Loan defaulters now offered one-time lump-sum exit
The move comes at a time when the country’s banking sector is grappling with over 32% of non-performing loans, which has constrained banks’ capacity to extend fresh credit to businesses.
The central bank has announced a one-time offer to help borrowers who are behind on their loan payments. Under the plan, banks can make deals with these borrowers to settle their overdue loans.
Only borrowers whose loans are classified as "bad/loss" will be eligible for the facility. Those classified as "substandard" or "doubtful" will not be allowed to avail the benefit.
The goal is to reduce bad loans, make banks financially stronger, and free up money so banks can give more new loans to businesses, the central bank said in a circular today (29 June).
It allows banks to offer the facility to borrowers whose loans were classified as bad and loss of 30 June 2026, subject to board approval and banker-customer relationship. It will remain effective until 31 December 2026.
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The move comes at a time when the country's banking sector is grappling with over 32% of non-performing loans, which has constrained banks' capacity to extend fresh credit to businesses.
The circular said productive sectors need greater access to financing to support investment, production and employment generation. However, the rapid growth of overdue loans has weakened banks' asset quality, liquidity management, and lending capacity.
Under the facility, eligible borrowers must repay their outstanding liabilities in a single lump-sum payment to qualify for the settlement. Banks will be allowed to provide the facility based on individual borrower-bank relationships and after obtaining necessary board approvals.
In the case of waiving all charged and uncharged interest for borrowers, the previously enforced conditions of 'ensuring recovery of cost of funds' and 'not waiving interest by debiting the income accounts of state-owned banks' have been relaxed.
However, not all classified loans will qualify for the scheme. Borrowers whose loans were fully rescheduled between 6 August 2024 and 30 June 2026 will not be eligible for the special facility.
In addition, short-term agricultural loans and loans extended to cottage, micro, small and medium enterprises (CMSMEs) have been given priority to the programme.
Bankers say the initiative could encourage some borrowers to settle long-standing liabilities, also helping banks recover cash and improve the quality of their loan portfolios.
Classified loans are grouped into substandard (overdue 3-6 months), doubtful (overdue 6-12 months), and bad/loss (overdue 12 months or more). According to Bangladesh Bank data, there were Tk5.51 lakh crore bad/loss loans in the banking sector as of March 2026.
Governor's emergency meeting with MDs over exit policy
The central bank held a meeting today to discuss offering an exit facility for defaulters. A private bank managing director said the governor called an emergency meeting of commercial bank MDs through the Association of Bankers, Bangladesh (ABB) chairman.
He said defaulters would be able to exit the classified loan category by paying the principal amount in full. If the bank's board waives the interest, borrowers can avail the facility by repaying only the principal.
A senior Bangladesh Bank official said eligible borrowers would also be able to access fresh loans after availing the facility.
Another bank managing director said the policy aims to recover money from wilful defaulters and reduce classified loans. However, its effectiveness will become clear over time.
"Those who took loans with no intention of repaying them are unlikely to avail the facility," he said.
Md Main Uddin, banking and insurance professor at Dhaka University, said no matter how many facilities are provided, wilful defaulters will not repay loans.
"Around 60% of loans in the banking sector are currently in a risky position. Instead of broad policies, strict action against the top 20-25 defaulters through special tribunals could help recover some money," he added.
2019 special exit facility failed to deliver
To reduce non-performing loans and speed up recovery of overdue loans, the Bangladesh Bank introduced a major loan rescheduling and one-time exit facility in 2019.
Under the policy, defaulters could reschedule loans with a 2% down payment and repay the remaining amount over up to 10 years, with a one-year grace period. Banks were also allowed to waive a significant portion of accumulated interest.
The facility drew criticism after allowing large defaulters, including borrowers with loans exceeding Tk500 crore, to regularise loans by paying only 2% upfront.
Critics said many beneficiaries failed to return to regular repayment and later became defaulters again. Economists argued that repeated concessions created a culture of leniency rather than solving the banking sector's NPL crisis.
The 2019 initiative aimed to recover stuck funds and support genuine businesses. However, its effectiveness remained questionable as NPLs continued to rise in subsequent years.
