Central bank must carefully assess and execute loan rescheduling policy
In the lexicon of banking, the phrase "uncontrollable factors" is the preferred euphemism for central banks to explain why the wealthiest conglomerates cannot seem to pay their debts. That excuse is now being tested on a massive scale in Bangladesh. The central bank has reportedly received applications to reschedule some Tk 200,000 crore in loans from 300 companies, including controversial behemoths like S Alam and Beximco groups. Their request is audacious: repayment periods stretching up to 15 years, grace periods of three years, and down payments as low as 1-2 percent.
The challenge in considering any such requests relates directly to proper categorisation. Bangladesh Bank will naturally be expected to draw a sharp distinction between genuine defaulters—enterprises truly battered by market headwinds or global supply shocks—and wilful defaulters who habitually game the system. Applying a blanket policy of leniency would risk conflating the unlucky with the unprincipled. The regulator therefore must not show generosity to wilful defaulters and must avoid creating a moral hazard.
It is worth noting that delinquent loans have hit a record Tk 644,000 crore, nearly 36 percent of all disbursed loans—a ratio not seen since 2000. Yet the official response has been seemingly lenient, as the central bank argues that "policy support" is required to maintain stability. This logic holds only if the support goes to those who genuinely need it to survive, rather than those who simply prefer not to pay. Data reveal that banks remain trapped in a barrage of litigation that disproportionately benefits stubborn defaulters. As of June, more than Tk 400,000 crore was tied up in over 222,000 cases in money-loan courts. In the second quarter of this year, banks managed to recover a paltry Tk 2,910 crore through the courts, even as they filed new lawsuits worth nearly Tk 97,000 crore. Evidently, this judicial backlog is a serious setback to the banking system.
Unfortunately, the interplay of these two phenomena—rescheduling pressure and judicial gridlock—creates a perfect ecosystem for wilful defaulters. Why repay a loan today when one can tie a bank up in litigation for a decade, or better yet, lobby the central bank for a 15-year reprieve? It is, therefore, imperative that the central bank does not allow wilful defaulters to exploit September's "special loan rescheduling policy," a measure ostensibly designed to ensure equal opportunity, not immunity.
But if the central bank allows habitual, wilful defaulters to retain their "unclassified" status for a token down payment, it will effectively ignore the sector's deteriorating health. It will create a zombie banking system where insolvent borrowers are propped up by liquidity that should be flowing to productive, honest enterprises. So, going forward, any rescheduling must be conditional on rigorous, independent audits that separate genuine business failure from calculated wrongdoing. Generosity should be reserved strictly for the former. Simultaneously, the government must unclog the legal channels by establishing special financial tribunals if necessary.
