A borrower who stops paying a bank loan in Bangladesh can receive what many regular customers can only wish for — years of additional time, a long break from instalments and opportunities to reduce accumulated interest.
A borrower who pays on time receives no comparable relief.
The growing imbalance is reshaping Bangladesh’s banking culture, raising concerns among bankers and economists that the cost of bad loans is gradually shifting to those who maintain repayment discipline.
Loan defaults weaken banks’ balance sheets, constrain their ability to extend fresh credit and make affordable lending harder. As troubled loans accumulate, banks face greater risks and may price those risks into new lending, leaving good borrowers to pay more for failures elsewhere in the system.
The central bank eventually had to cap the spread between deposit and lending rates this year, even as the government promised deregulations.
Bankers say the cycle is increasingly difficult to break—concessions increase repayment uncertainty, weaken banks, raise the cost of credit and reduce access to affordable financing for productive businesses.
“The culture of loan rescheduling is strengthening a message that you have a way out to skip the fundamentals of the contract — that loans must be paid back,” said Zahid Hussain, former lead economist at the World Bank Dhaka Office.
“Bangladesh needs the opposite,” he added.
A decade of repeated relief measures
The first major facility for large defaulters came in 2015, when borrowers with liabilities above Tk500 crore were allowed one-time loan restructuring.
In 2019, Bangladesh Bank introduced another major relaxation, allowing borrowers to repay loans over 10 years after depositing only 2 per cent of outstanding dues.
The policy was eased further in 2022.
During the interim administration in 2024, special support was introduced for one-time loan settlements.
In March 2025, the required down payment for settling loans was cut from 10 per cent to 5 per cent. Later that year, borrowers received another facility allowing repayment over 10 years with a two-year grace period after paying only 2 per cent upfront.
In June 2026, shortly after the BNP government took office, another one-time settlement opportunity was introduced for defaulting borrowers.
The latest decision, issued on August 31, extended the repayment period for borrowers with loans of Tk1,000 crore or more from 10 years to 15 years. Borrowers with loans below Tk1,000 crore can receive up to 10 years.
Bankers say the repeated extensions have delayed the return of funds to banks.
At least 10 bank managing directors told TIMES, on condition of anonymity, that long-term restructuring is reducing banks’ immediate cash recovery.
“When money remains stuck with borrowers for 10 to 15 years, banks lose the ability to provide fresh loans to new businesses,” said one of the senior bankers.
Restructured loans turn bad again
Bangladesh’s experience suggests restructuring alone has done little to resolve the bad-loan problem.
According to Bangladesh Bank data, restructured loans stood at Tk4 lakh 46 thousand 894 crore at the end of 2025. Around 40 per cent of those loans have since re-entered the classified-loan category.
The figures suggest a significant share of previously rescued borrowers have failed to return to regular repayment, raising questions about whether repeated restructuring addresses the underlying causes of default.
Bankers say the approach is also affecting regular customers, with some considering delaying payments and seeking similar facilities later.
Other countries paired restructuring with tougher action
The experience of other countries suggests restructuring works better when combined with aggressive recovery measures.
South Korea’s non-performing loan ratio reached nearly 17 per cent in 1998 after the Asian financial crisis. The country combined restructuring with distressed-loan sales to third parties, write-offs of unrecoverable loans and action against responsible parties.
By 2002, its non-performing loan ratio had fallen to 2.3 per cent.
Thailand followed a similar path, taking control of troubled companies in some cases and restructuring distressed assets.
India initially relied heavily on loan restructuring, much like Bangladesh. After limited success, however, it moved towards stronger enforcement. Its non-performing loan ratio, which stood at 11.48 per cent in 2018, fell to 1.8 per cent by March this year.
Nigeria offers a contrasting example. Repeated government support for troubled borrowers created a culture in which businesses increasingly expected rescue rather than repayment.
Good borrowers lose their advantage
While defaulters have received repeated support, incentives for regular borrowers have disappeared.
Previously, banks were required to provide a rebate of at least 10 per cent of collected interest to borrowers who repaid loans on time.
That incentive was removed after 2020.
Bankers say the change has frustrated responsible customers who continue meeting their obligations without receiving comparable support.
They argue that recovered instalments could finance new entrepreneurs and productive sectors. Instead, funds remain locked with borrowers receiving repeated extensions.
As banks absorb losses from bad loans, they also become more cautious about fresh lending, reducing credit availability and making borrowing more expensive for businesses that could otherwise expand investment and employment.
Bangladesh Bank defends the policy
Bangladesh Bank says the facilities are intended to revive businesses, protect employment and strengthen bank balance sheets.
Arif Hossain Khan, spokesperson and executive director of Bangladesh Bank, said the government’s target is to create one crore new jobs.
Many factories have been affected by global disruptions, energy shortages and other economic challenges, he said.
“Without reopening these industries, employment growth will not be possible,” he told Times of Bangladesh.
Banks are also under pressure because of high default rates, he said.
“The special facilities are being given to restart industries and clean bank balance sheets. Bangladesh Bank will take a stricter position against defaulters in the future,” he added.
Warning over long-term damage
Experts say the policy will succeed only if revived businesses return to normal operations and repay their debts.
Mohammad Ejazul Islam, director general of the Bangladesh Institute of Bank Management (BIBM), warned that failure would add pressure to the economy.
“If the objective is not achieved, it will create a burden for the country. There is also a serious moral hazard,” he told TIMES.
Whether the facilities generate employment will become clear over time, he said, but failure would increase liabilities for banks.
For Bangladesh’s financial sector, the challenge is increasingly clear: support struggling businesses without weakening the basic principle of lending — borrowed money must eventually be repaid.
