Bangladesh Bank yesterday rolled out a comprehensive medium-term roadmap to tackle the country’s mounting non-performing loans (NPLs), combining stricter supervision, faster loan recovery, legal reforms, and a transition to international accounting standards to restore confidence in the banking sector.
Governor Md Mostaqur Rahman announced the 18-month roadmap while unveiling the monetary policy statement for July–December at the central bank headquarters.
He said the persistently high level of defaulted loans remains one of the biggest challenges facing the financial sector, eroding banks’ profitability, capital strength, and liquidity while weakening the effectiveness of monetary policy.
According to Bangladesh Bank’s latest assessment, the gross NPL ratio rose from 20.2 percent in December 2024 to 35.73 percent in September 2025 before easing to 32.26 percent in March 2026. The net NPL ratio followed a similar trend, climbing from 10.57 percent to 26.4 percent before falling to 15.01 percent over the same period.
A key element of the strategy is the transition from the current rules-based provisioning regime to the Expected Credit Loss (ECL) framework under International Financial Reporting Standards (IFRS 9), with full implementation targeted for 2027. ECL is an advanced approach for banks to estimate potential credit losses in advance. The traditional incurred loss model records losses only when they occur.
As an immediate measure, the roadmap has introduced a new exit policy to discourage the long-standing practice of bullet payment-based loan rescheduling, which allows defaulting borrowers to regularise or reschedule their loans by making a small one-time upfront payment.
Under the new policy, loan defaulters may be able to pay off their entire loan in one go without paying interest if the bank’s board concerned decides to allow the defaulter.
Citing the experience of countries such as Ukraine and Türkiye, the governor said the policy is expected to significantly reduce bad loans.
As part of the next phase of reforms, the government plans to enact a new Loan Court Act to ensure cases are disposed of within six months. It is also preparing a Distressed Asset Management Act to establish Asset Management Companies (AMCs).
“Banks will eventually be required to transfer a portion of their toxic assets to AMCs instead of keeping them on their balance sheets,” the governor said, adding that the move would help prevent repeated loan rescheduling.
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‘PERMANENT SOLUTION’
Overall, the roadmap focuses on structural reforms aimed at reducing bad loans permanently rather than relying on temporary regulatory forbearance.
It rests on several pillars.
Firstly, Bangladesh Bank will strengthen risk-based supervision and conduct institution-specific Asset Quality Reviews, particularly at banks with governance weaknesses or concentrated credit risks.
Secondly, banks will be required to prepare capital restoration and provisioning plans linked to measurable improvements in loan recovery. Supervisory actions, including restrictions on dividend payments, will be imposed on lenders that fail to meet recovery targets.
Thirdly, loan restructuring facilities will be limited to financially viable businesses, while borrowers failing to honour repayment commitments will face legal and regulatory action.
Fourthly, the central bank plans to accelerate the recovery of large defaulted loans by requiring specialised recovery units within banks, strengthening legal departments, speeding up proceedings in the Artha Rin Adalat and improving collateral enforcement.
Bangladesh Bank is also establishing a structured Emergency Liquidity Assistance framework to ensure liquidity support for solvent banks remains clearly separated from capital restructuring for financially weak institutions.
The roadmap is backed by the newly enacted Bank Resolution Act 2026 and Deposit Protection Act 2026, which are intended to strengthen the authorities’ ability to resolve troubled banks, and protect depositors.
The central bank also plans to strengthen credit risk modelling and improve data infrastructure to support implementation of International Financial Reporting Standards (IFRS 9) and enable quicker identification of deteriorating borrower credit quality.
FY26 REFORMS
Bangladesh Bank highlighted several regulatory and supervisory reforms introduced during FY26 to improve asset quality.
It has allowed banks to write off bad debts with limited recovery prospects to present a clearer picture of their balance sheets. During the briefing on the roadmap, the governor also encouraged banks to write off unrecoverable loans, stressing that write-offs do not exempt borrowers from repayment or legal action but instead provide a more accurate picture of banks’ financial health.
The central bank has also revised its framework for stressed borrowers, allowing classified loans of viable businesses to be restructured for up to 10 years with a grace period of up to two years. The special support measures under the framework remain effective until June 2026.
In December 2025, Bangladesh Bank updated its loan classification and provisioning guidelines to strengthen credit discipline. To maintain credit flow to productive sectors, banks have been allowed to maintain lower provisioning requirements for standard and Special Mention Accounts in the agriculture and cottage, micro, small and medium enterprise (CMSME) sectors until December 2026. Banks use these accounts to track loan health and predict potential defaults.
Responding to questions at the briefing, the governor said Bangladesh Bank is shifting its policy to encourage external borrowing as domestic lending rates have risen to 12–14 percent while foreign loans are available at around 5-6 percent.
He said the cautious approach adopted after the sharp depreciation of the taka in 2022 is no longer appropriate under current macroeconomic conditions, and a new circular will soon simplify access to foreign borrowing, including easing rules for foreign-owned companies seeking loans from their parent firms.
Asked about reports that Bangladesh Bank had rejected Meghna Group’s proposal to secure an $80 million foreign loan, the governor said the central bank is reviewing its external borrowing framework and working to simplify approval procedures.
Responding to another question on City Group, he said the conglomerate’s financial difficulties were not solely caused by exchange rate movements. Around 29 banks have exposure to the group, with outstanding liabilities of about Tk 24,000 crore. Managing directors of three leading banks have been tasked with preparing a resolution plan, which is expected to be implemented within the next three months.
