In Bangladesh, the Bigger the Default, the Better the Deal

If you miss a few payments on a small personal loan in Bangladesh, your bank will not let you forget it. Calls come first, then letters, then an officer at your door warning about court. Your name can land on a public defaulter list, and your future borrowing dies on the spot.

Now picture a different borrower. A business owner has taken Tk 23,000 crore from the banking system. He has stopped paying. The bank does not sue him. The central bank does not blacklist him. Instead, a committee meets to review his case. The committee considers his application for relief. It offers him a deal. Pay 2 percent of what you owe right now. Take ten more years to repay the rest. Take a grace period of up to two years before the new payments even begin. While all this is happening, the company you run keeps operating.

That second scenario is not hypothetical. It is policy.

This is the gap between how the banking system treats small borrowers and how it treats large ones. The bigger the loan, the gentler the policy. Zahid Hussain, the former lead economist at the World Bank's Dhaka office, told The Business Standard that repeated rescheduling acts like "continuous bleeding" inside a financial institution, eroding capital while teaching borrowers that not paying is a viable plan. The longer it runs, the weaker the bank gets.

The numbers

By the end of 2024, defaulted loans in Bangladesh's banking sector stood at Tk 3.46 lakh crore, which The Daily Star reported as the highest level in 25 years. By September 2025, the figure had climbed to Tk 6.44 lakh crore. That is 35.73 percent of all credit the banks have given out. Add in loans that are distressed but not yet officially classified and the total reaches Tk 7.56 lakh crore, roughly 45 percent of every loan outstanding in the country.

Almost half the money Bangladesh's banks have lent is in trouble.

Ten banks alone hold 73 percent of the official defaults. Among those ten, the same handful of corporate names show up again and again as the borrowers.

How rescheduling actually works

A loan that goes unpaid for several months gets classified as a default. By the rules, the bank then has to set aside money against that loan as a likely loss. That eats into the bank's profits and weakens its capital. The bank does not want this. The borrower does not want the default tag either, because it freezes them out of future credit.

Both sides have a reason to make the problem disappear. Enter rescheduling.

Rescheduling is simple. The borrower applies to restructure the loan. They pay a small down payment. The bank stretches out the repayment over years. The default classification is removed. The loan looks healthy again on paper.

When loan rescheduling was first introduced in Bangladesh in 1991, a defaulter had to make an initial down payment of 10 percent of the outstanding amount, then two further instalments of 20 and 30 percent. Around 60 percent of what you owed had to move before the default tag came off. Over the next three decades, Bangladesh Bank softened the rules every time pressure from large borrowers built up. By the November 2025 policy, the bar had dropped to a flat 2 percent down. Pay 2 taka of every 100 you owe, and you are no longer a defaulter.

The slide is easy to trace. In July 2024, the central bank introduced an "exit policy" allowing defaulters to clear their loan over three years with a 10 percent down payment. Months later, after weak uptake, the down payment was cut in half to 5 percent. By November 2025, the rescheduling term had been pushed out to ten years with a two year grace period. A grace period means you do not pay anything during that time. The loan sits quietly and the bank logs it as performing.

Around 1,250 firms applied for relief under the corporate rescheduling committee formed in early 2025. The committee approved the first 250 of them with repayment terms running from five to fifteen years and down payments between 1 and 5 percent.

Of the loans that have been rescheduled, 38.4 percent have already defaulted again, according to a Business Standard analysis published in August 2025. The relapse rate was 23.8 percent in 2020.

Two names, one pattern

Two names dominate the defaulter story. Beximco Group. S Alam Group.

By September 2024, Beximco's officially defaulted loans came to Tk 23,120 crore. S Alam's came to Tk 11,734 crore. Together, that is Tk 34,854 crore from two corporate families, accounting for 12 percent of every defaulted loan in the entire country.

The real exposure is much larger. According to reporting by bdnews24, the top ten defaulter groups, led by Beximco and S Alam, together hold around Tk 52,000 crore in hidden defaults, loans that have not been officially classified as bad but are functionally unpaid. Over the years of the previous Awami League government, New Age reported that the S Alam Group pulled out around Tk 2.25 lakh crore from Bangladesh's banking system through ten banks and a non-bank financial institution, with 44 percent of the lending taken under shell companies and anonymous channels. Beximco took out around Tk 50,000 crore over the same period, nearly half of which has gone bad.

S Alam alone owed Tk 80,000 crore at Islami Bank Bangladesh by 2024. The Daily Star later found that eleven of the country's top twenty defaulters are entities linked to S Alam.

The defaults are not scattered across the economy. They sit concentrated inside a small group of borrowers protected by the rules.

Who pays the bill

When a loan is not repaid, somebody has to absorb the loss. In Bangladesh, the loss travels.

It begins inside the bank itself. Bad loans erode capital and force banks to set aside reserves that could have been lent out productively. With ten banks holding around three quarters of the country's defaults, those institutions are quietly bleeding from balance sheets they cannot easily repair.

From the bank, the cost moves to the depositor. Every taka a bank lends began as someone's savings. When loans stop coming back, the bank compensates by paying lower interest on deposits and charging higher rates on new lending. Keep your money in a savings account and you earn less than you should. Borrow for a small business or a house and you pay more than you should.

Then the taxpayer takes a share. State owned banks like Sonali, Janata, and BASIC have been recapitalised with public money on several occasions. That money came from taxes, which is to say, from you.

The final share lands on the rest of the economy. Weak banks lend cautiously. When credit shrinks, businesses cannot expand, jobs grow scarce, prices climb, and productive investment slows. The bill for a handful of large defaults makes its way all the way down to the price of a kilo of rice.

You pay, in other words. Whether you have ever taken a loan in your life or not.

Not a new problem

This story is not new in Bangladesh.

From 2010 to 2012, Hallmark Group siphoned around Tk 4,357 crore from Sonali Bank using falsified documents. From 2009 to 2013, BASIC Bank's board approved Tk 4,500 crore in fake loans to shell companies controlled by people connected to the bank's leadership. PK Halder did the same trick a few years later, taking thousands of crores against fabricated assets through a network of paper firms. The press called each one a scandal. The government called each one an isolated failure of supervision.

After Hallmark, the country demanded reform. After BASIC, the country demanded reform. After PK Halder, the country demanded reform. None of those scandals ended because the rules tightened. They ended because the people running them either died, fled, or got caught for something else.

Bangladesh Bank has identified more than 1,500 willful defaulters. New Age has reported that no action has been taken against any of them.

What the rules actually reward

If you were managing a bank in this environment and a major borrower stopped paying, what would you do? You could push hard. Declare them a willful defaulter. Take them to court. Watch the case drag on for a decade. Mark the loan as a loss and weaken your own balance sheet.

Or you could apply for rescheduling. Accept the 2 percent down payment. Stretch the term to ten years. Keep the loan looking healthy on paper. Move on.

The rational choice is rescheduling. The bank keeps its balance sheet clean, the borrower buys another ten years on the same money, and the regulator avoids a number that would embarrass him this quarter. Everyone gets a quieter year. The real cost is paid later, somewhere else, by somebody who had nothing to do with the original loan.

That is the design.

Nobody wrote the policy down with the intention of rewarding default. But the architecture of it makes default the cheaper path. Repaying on time is harder than getting forgiven for not repaying. Reporting a loan honestly as bad is harder than rescheduling it into looking good. The system rewards the path that produces dishonest numbers.

You end up with a banking sector that looks one way on paper and works another way underneath. Whatever default rate the public sees, whatever figure the IMF cites in its country report, whatever number the government uses for planning, it all sits on top of a deeper figure nobody is allowed to count. The official bad loan rate is around 35 percent. The actual distressed rate is closer to 45 percent.

The question to ask

You do not need to be a banker to understand any of this. You only need to ask one question.

When the system rewards default and punishes repayment, what should you expect people to do?

They will default. And the books will keep saying that everything is fine.