Bangladesh Defaulters Repeatedly Get Concessions But Funds Never Return to Banks

Prothom Alo English, Dhaka — Both non-performing loans and rescheduled loans have increased in Bangladesh, yet whenever borrowers are given the opportunity to reschedule their loans, it is invariably argued that the move will help recover money stuck in banks, revive struggling businesses, and reduce non-performing loans. In reality, although the amount of NPLs in banks' books has temporarily declined, recoveries have not increased at the same rate — instead, a large portion of rescheduled loans has once again become bad.

The old question has therefore resurfaced: can the problem really be solved by granting blanket concessions to loan defaulters, or does this simply give some borrowers additional time while leaving the underlying problem to be dealt with in the future?

📅 Timeline: Five Rounds of Concessions in Less Than a Year

• 📅 16 September 2025: 10-year rescheduling, 2% down payment
• 📅 24 November 2025: scope expanded, additional 2 years for unclassified loans
• 📅 22 February 2026: down payment eased (half upfront, half over 6 months)
• 📅 7 May 2026: application deadline extended to 30 June
• 📅 31 August 2026: deadline extended to 30 September, 15-year period for Tk 10 billion+ loans

In less than a year, the authorities have repeatedly expanded the scope of concessions, eased down-payment requirements, extended application deadlines, and lengthened loan repayment periods — creating a pattern that may encourage borrowers to wait for better concessions rather than repay on time.

📊 The Re-Default Problem: 38.42% of Rescheduled Loans Go Bad Again

According to Bangladesh Bank's Financial Stability Report 2025:

• 💰 Rescheduled loans outstanding (Dec 2024): Tk 3.48 trillion (Tk 348,000 crore)
• 💰 Of which became NPL again: Tk 1.34 trillion (Tk 134,000 crore) = 38.42%
• 📊 In 2020: 23.8% of rescheduled loans became NPL
• 📊 By 2024: 38.42% re-default rate (nearly 2 out of every 5 rescheduled loans)

This means that nearly two out of every five rescheduled loans had gone bad again — demonstrating that extending the repayment period has not solved the underlying problem.

📊 NPL Trajectory: Temporary Dip Followed by Rebound

• 📉 September 2025: NPLs at Tk 6.44 trillion
• 📈 December 2025: NPLs fell to Tk 5.57 trillion (after rescheduling)
• 📉 June 2026: NPLs crossed Tk 6.06 trillion again (rebound)

The pattern is clear: rescheduling brings a temporary dip in NPL figures, followed by a rebound as rescheduled loans go bad again — confirming that the structural causes of default have not been addressed.

⚠️ Moral Hazard: The Culture of Waiting for Concessions

When one concession is followed by another within a short period, borrowers may begin to expect further benefits. Some may stop paying instalments and wait, thinking that an even better opportunity could come a few months later. This undermines the culture of repaying loans on time. Even borrowers who have the ability to repay may stop making instalment payments in the hope of receiving better concessions in the future.

If becoming a defaulter and waiting for concessions is more advantageous than repaying loans regularly, the incentive to repay diminishes. The same pattern has been seen in the past.

⚖️ Fairness Concern: Large vs Small Borrowers

Under the current policy, large borrowers get the most opportunities:

• 💰 Tk 10 billion+ loans: 15-year rescheduling with 2-year grace
• 💰 Below Tk 10 billion: 10-year rescheduling
• ⚠️ SMEs: can lose access to banking facilities even after small defaults
• ⚠️ Large borrowers: get more time and better terms

This creates a situation in which becoming a major defaulter appears more beneficial than repaying loans regularly — a perverse incentive structure that undermines the broader credit culture.

🏛 Why NPLs Have Risen So Rapidly

One reason for the rapid rise in NPLs over the past two years is that the true condition of old loans has come to light. For years, many bad loans were not classified as defaulted because of:

• 🏛 Political influence on loan classification
• ⚖️ Court injunctions preventing classification
• 📜 Rescheduling hiding true default status
• 📜 Special concessions masking underlying problems
• 📜 Incorrect classification by banks

Following the political change in 2024, reviews and audits of banks' loan portfolios brought some of these loans to the surface — revealing the true extent of the banking sector's NPL problem.

📜 Historical Context: Rescheduling Since 1991

Rescheduling defaulted loans is not a new phenomenon in Bangladesh. In 1991, borrowers in default were given an opportunity for the first time to regularise their loans through interest waivers and easier instalment arrangements. Between 2003 and 2006, Bangladesh Bank took a somewhat stricter approach — but the pattern of repeated concessions has since resumed with increasing frequency.

🌏 Strategic Implications

• ⚠️ 38.42% re-default rate: rescheduling fails to solve underlying problem
• ⚠️ 5 rounds of concessions in 1 year: creates moral hazard
• ⚠️ Rebound pattern confirmed: temporary dip followed by NPL increase
• ⚠️ Fairness concern: large borrowers favoured over SMEs
• ⚠️ Credit culture undermined: waiting for concessions is more rational than repaying
• ⚠️ True NPLs surfacing: political change revealing hidden bad loans
• ✅ BB acknowledges: Financial Stability Report documents re-default pattern
• ✅ 18-month roadmap: ongoing effort to address structural issues

The analysis reveals a fundamental structural problem in Bangladesh's banking sector: repeated blanket concessions to defaulters have failed to recover funds, with 38.42 percent of rescheduled loans going bad again. The pattern of five rounds of expanded concessions in less than a year — each time extending deadlines, easing down payments, and lengthening repayment periods — has created a moral hazard dynamic that undermines the credit culture. Without addressing the structural causes of default (weak corporate governance, political lending, inadequate risk assessment) alongside the rescheduling framework, the cycle of temporary NPL reduction followed by rebound is likely to continue through the LDC graduation transition period — with Tk 6+ trillion in non-performing loans remaining a persistent drag on the banking sector's capacity to support economic recovery.