Bangladesh Bank’s move to ease repayment terms for distressed businesses has triggered criticism from bankers and a warning from global rating agency Moody’s that the policy threatens the financial sector’s stability.
Launched in January this year, the program allows struggling companies to reschedule loans for 10 to 15 years, with grace periods of up to two years and down payments as low as 1 to 2 percent. More than 1,250 applications have already been filed with the central bank through their lenders, and nearly 300 firms have received approval from the central bank to continue regular banking and business operations with the help of rescheduling, according to central bank sources.
Bankers argue the policy ties up their capital and drains liquidity. “We know our customers best, not the central bank,” a managing director of a private commercial bank told TIMES of Bangladesh.
“Our investments are stuck for years, and liquidity is drying up. This authority should rest with banks,” the senior banker argued.
Some allege the facility is being granted based on political connections, a claim Bangladesh Bank’s spokesperson Arief Hossain Khan denied.
“The central bank insists the support is aimed at businesses battered by the pandemic, the Russia-Ukraine war, and global and macroeconomic shocks,” he said.
Case studies reveal how generous the terms can be. Tanaka Group, for example, secured approval to restructure its debt over 10 years with just a 2 percent down payment, half of which will not be due until 6 months later. Lenders in such cases recover almost nothing in the first year.
Moody’s called the program “credit negative for banks,” warning it conceals the true scale of stressed assets. The agency noted similar lenient rescheduling rules in 2022 triggered a surge in restructured loans without meaningful repayment.
Moody’s cautioned that a two-year moratorium delays any real test of borrowers’ repayment capacity and risks artificially suppressing non-performing loan ratios. A requirement to withdraw legal cases within 90 days of rescheduling could also weaken recovery if borrowers default again.
The facility reduces central bank oversight by allowing banks to approve rescheduling at the board level for loans under Tk 300 crore. Lower provisioning requirements may boost short-term profits but could encourage higher dividend payouts and capital outflows at a time when the system needs to conserve capital.
“Without regulatory checks, this will exacerbate the capital shortfall,” Moody’s warned.
The central bank, on the other hand, sees the program as a lifeline for industries. Bankers see a drain on liquidity. Rating agencies see a threat to transparency.
The clash over loan rescheduling captures Bangladesh’s financial dilemma: relief for distressed borrowers today at the risk of undermining stability tomorrow.
When stressed borrowers are given the facilities, well-off borrowers might queue for the same, compounding the pressure on banks, said bankers.
Mutual Trust Bank Managing Director Syed Mahbubur Rahman told TIMES of Bangladesh, “Because of this policy support from Bangladesh Bank, even our regular customers are now coming to seek the same benefit.”
“They are saying, if those who don’t repay are getting facilities, then why shouldn’t we?”
“As a result, we are facing difficulties. Our investments are being locked up for the longer term, while we have to pay interest on deposits regularly,” he expressed his frustration.
