Over 60 large borrowers seek loan restructuring amid mounting losses

Highlights:

• Over 60 institutions requested loan restructuring due to uncontrollable financial losses
• Bangladesh Bank formed committee to revive distressed borrowers and recover loans
• Eligible loans exceed Tk150 crore; terms may stretch up to 15 years
• High-profile firms like Beximco, JMI, and Energypac among applicants
• Defaulted loans now exceed Tk345,765 crore—over 20% of total disbursed

At least 60 institutions have applied to the Bangladesh Bank for loan restructuring, citing losses stemming from factors beyond their control. The applications concern defaulted loans ranging from Tk150 crore to Tk12,500 crore, with most applicants seeking restructuring facilities for up to 15 years, according to central bank sources.

In January, the Bangladesh Bank formed a five-member selection committee to recommend policy support aimed at reviving distressed borrowers by restructuring their financial operations. The objective is twofold: to restore these institutions to operational viability and ensure banks recover outstanding loans.

The Department of Regulations and Policy instructed bank managing directors to submit restructuring proposals for customers who have defaulted due to external circumstances. In a letter, the central bank specified that genuine borrowers with defaulted loans of Tk50 crore or more as of 30 September last year would be eligible. The policy was later broadened to include non-defaulters experiencing financial distress.

Recognised causes of distress include the Covid-19 pandemic, the Russia-Ukraine war, global economic slowdown, natural disasters such as floods, and the current political climate.

As of 25 March, 30 banks had submitted proposals on behalf of 60 clients. While most applications were routed through banks, a few were sent directly to the Bangladesh Bank Governor or the relevant Advisory Council Committee, which then forwarded them to the selection committee.

Sources say over 10 applications are currently under review. Notable applicants include Beximco Pharma, JMI Group, Abdul Monem Limited, and Energypac Engineering Limited.

A committee member, speaking on condition of anonymity, said, "Most applicants are well-known institutions. Some are habitual defaulters; others are high-profile companies. Over 50% have previously rescheduled their loans multiple times."

Many cited political instability as a major cause of loss, while others pointed to Covid-19 disruptions, the war in Ukraine, global economic stagnation, and the depreciation of the taka against the US dollar.

A number of applicants also raised concerns about exchange rate losses. They argued that they had entered into government contracts based on lower exchange rates, but while government payments remain pegged to those rates, banks are now demanding repayments at the current, significantly higher exchange rate—placing considerable strain on their finances.

The committee is evaluating whether this additional cost from currency devaluation could be calculated separately and repaid over an extended timeline. Recommendations on this matter will be submitted to the central bank and the government.

Major cases under review

Although Beximco Pharma has no defaulted loans, it applied for restructuring to protect its operations—particularly in import and export—due to challenges faced by other companies in its group. The committee has directed concerned banks to ensure the company's activities are not disrupted.

JMI Group has applied to restructure more than Tk2,000 crore in defaulted loans; the case is under review. Abdul Monem Limited is seeking to restructure nearly Tk800 crore and is likely to be granted the facility, having already repaid 4% of its defaulted amount.

The situation for Energypac Engineering Limited remains uncertain. A committee member noted that the company's financial health is poor and no decision has been reached yet.

On 26 March, Energypac Director Humayun Rashid told The Business Standard that the company sought restructuring to settle liabilities but could not repay the dues immediately. "We completed several government projects. The government is paying us Tk91 per dollar, but the bank is charging Tk120 or more. Where is the extra money supposed to come from?" he said, adding that their working capital limit had been slashed by 50%.

When asked about updates from the committee, he said, "We haven't received any response yet."

A committee member noted that while some applicants are financially sound and generate export revenue and employment, banks are limited in their ability to offer concessions due to provisions in the Banking Companies Act. Bank representatives have appealed for exemptions from these legal restrictions, and the issue has been referred to the Ministry of Law.

Assessments ongoing

Committee member and economist Mamun Rashid told TBS on 25 March that the committee is reviewing each case individually, examining CIB reports, working capital positions, and term loan histories. "We're holding hearings with borrowers and their banks. Although banks are often willing to restructure loans, they're constrained by current regulations. We're consulting the Ministry of Law to explore possible solutions."

He added that institutions voluntarily seeking restructuring—especially those contributing to employment and exports—are being considered favourably.

Policy scope expanded

On 10 March, Bangladesh Bank expanded the scope of support through a fresh directive. Originally limited to borrowers with defaulted loans of Tk50 crore or more as of 30 September, the revised policy now includes those who defaulted after that date or are currently under financial strain but have yet to default.

Priority will be given to loans that have been rescheduled three times or fewer. Borrowers must also submit a repayment plan based on actual business cash flow. The deadline for applications is 30 April.

Rising defaults a growing concern

At a press briefing on 26 February, Bangladesh Bank Governor Ahsan H Mansur revealed that total defaulted loans in the banking sector had reached Tk345,765 crore by the end of December, up from Tk284,977 crore in September—a sharp increase of Tk60,787 crore in just three months. As of December, 20.2% of all loans disbursed were classified as defaulted.

Data from the central bank shows that between July and December 2023 alone, defaulted loans surged by Tk134,373 crore.