The two directives issued by the Bangladesh Bank following the new governor’s appointment are concerning, considering the banking sector’s recent struggle with non-performing loans (NPLs). One circular relaxed the rules for the renewal of continuous loans, and the other instructed banks to allow special term loan facilities to export-oriented firms to pay their February wages. There are several reasons why these directives, despite being major incentives for the business community, could become problematic.

First, as a policymaking body, BB should not dictate what loans commercial banks provide, to which industries, or under what terms. The terms and purposes of loan facilities that a bank offers should depend on said bank’s assessment and relationship with its clients. Besides, working capital loans, mostly used to cover supply bills and wages when cash inflows are tight, are already offered by banks to sound businesses. Export-oriented status alone should not qualify a business for special term loans to pay salaries. One may argue that export-oriented industries received a similar incentive in April 2020 during the Covid pandemic. Although merchandise exports have slumped in recent months, the economy has not yet reached the same emergency state as during the pandemic. So, there is no reason export-oriented industries should need special support to pay wages and salaries now.

The other directive regarding the renewal of continuous loans is also worrisome as it has high potential for misuse. It says banks must start the renewal process of continuous or revolving loans at least two months before expiry, and renewal will still be allowed after expiry, with documentation justifying the delay. The circular issued in June 2025, during the tenure of the previous governor, Ahsan H Mansur, did not allow banks to renew loans after they expired. This meant banks had to review revolving loans well before their expiry, decide if the borrower might fail to repay, and set aside money to cover for any potential losses.

With the rules relaxed by BB under the new governor, banks can delay loan renewals, provide documentation to justify the delay, and postpone setting aside provisions for potential losses. This creates room to conceal weak loans, inflate profits, and understate capital requirements—factors that have contributed to the high percentage of NPLs and the current fragility of the banking sector.

We warned about a potential conflict of interest when Md Mostaqur Rahman, a garment entrepreneur by profession, was appointed as the central bank governor. These two directives suggest that our concerns may not be unfounded. As the world awaits an impending economic crisis, we expect more cautious and prudent policy decisions from the central bank.