A new directive has been issued by the Banking Regulatory Policy Department (BRPD).
In an effort to support struggling industries, Bangladesh Bank has relaxed the conditions for loan rescheduling. Now, borrowers facing difficulties can prepay only half of the required down payment, which amounts to 2% of the loan balance, and can settle the remaining balance within six months.
This latest decision was communicated through a circular released today (February 22). Alongside the eased payments, the circular also allows for extended deadlines and gives bank boards more flexibility regarding interest rate decisions. Analysts believe this is a step towards stabilizing bank balance sheets amid rising non-performing loans and sluggish credit growth.
The circular arrives as construction activity sharply declines, with investments hitting their lowest in years. Currently, non-performing loans (NPLs) exceed 35%, and borrowing costs range between 14% to 16%. Given these circumstances, the central bank’s action is viewed as an attempt to avoid a new wave of defaults and provide companies with some breathing room during a sensitive recovery period.
However, there are mixed feelings about this approach. Mashrul Arefin, chairman of the Bangladesh Bankers Association, cautioned that while temporary relief is understandable in special situations, ongoing regulatory leniency could weaken credit discipline and hurt the banking system’s long-term viability. He expressed concern about the “moral hazard” of extending support without solid commitments or equity involvement from borrowers.
Sohail R.K. Hussain, managing director of Bank Asia, emphasized that loan rescheduling must tackle the root causes of defaults. “If we reschedule a loan, we need to identify the underlying issues. Simply adjusting payment schedules doesn’t resolve deeper problems,” he noted. If someone has faced genuine losses, he agrees that rescheduling could be reasonable, but it shouldn’t be a blanket solution.
He went on to highlight that previously, loans were often rescheduled without proper review at the time of application. “Customers enjoyed the bank’s funds without actually paying back,” he remarked. This new circular is designed to provide banks with the necessary flexibility, but he also urged for careful implementation.
If carried out effectively, it could benefit the banking sector; if not, it risks causing harm. One private bank’s deputy managing director commented, on condition of anonymity, that while the circular may help lower non-performing loans, it won’t be effective if customers and businesses fail to repay adequately.
In addition, Bangladesh Bank has extended the special loan restructuring deadline from December 31 to March 31, 2026. Each financial institution’s board will now have the authority to make decisions on interest waivers, tailored to their existing policies and the nature of banker-customer relationships.
