The biggest crisis currently facing Bangladesh’s banking sector is non-performing loans (NPLs). Having risen continuously for several years, the volume of default loans has reached a level where many banks have seen their capacity to disburse new loans diminish, and in some cases, pressures have mounted regarding the refunding of customer deposits.
Against this backdrop, the biggest question remains: will the tens of thousands of crores that have left the banks ever return?
In search of an answer to this question, Bangladesh Bank has, on one hand, offered major concessions to recover defaulted loans.
On the other hand, Governor Md Mostaqur Rahman has announced an 18-month comprehensive reform plan.
This plan includes interest waivers, a flexible exit policy, fast-track trials, new legislation, and an international standard framework for NPL management.
However, economists point out that simply announcing policies will not be enough.
According to the latest data from Bangladesh Bank, at the end of March this year, the volume of default loans in the country's banking sector stood at Tk588,704 crore. In just three months, default loans increased by nearly Tk31,500 crore.
Meanwhile, the central bank's 'Financial Stability Report 2025' indicates that the total amount of distressed assets—including defaults, rescheduled, and written-off loans—amounts to nearly Tk11 lakh crore, which accounts for close to 60% of the total loans in the banking sector.
To tackle this crisis, Bangladesh Bank has introduced a 'Special Exit' facility.
Under the new policy, borrowers whose loans have been classified as 'bad' or 'loss' up to June 30, 2026, can have all types of applied and unapplied interest completely waived if they repay the original principal loan amount in a lump sum by December 31.
Previously, banks were strictly required to recover their cost of funds before waiving interest. In the new policy, that condition has been removed.
Bangladesh Bank's rationale is that if at least the principal capital can be recovered from loans that have been uncollected for a long time, it will boost bank liquidity, enable new loan distribution, and increase the flow of money in the economy.
Why this concession?
According to the central bank, not all defaulted loans are of the same nature.
Many entrepreneurs failed to repay their loans due to business slowdowns, market crises, the pressure of high-interest rates, or global economic instability.
However, they still retain the capacity to run their businesses.
This special exit policy has been introduced to create one last opportunity for such borrowers.
In particular, banks have been directed to prioritize the agriculture, cottage, micro, and small enterprise (CMSME) sectors for this facility.
Central bank officials believe that through this new special facility, public and private banks will be able to recover a significant portion of long-stagnant defaulted loans.
However, there are differing opinions on this decision.
A section of businesses who pay their loans regularly complain that while interest waivers or concessions are being created for defaulters, those who pay their installments on time receive no incentives. They fear this could discourage disciplined borrowers.
An entrepreneur and former business leader of a private company told Dhaka Tribune: "We pay our loan installments regularly on time and pay the full interest. Yet, for those who haven't paid their loans for years, interest waiver opportunities are being kept. It is only natural for this to create a sense of frustration among customers who follow the rules."
18-month reform plan
Bangladesh Bank governor Mostaqur Rahman stated that a specific 18-month action plan has been undertaken to reduce non-performing loans (NPLs).
He mentioned that the policies for the first six months have already been issued. The exit policy has been simplified to discourage rescheduling. Preparations are underway to introduce two crucial laws next year.
These initiatives include:
- Steps to resolve cases under the Money Loan Court (Artha Rin Adalat) within six months.
- The Distressed Asset Management Act, which will allow banks to transfer long-standing bad loans to specialized asset management companies.
- Strengthening Risk-Based Supervision.
- Implementing the Expected Credit Loss method in line with international accounting standard IFRS-9.
- A new framework for managing banks' non-performing assets.
- Further integrating digital payments and interbank transactions.
Who Qualifies for the facility
According to the new directives from Bangladesh Bank, only borrowers whose loans have been classified as 'bad/loss' up to June 30 of this year will qualify for this special interest waiver facility.
According to banking regulations, a loan is identified as defaulted if an installment or overdue amount remains unpaid for 90 days or more.
If a defaulted loan remains uncollected for one year or more, it is categorized under the 'bad/loss' class. Generally, the recovery prospects for such loans are considered extremely low.
As per the guidelines, loans that fall into this category after June 30 will not be covered under this facility for the time being.
This means only borrowers whose loans were already classified as 'bad/loss' within the designated timeframe will have the opportunity to apply.
However, the interest waiver is not an automatic benefit. The board of directors of the respective bank will review each application individually.
Decisions will be made by taking into account the borrower's financial condition, business operations capacity, past transaction records, and sincerity in loan repayment.
Bangladesh Bank spokesperson Arif Hossain Khan stated that if scrutiny shows a borrower has failed to repay due to a genuine financial crisis but retains the capacity to run the business, possesses a satisfactory track record of past transactions, and shows sincerity in repayment, they may receive the interest waiver facility subject to the approval of the bank's board of directors.
However, a critical condition must be met to enjoy this benefit. The borrower must settle their outstanding principal and all past financial liabilities either in a lump sum or through an amicable settlement with the bank.
Once that condition is fulfilled, there will be an option to fully or partially waive both applied and unapplied interest on the respective loan.
Will the money really return?
This is where the biggest question lies.
According to experts, some funds will undoubtedly return. Entrepreneurs who are running their businesses but were unable to repay due to the burden of accumulated interest are highly likely to take this opportunity.
However, the situation is entirely different for large corporate defaulters.
Various investigations have revealed that a major portion of the large-scale loans disbursed over the last decade through irregularities, fraud, or political influence has been laundered abroad.
Many large borrowers are not even present in the country. Consequently, recovering money from them will not be easy.
For this reason, economists believe that recovering a major portion of default loans is not possible through interest waivers alone.
According to economists, several conditions must be met for this initiative to succeed:
- Distinction: A clear line must be drawn between entrepreneurs facing genuine business crises and willful defaulters.
- No Misuse: Political or influential groups must not be allowed to abuse this facility.
- One-Time Offer: The message must be clearly conveyed that this is a one-time opportunity. Offering similar loopholes repeatedly in the future risks pushing regular payers into default.
- Legal Enforcement: Fast-track resolution of cases in the Money Loan Court and effective mechanisms for asset seizure must be ensured.