Moody’s Sees Long-Term Risks in Bangladesh Bank’s Default Loan Restructuring

Staff Reporter | PNN:
International credit rating agency Moody’s has warned that Bangladesh Bank’s recent provision for restructuring default loans could pose long-term risks to the country’s banking sector. In a report published on Monday, the agency noted that allowing loans to be renewed with a 2% down payment and a maximum tenure of 10 years may temporarily reduce the visible level of non-performing loans, but it could weaken the culture of loan recovery in practice.

The report states that due to the grace period, the true repayment capacity of borrowers will be assessed later than necessary. This will not only increase risks for the banking sector but also create significant obstacles in the recovery process, including withdrawal of cases and loan deferment rules.

According to Moody’s calculations, the non-performing loan ratio, which was 11.1% of total disbursed loans in 2024, had doubled to 24.1% by March 2025. In addition, bank capital against risky assets has dropped to just 3.1%, far below the minimum required level.

The report adds that while Eastern Bank, BRAC Bank, and City Bank remain relatively stable, the new policy for the overall banking sector is considered “credit negative”, indicating an increased credit risk.