Bangladesh Bank has relaxed rules for renewing continuous loans, allowing banks to renew such facilities even after their scheduled expiry, provided they are not yet classified as non-performing loans.
The regulator issued a circular formalising the move, effectively giving borrowers additional time before their loans is marked as defaulted.
While the measure is expected to provide immediate relief to stressed businesses and banks, it has also raised concerns that the true scale of bad loans could be obscured.
On Tuesday, the Banking Regulation and Policy Department of Bangladesh Bank issued the circular, directing all scheduled banks to implement the decision with immediate effect.
The directive states that if renewal cannot be completed within the stipulated timeframe due to “reasons beyond control,” the loan may still be renewed until it is formally classified as an NPL. The facility will remain in force until 31 December 2027.
A continuous loan is essentially a revolving credit facility that allows borrowers to withdraw and repay funds repeatedly within an approved limit. According to Bangladesh Bank’s definition, it is a credit line that can be used within a sanctioned ceiling and must be renewed at the end of its tenure.
Typically granted for one year, such loans are widely used to support day-to-day business operations. Cash credit, overdrafts, packing credit and short-term trade finance linked to letters of credit fall under this category.
For example, if an import-export firm is granted a Tk5 crore continuous credit line, it may draw and repay funds within that limit as needed.
However, if the facility is not renewed at the end of its tenure, it becomes overdue and may eventually be classified as non-performing if unpaid beyond the prescribed period.
Under previous rules, overdue continuous loans could not be regularised without full adjustment of principal and interest. The new circular marks a departure from that stricter stance. It requires banks to initiate the renewal process at least two months before the expiry date.
Even if renewal is not completed within the tenure, banks may renew the facility before it turns into an NPL, provided the reasons for delay are documented in writing.
The circular further clarifies that any excess over the approved limit must be adjusted before renewal. Such excess amounts cannot be separated from the main loan and shown as a new facility or transferred to another account.
Bankers say the move will ease procedural bottlenecks that complicated the renewal of short-term trade and working capital loans, particularly in the import and export sectors.
Amid ongoing economic pressures, many businesses were failing to complete full adjustments on time and were slipping into default status. The new rule is expected to reduce such technical classifications.
However, some financial analysts caution that without strict supervision, relaxation could encourage the practice of keeping weak loans artificially regular on paper.
Experience with repeated rescheduling and regulatory concessions suggests that temporary relief can weaken credit discipline over time. If the true condition of asset quality is masked, market confidence may suffer.
In the circular, the central bank referred to the “overall economic context” of the country, signalling its intent to keep business and trade activities running smoothly.
At the same time, it has imposed conditions requiring written justification for delays and mandatory adjustment of excess exposure, underscoring that flexibility does not mean the absence of oversight.
