City Group Faces Default Risk As 36 Bangladesh Banks Balk At Tk 6,000 Crore Fresh Funding

⚠ City Group, a major player in Bangladesh''s food and commodity supply chain, faces the risk of loan classification as its 36 lenders remain divided over the group''s proposal to reschedule its loans for 12 years while providing an additional Tk 6,000 crore in working capital. With the September 2026 deadline approaching, the lenders have yet to reach an agreement and have sought Bangladesh Bank''s approval to extend the deferral period for loan classification.

📊 If the extension is not granted, loans of around Tk 26,000 crore could be classified from 1 October 2026, triggering a massive provisioning requirement for the banks and putting significant pressure on their profitability. The development could also disrupt City Group''s operations and potentially affect the supply of essential commodities ahead of Ramadan — a critical period for Bangladesh''s food and consumer goods markets.

🏛 Why banks are reluctant

The key sticking point is the group''s demand for Tk 6,000 crore in additional working capital. Banks are reluctant to inject fresh funds into a borrower whose existing loans are already under stress. "The problem is that if you provide additional working capital, the banks also have to consider what will happen to the interest on the existing loans. If I give you additional money and then both the existing and new loans become problematic, I will be in trouble. That is why things are somewhat stuck," said Muhit Rahman, managing director of ONE Bank.

A top executive of a private commercial bank said banks were being asked to help City Group avoid classification by extending additional credit, but lenders remained concerned about further exposure. "If we provide the additional facility without addressing the underlying problem, we risk losing money and allowing the situation to deteriorate further," he said.

The bankers'' reluctance reflects a deeper structural issue: Bangladesh''s banking sector has been burned by previous experiences of providing additional credit to distressed borrowers, only to see the fresh funds disappear into the black hole of non-performing loans. The Beximco Group case — where Tk 50,098 crore in outstanding loans and liabilities led to a major restructuring — is fresh in the minds of Bangladeshi bankers, who are now more cautious about throwing good money after bad.

🤝 Bangladesh Bank governor intervenes

Bangladesh Bank Governor Md Mostaqur Rahman recently called the lenders to a meeting to discuss ways to resolve the crisis, including the possibility of providing additional financing. The governor, however, made it clear that the September deadline would not be extended further and gave banks 10 days to decide whether to restructure the loans or pursue another course of action, according to bankers who attended the meeting.

Mostaqur also indicated that the central bank was considering contingency measures to prevent disruption to the supply of essential commodities during Ramadan. One option discussed was for Sena Kalyan Sangstha (the welfare trust of the Bangladesh Army) to import commodities and use City Group''s distribution network. Government-owned banks could also potentially provide facilities to support the group, bankers said.

💰 City Group''s distressed operations

City Group''s supply of commodities has already declined substantially as the group has struggled to obtain adequate letters of credit since March 2026, causing it to lose market share. Its flagship TEER brand has a major presence in essential consumer categories including edible oil, atta, flour, semolina, rice, lentils, sugar, milk powder and animal feed — products that are central to Bangladesh''s consumer goods market, particularly during Ramadan.

In its rescheduling proposal, City Group said its sales plunged to around Tk 14,000 crore during July-December 2025 from nearly Tk 33,000 crore previously — a staggering 57% decline in just one year. The group also said around Tk 40,000 crore in working-capital limits remain stuck with distressed banks and are currently unavailable, further constraining its ability to maintain operations.

👥 Different banks, different positions

The 36 lender banks are taking different positions on the rescheduling proposal. Muhit Rahman of ONE Bank said City Group has substantial security and assets that could potentially be sold to generate funds. Some expansion projects are located in areas without gas connections, he said, adding that government efforts to provide gas could increase the value and saleability of those assets. He also pointed to potential supplier financing of around $250 million, saying City Group''s suppliers were willing to provide the credit if an arrangement could be reached.

He said banks were taking the proposal to their respective boards, as large additional exposures could not be approved overnight. The immediate priority, he said, was to provide enough working capital to keep the business running. Muhit warned that classification of City Group''s loans would immediately trigger provisioning requirements. "That would be very difficult for the banking sector. It would have a huge impact on profits," he said.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said lenders were trying to resolve the issue individually while completing audits and other necessary work. "We are trying to settle things ourselves, bank by bank," he said. Banks are also seeking an extension of the deferral period from Bangladesh Bank, while putting temporary arrangements in place to ensure that the situation does not deteriorate further.

Sohail RK Hussain, managing director of Bank Asia, said lenders were willing to reschedule City Group''s loans but wanted the borrower to sell assets and use the proceeds to repay existing liabilities. "We have told them that we are willing to reschedule their loans, as every customer asks banks to do. But we have also told them to sell some of their assets and use the proceeds to settle their liabilities," he said. City Group, however, has proposed that banks provide an additional Tk 6,000 crore instead of selling assets to repay existing liabilities, Sohail said.

The group has offered collateral equivalent to 30% of the additional credit in the form of brand value, he said, but questioned whether banks should extend further credit to a borrower that has already failed to meet its repayment obligations. Hussain said existing loans should first be restructured based on a credible recovery plan with clearly identified repayment sources. "If the group has assets that can be sold, those assets should be valued and the proceeds used to repay the loans. The repayment source must be clearly identified," he said. He suggested that City Group could sell four or five companies over the next two years and use the proceeds to reduce its existing liabilities. Once the current exposure is addressed, banks could separately consider the group''s working-capital requirements.

📊 City Group''s recovery plan

City Group has hired Ernst & Young and another consultancy to assess its financial position and prepare projections for its recovery plan. The firms are expected to value the group''s companies, including businesses where funds may have been diverted, to determine potential sale values. A committee formed at an earlier bankers'' meeting is also involved in the valuation process. The exercise, however, could take around six months.

Under its proposed recovery plan, City Group intends to sell six or seven major projects at Hoshendi Economic Zone, targeting Tk 10,000-Tk 12,000 crore in asset monetisation by FY28. It also plans to sell land assets expected to generate around Tk 4,800 crore by FY28. The group has additionally expressed plans to raise capital through a stock-market listing.

🌏 Systemic implications for Bangladesh''s banking sector

The City Group crisis has significant systemic implications for Bangladesh''s banking sector. With Tk 26,000 crore in loans at risk of classification across 36 banks, the provisioning impact would be substantial — potentially wiping out several quarters of profits at the affected banks and weakening their capital positions. This comes at a time when the banking sector is already under pressure from weak credit growth, high non-performing loans, and the ongoing Beximco Group resolution.

The Bangladesh Bank governor''s refusal to extend the September deadline signals a tougher stance on loan classification — a departure from the previous practice of allowing repeated extensions for distressed borrowers. This approach is intended to force banks to address the underlying problems rather than papering over them with forbearance, but it also creates significant short-term financial pain.

For Bangladesh''s broader economy, the City Group situation matters because the company is a major player in the country''s food and commodity supply chain. Disruptions to its operations could affect the supply of essential commodities, particularly ahead of Ramadan when demand peaks. The Bangladesh Bank governor''s consideration of contingency measures — including using Sena Kalyan to import commodities through City Group''s distribution network — reflects the strategic importance of keeping the company''s distribution infrastructure operational even if its financial restructuring takes time.

The coming weeks will be critical for City Group, its lenders, and Bangladesh''s broader banking sector. If a restructuring agreement can be reached, it would mark a significant step towards resolving one of the country''s largest corporate debt crises. If not, the classification of Tk 26,000 crore in loans would trigger a chain reaction of provisioning losses, profit warnings and capital adequacy pressures that would test the resilience of Bangladesh''s banking system.