Loans belonging to Krishibid Group, which was listed as a wilful defaulter, were regularised under a special facility despite Bangladesh Bank lacking the legal authority to grant such relief.
After clearing its defaulted status, the group’s managing director, Md Ali Afzal, contested the Real Estate and Housing Association of Bangladesh (REHAB) election and subsequently became its president.
However, after the group failed to deposit the required funds under the arrangement, loans worth nearly Tk600 crore reverted to classified status. Bankers noted that several other loans regularised through similar policy support have likewise returned to default.
Alongside these recurring defaults, fresh bad loans have emerged as electricity and fuel shortages disrupt business operations, pushing the country’s total classified debt back above Tk6 lakh crore at the end of June.
According to Bangladesh Bank, classified loans reached Tk6.07 lakh crore at the end of June, representing an increase of Tk17,851 crore in just three months. Nearly one-third of total outstanding loans in the banking sector are now classified.
Md Ezazul Islam, Director General of the Bangladesh Institute of Bank Management (BIBM), told TIMES of Bangladesh that several borrowers who regularised their loans via policy concessions subsequently defaulted again.
He noted that some customers regularised loans for specific motives, including contesting elections, only to stop paying instalments once those objectives were met.
The former Bangladesh Bank executive director added that compounding economic pressures, including instability in the Middle East and domestic energy shortages, have prevented many factories from operating at full capacity, leaving businesses struggling to meet debt service obligations as revenues decline.
Syed Mizanur Rahman, Managing Director of Meghna Bank PLC, echoed these concerns, stating that power and fuel disruptions have curtailed manufacturing output, causing several businesses to default once more.
He explained that a number of companies that previously secured long-term loan restructuring facilities under special arrangements have now entered their repayment periods, yet many remain unable or unwilling to pay those instalments.
Against this backdrop, Bangladesh Bank extended the repayment period for large borrowers on 31 August.
Eligible clients with loans of Tk1,000 crore or more can now repay their debts over a maximum of 15 years, up from the previous 10-year limit, alongside a repayment grace period of up to two years.
Rahman acknowledged that extending the timeline reduces individual instalment amounts, but warned that without resolving the core energy crisis, even smaller payments will prove difficult for companies to sustain, urging that the government’s primary focus should be securing adequate power and fuel supplies for industry.
Bad loans fell with relief, then started rising again
The latest trajectory of classified loans has raised fresh doubts over the long-term efficacy of earlier policy interventions.
Bangladesh recorded its highest-ever volume of classified loans in the September quarter of 2025, when the total reached Tk6.45 lakh crore, accounting for nearly 36 per cent of all outstanding credit.
The figure subsequently dropped to Tk5.57 lakh crore by December after substantial loan volumes were brought back into regular status through special rescheduling and restructuring frameworks.
However, the improvement was short-lived; within three months, classified loans rose to Tk5.89 lakh crore at the end of March, increasing by Tk31,487 crore during the quarter, before adding a further Tk17,851 crore in the April-June quarter.
In June 2025, classified loans stood at Tk5.30 lakh crore, meaning the total expanded by Tk76,127 crore (or 14.35 per cent) within a single year.
These figures demonstrate that whilst policy concessions helped mask bad debt on paper, underlying balance sheet pressures remained unresolved.
Bad loans rise despite repeated policy concessions
Special facilities for large borrowers were first introduced over a decade ago in an effort to curb rising non-performing loans.
In 2015, large borrowers with exposures of Tk500 crore or more were offered a one-off loan restructuring package.
In 2019, a broader concession allowed borrowers to reschedule loans over up to 10 years after making a cash down payment of just 2 per cent, with repayment grace periods and one-time settlement options included. General rules governing loan rescheduling were relaxed further in 2022.
Bangladesh Bank introduced a new one-time settlement framework in 2024, and in March 2025 reduced the required upfront cash deposit from 10 per cent to 5 per cent.
Months later, another special measure permitted 10-year repayment terms for a 2 per cent deposit with up to two years’ grace period, followed by another one-time settlement scheme in June.
Most recently, on 31 August, the central bank extended the maximum repayment period for loans of Tk1,000 crore or more from 10 to 15 years. Despite this expanding array of regulatory concessions, the volume of non-performing loans has continually escalated.
Central bank expects eventual decline
Bangladesh Bank maintains that the recent surge in classified debt is a temporary phenomenon.
Central bank spokesperson Arif Hossain Khan told TIMES that the increase was primarily driven by accrued interest compounding on defaulted accounts, predicting that the impact of new rescheduling facilities will become visible in the coming months as classified loans decline.
The central bank contends that energy shortages, operational disruptions, and elevated interest rates have put even viable enterprises under severe strain, and that without extended timelines, factories risk closure, leading to further job losses.
Independent economists, however, argue that masking non-performing loans under repeated policy concessions offers little genuine relief, maintaining that such measures merely delay the necessary recognition of systemic problems within the banking sector.
How Bangladesh’s bad-loan mountain was built
Classified loans in Bangladesh crossed the Tk1.11 lakh crore mark for the first time in March 2019, and in under seven years, that figure has breached Tk6 lakh crore.
By contrast, when the Awami League-led administration took office in January 2009, classified loans stood at Tk22,481 crore, expanding to Tk2.11 lakh crore by June 2024.
Banking insiders attribute this long-term growth to historical governance failures, weak credit assessment protocols, widespread fraud, and excessive lending to politically connected conglomerates, which allowed distress to remain hidden.
Following the fall of the Awami League government, stricter classification rules were enforced, exposing the true condition of bank balance sheets as previously masked loans were reclassified as defaults.
Consequently, the Tk6 lakh crore burden was not created overnight, but represents a decade of accumulated bad debt that has finally come to light.
Nevertheless, the swift re-defaulting of loans regularised under special facilities continues to raise fundamental concerns over whether repeated policy concessions can ever resolve Bangladesh’s bad-loan crisis.
