Bangladesh Bank offers full interest waiver to help lenders recover defaulted loans

Bangladesh Bank has unveiled a sweeping incentive to recover mounting defaulted loans, allowing eligible borrowers to repay only the outstanding principal while receiving a full waiver of accrued interest.

Under the new policy, defaulting borrowers who settle their entire principal amount in a single payment by Dec 31 will no longer have to pay either charged or uncharged interest.

The central bank issued a circular on Monday, instructing the chief executives of all banks to implement the scheme.

Bangladesh Bank data show total defaulted loans climbed to Tk 5.89 trillion at the end of the March quarter, up by more than Tk 310 billion in just three months from Tk 5.57 trillion at the end of December.

The central bank has also warned that nearly Tk 11 trillion in bank loans are now classified as “at risk”.

According to its Financial Stability Report 2025, based on data through December, such loans account for 59.73 percent of all outstanding bank credit.

Bangladesh Bank considers defaulted, written-off and rescheduled loans as risky assets.

In the circular, titled “Special Exit Policy for Recovery/Adjustment of Overdue Loans”, the central bank said reducing bad loans is essential to restore banks' asset quality, liquidity and lending capacity, enabling greater credit flow to productive sectors, investment and job creation.

It said the one-off facility is aimed at borrowers facing financial hardship but who remain capable of operating their businesses and are willing to repay their debts.

Subject to approval by a bank's board of directors, the special exit facility will apply to loans classified as bad or loss as of Jun 30, 2026, under the following conditions:

Borrowers must repay the entire outstanding principal in a single payment.

Banks may waive both charged and uncharged interest, removing the previous requirement to first recover funding costs before granting interest relief.

Loans rescheduled between Aug 6, 2024, and Jun 30, 2026, after being classified as bad or loss, will also qualify.

Priority should be given to short-term agricultural loans and cottage, micro and small loans under the CMSME sector.

A Bangladesh Bank official, speaking on condition of anonymity, said the regulator expects the initiative to help both state-owned and private banks recover a significant share of defaulted loans, allowing the funds to be re-lent to new borrowers and support economic activity.