Central bank orders strong action to rein in soaring default loans

Bangladesh Bank has directed commercial banks to take immediate and forceful measures to rein in the rapid growth of non-performing loans (NPLs), which have become a critical concern for the country's financial stability.

At a meeting held at the central bank's headquarters on Wednesday, senior officials, led by Deputy Governor Dr Md Kabir Ahmed, instructed top executives of commercial banks to strengthen cash recovery drives and make full use of policy support tools to revive ailing businesses.

The directive came in the wake of serious concerns expressed by the International Monetary Fund (IMF) during its ongoing review mission under a $5.5 billion loan programme, following reports that default loans in the banking sector have surged to alarming levels.

Managing directors, chief executive officers and chief financial officers of commercial banks were present at the meeting titled 'The NPL Resolution'.

During the closed-door meeting, the central bankers sought recommendations and practical steps to contain the growth of classified loans, which have become a major headache for the banking sector.

Several bank executives who attended the meeting told The Financial Express on condition of anonymity that the central bank warned them of the mounting risks.

One managing director said BB officials informed participants that NPLs had surged to over 30 per cent of total loans by the end of September 2025 - a figure that reportedly alarmed the visiting IMF review team.

Citing a senior central banker, the managing director added, "Commercial banks need to keep another 20 per cent of funds to maintain CRR and SLR. How can banks support the economy with only 50 per cent of their funds available?"

He said: "We were asked to reduce NPLs at any cost and to intensify cash recovery efforts."

Another top executive said the bankers proposed several adjustments, including extending the deadline for policy support.

According to BB's BRPD Circular No. 7, borrowers who became defaulters by June 30, 2025 are eligible for policy support, he said.

"But many defaulted after June. We requested that the deadline be extended to December," he added.

A chief financial officer (CFO) of a private commercial bank raised concerns about the sluggish legal process in resolving loan disputes. "Any wilful defaulter can file a writ petition, and courts often issue stay orders that halt recovery for years," he said.

"To address this, we suggested that BB request the government to make it mandatory for petitioners to deposit at least 5.0 per cent of their outstanding liabilities as a down payment before filing writ petitions," he added.

The bankers also proposed increasing the number of loan courts to speed up dispute resolution and relieve pressure on the financial system.

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