Banks rescheduling loans before they default

Banks in Bangladesh are increasingly rescheduling loans before they become non-performing (defaulted) in an effort to prevent them from being classified as bad loans.

An analysis of rescheduled loan data shows that more than 80 percent of all rescheduled loans were restructured in advance to avoid default.

As a result, roughly one-quarter of all loans in the country's banking sector are now being rescheduled to avoid becoming non-performing. This trend has been rising steadily over the past several years. Over the last five years, the volume of rescheduled loans has increased by nearly five-and-a-half-fold.

According to the Bangladesh Bank Financial Stability Report 2025, loans worth Tk 1.7 trillion were rescheduled during 2025.

Compared with the previous year, loan rescheduling increased by more than Tk 848.24 billion, or 99 percent. In 2024, loans totalling Tk 856.79 billion had been rescheduled.

By the end of 2025, the outstanding stock of rescheduled loans in the banking sector had risen to Tk 4.46 trillion. Of this amount, 60.13 percent was rescheduled before the loans became defaulted, and 39.87 percent was rescheduled after the loans had already become defaulted.

Despite this massive volume of loan restructuring, the banking sector still recorded more than Tk 2.11 trillion in new defaulted loans during 2025.

Banks are required to set aside larger amounts of their profits as loan-loss provisions when non-performing loans increase. By preventing loans from being classified as defaults through rescheduling, banks are able to report higher profits than they otherwise could.

According to an internal Bangladesh Bank report, more than 30 percent of every Tk 100 lent has become non-performing, and around 40 percent of those defaulted loans belong to large borrowers.

Loan rescheduling was originally intended as a relief measure to help borrowers facing genuine difficulties restore regular repayment. However, former executive director of the Bangladesh Institute of Development Studies (BIDS), Mustafa K Mujeri, believes the facility is now being misused.

Speaking to bdnewews24.com, he said: "Loan rescheduling is meant to regularise defaulted loans. Banks generally resort to rescheduling when non-performing loans become excessive. Repeatedly rescheduling the same loans does not make the special facility legitimate."

The former Bangladesh Bank chief economist also recommended ending repeated rescheduling.

He said, "Bangladesh Bank must assess whether its rescheduling policy is being abused. Repeated restructuring ultimately weakens banks' financial health."

More Than a Quarter of All Loans Rescheduled

At the end of December 2025, total outstanding loans in the banking sector stood at Tk 17.74 trillion.

Of this, Tk 4.46 trillion, or 25.14 percent, consisted of rescheduled loans.

The total amount of rescheduled loans is equivalent to about 80 percent of the banking sector's total defaulted loans.

According to Bangladesh Bank, defaulted loans reached Tk 5.57 trillion by the end of December 2025, representing a 30.60 percent default rate.

Without the option of rescheduling, total defaulted loans would likely have exceeded Tk 10 trillion by December 2025.

Banks are required to maintain provisions ranging from 0.25 percent on regular loans to as much as 100 percent on defaulted loans, depending on the loan classification.

Once a loan is officially classified as defaulted, a substantial portion of bank profits must be set aside as provisions. Banks that fail to maintain adequate provisions are not allowed to distribute dividends.

According to Selim RF Hussain, former chairman of the Association of Bankers Bangladesh (ABB), banks have become increasingly interested in rescheduling loans in order to avoid provision shortfalls.

He told bdnews24.com, "The full picture of defaulted loans is still not emerging for various reasons. Banks want their balance sheets to look healthy. So, whenever a borrower applies for rescheduling, banks are eager to approve it. The important question is whether these decisions are being made on reasonable grounds."

He warned that continued growth in rescheduling would only create a larger stockpile of future bad loans.

"Eventually these loans will become defaulted anyway. Why not recognise the reality now? Both bankers and the central bank need to be stricter. Every rescheduling decision should have a genuine justification."

Loan Rescheduling Increased More Than Fivefold In 5 Years

According to the data, loans worth Tk 268.1 billion were rescheduled in 2021. In the following year, 2022, the figure stood at Tk 637.1 billion, while loans amounting to Tk 912.2 billion were rescheduled in 2023.

Loans worth Tk 856.7 billion were rescheduled in 2024, and Tk 1.7 trillion in 2025.

Data shows that the volume of loans rescheduled before turning classified as non-performing stood at Tk 2.68 trillion by the end of 2025, accounting for 60.13 percent of the total rescheduled loans.

The outstanding balance of loans rescheduled after becoming classified as non-performing stood at Tk 1.78 trillion, representing 39.87 percent of the total rescheduled loans.

At the end of 2021, the outstanding balance of rescheduled loans in the banking sector stood at Tk 1.68 trillion. The following year, the balance rose by Tk 443.7 billion—or 26.35 percent—to reach Tk 2.12 trillion.

In 2023, the outstanding balance of rescheduled loans increased by Tk 757.62 billion, or 35.60 percent, bringing the total to Tk 2.88 trillion.

In the following year, that is in 2024, the outstanding balance of rescheduled loans stood at Tk 3.48 trillion. During that year, the balance of rescheduled loans increased by Tk 599.2 billion, or 20.76 percent.

Finally, by the end of 2025, the outstanding balance of rescheduled loans rose to Tk 4.46 trillion.

Large Loans Rescheduled More

Industrial loans account for approximately one-third of the rescheduled loans, with data showing that they account for 29.56 percent. The remaining breakdown includes the ready-made garment sector at 17.56 percent, working capital at 13 percent, import loans at 10.19 percent, commercial loans at 9.96 percent, the construction sector at 6.48 percent, and agricultural loans at 3 percent.

Additionally, the rescheduling rates were 2.39 percent for the ship-breaking sector, 0.69 percent for transport and communication, 0.68 percent for the export sector, 0.26 percent for consumer loans, and 6.17 percent for other loans.

According to the data, the total amount of rescheduled industrial loans stood at Tk 1.32 trillion. Of this, large or corporate loans accounted for 72.38 percent—or Tk 956.1 billion—of the rescheduled amount.

In the medium-scale industrial sector, 8.78 percent of loans were rescheduled; the figures were 6.76 percent for the small-scale sector, 1.6 percent for the micro and cottage sector, and 10.49 percent for other sectors.