not enough to offset broader risks. Production could fall by up to 30 percent if current conditions persist. This would further impact export earnings and increase financial stress across the banking system.

📋 Industry Call for Government Action

Industry leaders emphasize that immediate government intervention is essential. Ensuring a stable energy supply and supportive policies will be critical to sustaining production, stabilizing exports, and protecting the financial sector. The BGMEA has called for:

• ✅ Uninterrupted gas supply to export-oriented factories
• ✅ Policy support for market diversification efforts
• ✅ Financial assistance for struggling manufacturers
• ✅ Expedited trade diplomacy to resolve US tariff concerns

Without decisive action on energy security, trade diplomacy, and financial sector support, the convergence of declining exports, rising bank exposure, and systemic financial risks could create a crisis that affects millions of workers and the broader Bangladesh economy. The situation demands urgent attention from policymakers.

💹 Financial Sector Stress Indicators

The Bangladesh Bank has been closely monitoring the situation, with concerns about systemic financial stability if the RMG sector's health continues to deteriorate. The central bank has allowed some loan rescheduling to prevent immediate defaults, but this is a temporary measure. According to banking sector sources, several mid-sized garment factories have already defaulted on loan payments, and more are expected to follow if export orders do not pick up in the coming months.

The financial stress is not limited to manufacturers alone. Backward linkage industries — including textile mills, dyeing units, and accessories suppliers — are also facing payment delays from garment factories, creating a chain reaction throughout the supply chain. Banks are becoming increasingly cautious about extending new credit to the sector, which could further constrain production capacity.

Industry analysts warn that if the current trajectory continues, the combined impact of declining exports, rising NPLs, and reduced credit availability could lead to factory closures, job losses, and a contraction in Bangladesh's overall export earnings. The government's $63.4 billion export target for FY2026-27 appears increasingly ambitious given these headwinds, and policy intervention may need to shift from growth-oriented targets to stabilization and damage control measures.