Eight Banks to Lend Tk 1,700 Crore to City Group in Central Bank Bailout

🏦 Eight private commercial banks are set to receive regulatory relief to extend Tk 1,700 crore in fresh loans to debt-laden City Group, in a move aimed at keeping its operations running and ensuring supplies of essential commodities ahead of Ramadan. The banks are City Bank, Mutual Trust Bank, Prime Bank, Dutch-Bangla Bank, Southeast Bank, Trust Bank, NCC Bank and Pubali Bank — and the decision in principle was taken at a meeting between the eight banks and Bangladesh Bank Governor Mostaqur Rahman at the central bank's headquarters, in consultation with the government, according to meeting sources.

🗳 The regulatory mechanics are unusual and consequential. At the lenders' request, Bangladesh Bank plans to exempt them from Section 27(Ka Ka) of the Bank Company Act, 1991 — which restricts lending to loan defaulters — using its authority under Section 121 to grant the exemption. The conglomerate owes around Tk 26,000 crore to 48 domestic and foreign banks and financial institutions, some of which have already classified its loans as defaulted; the exemption would allow the banks to extend fresh loans and open letters of credit (LCs) for City Group despite that status. Under the proposed syndication, City Bank would provide Tk 300 crore, while each of the other seven banks would contribute Tk 200 crore — and most of the lenders have already approved the funding at their board meetings.

⚖ The rescue has exposed disagreements among lenders. A central bank official, speaking anonymously, said Bank Asia, BRAC Bank and Eastern Bank PLC had sought to withdraw from the revival plan and pursue legal action against the group; their representatives were invited to the meeting and urged to join the rescue effort. Some lenders, including HSBC, have already classified City Group's loans as defaulted, and other banks would also have to classify the loans in October under normal banking rules — requiring provisions against them. Rescheduling the group's existing loans would happen only against a down payment, with no exceptions: the client is not in a position to pay, so the banks cannot reschedule the loans, a meeting source said. The BB has also not agreed to extend the exemption to all City Group companies, asking lenders to select five entities — with LC openings for those five requiring finance ministry approval, which the central bank has promised to pursue, as one private bank managing director put it, fully sincerely.

🍚 The systemic argument for intervention is food security, not bank balance sheets. The chief executive of another bank, requesting anonymity, said City Group accounts for roughly 30 percent of the sugar market, 40 percent of the edible oil market and 30 percent of other commodities: roughly a third of the market could vanish suddenly (if City Group cannot operate); in such a crisis, people exploit shortages and raise prices, and the poor suffer most. That is a major motivation, not only the banks' own losses, he said — adding that the group had used foreign currency to import machinery, which the BB views as a national asset.

📝 The central bank had previously instructed banks not to classify City Group's loans as defaulted until last September; with that deadline passed, several lenders have begun classifying. Deputy Governors Kabir Ahmed and Sarwar Hossain attended the meeting, along with City Group Managing Director Md Hasan; bank representatives included Association of Bankers, Bangladesh Chairman and City Bank Managing Director Masrur Arefin and the managing directors of Mutual Trust Bank, Bank Asia, BRAC Bank, Prime Bank, EBL, Pubali Bank and Southeast Bank.

🔭 The debate the bailout opens

🚧 Defenders of the plan make a serious case. Syed Mahbubur Rahman, managing director of Mutual Trust Bank, told The Daily Star that City Group had never defaulted before and that there were no allegations against it; everyone wants the group to overcome its difficulties and recover, he said, noting that all banks want to support the conglomerate although its loans would need restructuring or rescheduling, and that the central bank has advised lenders against decisions that could worsen the group's situation. He pointed to the nationwide household presence of the group's Teer-branded products and argued that building a comparable business group would take considerable time — the products have become scarcer because of the financial difficulties, but support could help regain the former position.

⚠ Critics will note the moral hazard with equal seriousness: a regulatory exemption that permits fresh lending to a defaulter is precisely the mechanism through which Bangladesh's banking sector historically deepened its bad-loan problem, and the market will watch whether the five-company selection and finance-ministry gate impose genuine discipline or merely a pause before wider relief. The three banks preferring legal action represent the counter-principle — that creditor rights, enforced through courts, are what keep credit markets honest. Both camps, notably, agree on the underlying fact: with Tk 26,000 crore owed across 48 institutions and a commodities franchise measured in millions of kitchens, the stakes are systemic.

🔮 The execution details now decide the story's meaning: the syndication agreement's final terms, the five chosen entities, the ministry's LC approvals, and above all whether the fresh money arrives as working capital that keeps factories importing and crushing — or as new credit layered over unresolved old debt. A large share of City Group's borrowings is concentrated among a few lenders, including HSBC, Standard Chartered, City Bank, United Commercial Bank, EBL and BRAC Bank, so classification decisions this month will mark the sector's books whatever the bailout achieves. For households, the test is simpler and closer: whether sugar, edible oil and Teer staples stay on shelves at stable prices through Ramadan — the outcome every party at the table says it is trying to secure.