Bangladesh Bank has announced a one-time “special exit” facility for defaulting borrowers, allowing banks to waive interest and let them settle bad loans with a single payment.
Loans classified as “bad” and “loss” as of June 30, 2026, will be eligible under the scheme, according to a BB circular issued yesterday.
The move is aimed at curbing the rising volume of non-performing loans (NPLs) and restoring banks’ lending capacity, the central bank said.
The special facility will remain in effect until December 31 this year.
Subject to the approval of the board of directors, this facility may be extended based on the banker-customer relationship, the BB circular said.
According to BB data, the NPL ratio rose to 32.26 percent of total outstanding loans at the end of March this year, up from 30.6 percent in December last year. Total classified loans climbed by Tk 31,487 crore to Tk 5.89 lakh crore from Tk 5.57 lakh crore.
Image
“Through this policy, the central bank has essentially provided commercial banks a way out. Now it is up to the banks to use it prudently. At the same time, the central bank must maintain close oversight.”
Prof Mustafizur Rahman, distinguished fellow at the CPD
The central bank said the facility would allow banks to reduce NPLs while improving their capacity to disburse new loans, which it said would support production, investment, and employment generation.
It has asked banks to prioritise short-term agricultural credit and loans to the Cottage, Micro, Small, and Medium Enterprise (CMSME) sector.
Following the BB move, analysts have given mixed opinions, saying the facility may help banks clear balance sheets but could also encourage more defaults.
Syed Mahbubur Rahman, managing director of Mutual Trust Bank, told The Daily Star that this process of cleaning up banks’ balance sheets is not a bad approach. Instead of carrying the burden of bad loans indefinitely, he said, it is better if defaulting borrowers exit after settling liabilities through a one‑time concession.
Mahbubur, also former chairman of the Association of Bankers, Bangladesh, cautioned that care must be taken to prevent misuse of the facility.
Prof Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue, said the facility was being offered under exceptional circumstances. Since the policy states that exits should be based on the bank-client relationship, he argued, the decision should ultimately rest with banks.
“In the past, many such decisions were made on political considerations. If similar undue pressure is exerted now, it will not lead to positive outcomes. But if a bank allows an exit based on its relationship with the borrower, it could help clean up balance sheets and provide relief.”
He cautioned that the process must be handled carefully, noting that many borrowers have collateral. In such cases, banks should first recover principal and accrued interest by selling off the collateral.
“Through this policy, the central bank has essentially provided commercial banks a way out. Now it is up to the banks to use it prudently. At the same time, the central bank must maintain close oversight. Moreover, such facilities should not be extended to new loans in the future,” he added.
Meanwhile, Toufic Ahmad Choudhury, former director general of the Bangladesh Institute of Bank Management, criticised the move, saying it was not a sound policy and would likely encourage more defaults.
“There was a general expectation that the new government would take a tougher stance against loan defaulters. Instead, the policies being introduced appear to favour the errant borrowers.”
He warned that delegating authority to waive interest to banks could allow directors to write off dues in ways that serve their own interests. Decisions on rescheduling and waivers, he argued, should remain with the Bangladesh Bank.
He believes that given the already massive volume of NPLs, waiving accumulated interest would raise questions about how banks would pay depositors and cover operating costs.
“Ultimately, such concessions risk creating a new generation of irresponsible borrowers and encouraging future defaults,” Toufic added.
Deen Islam, professor of economics at Dhaka University, agreed that the BB’s special exit policy could provide relief to the banking sector.
In the short run, he noted, the policy may improve liquidity, support credit growth, and help viable businesses retain or create jobs, particularly in SMEs and agriculture.
“However, repeated reliance on such exit facilities could reduce borrowers’ incentives to repay on time if they expect future concessions.”
He said this weakens credit discipline and distorts resource allocation by rewarding default over prudent behaviour.
While the policy has clear short‑term benefits, it must be accompanied by stronger governance, stricter risk management, and improved recovery mechanisms to ensure long‑term stability and sustainable growth, Deen added.
