Another lifeline for bad debt

It seems like Bangladesh Bank just can’t say no to a bad debt. Since September 2025, it has been rolling out loan-restructuring extensions like clockwork -- once in a quarter -- always leaning on the same comforting buzzwords like “distressed but viable”, “genuine borrowers”, and “policy support”. The latest move pushes the application deadline to September 30 and lets mega-borrowers with Tk 1,000 crore or more in unpaid loans stretch their repayments to a generous 15 years. That includes a grace period of two years.

In fact, the central bank was already handing out sweeping favours. Back in June, it rolled out a one-time “special exit” facility for defaulters. Banks can completely waive the interest if a borrower settles their toxic debt with a single payment. As long as a loan was officially classified as “bad” or a “loss” by June 30, 2026, it automatically qualifies. The central bank claimed that the June decision was all about shrinking the massive mountain of non-performing loans and freeing up cash so banks could actually lend again.

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Officially, all of this is pitched as part of an 18-month roadmap to wrestle down loan defaults. That sounds reasonable enough on paper. But when you step back and look at the endless parade of circulars, it starts feeling less like a cure and a lot more like a very long game of kicking the can down the road.

To be fair, there’s no denying the massive scale of the banking crisis. By March 2026, a staggering 32.26 percent of all bank loans in Bangladesh were delinquent. That’s the second-worst rate in the entire world right behind Ukraine, and easily the worst in South Asia. For a little perspective, Pakistan is sitting at 7.4 percent, India is at 2.3 percent, and even crisis-scarred Sri Lanka has managed to claw its way down to 12.6 percent.

The central bank is also right that the timing has been awful lately. The Middle East conflict choked off fuel supplies to export factories when borrowing costs spiked and business naturally slowed. Add in the fact that audits following the 2024 uprising dragged years of completely hidden defaults into the daylight. This financial mess was created by the ousted Awami League government, and the new administration inherited a sector practically running on fumes.

Still, the current trend is getting pretty hard to ignore. Every circular since last September has loosened the rules a little more. Deadlines slip. Down payments have been set at just 2 percent. And the absolute sweetest deals are handed exclusively to the biggest borrowers. It really begs the question: why wasn’t the previous 10-year repayment limit enough? If a mega-borrower with over Tk 1,000 crore in loans can’t figure out a way to settle their debt in a decade, handing them an extra five years makes the whole setup look like a VIP lifeline for a well-connected few.

Selim Raihan, a professor of economics at Dhaka University, points out that giving massive borrowers that much slack might ease the immediate pressure, but it “risks weakening repayment discipline and encouraging loan default.” What the banking sector actually needs is genuine reform -- better recovery tactics, solid governance, and real accountability.

“Such concessions should not become a way to protect habitual defaulters. Long-term repayment should be allowed only for genuinely viable businesses with credible repayment plans,” Raihan said.

There’s a sneaky bit of accounting magic buried in all of this. Once a bad loan is rescheduled, it drops right off the official bad-loan count, even if the borrower’s actual financial health hasn’t improved one bit. That’s exactly why the official non-performing loan ratio declined late last year before creeping right back up again.

At the end of the day, there’s a massive difference between using forbearance as a temporary bridge and turning it into a permanent habit. For a programme like this to actually be taken seriously, it needs a deadline people believe in, proof that genuinely struggling firms are getting help instead of just the biggest tycoons, and a concrete plan for the massive chunk of toxic assets that no amount of extra time will ever fix. Without that, you might as well just pencil in another deadline extension three months from now.