Many banks appear to have performed better in 2025 than in the previous year, but underlying risks remain due to uncertainties surrounding the recovery of loans that were recently rescheduled under special consideration.
In August last year, the central bank allowed the rescheduling of loans defaulted by 250 firms for up to 15 years. Later, in January, the Bangladesh Bank restored a special loan rescheduling facility for the shipbuilding industry, asking borrowers to regularise their loans by making a 3 per cent down payment by June this year.
These measures helped reduce banks' provisioning requirements, ultimately influencing their bottom-line growth. They may also have further positive impacts in the upcoming quarters.
However, experts warn that the profit growth shown by banks burdened with a large volume of rescheduled loans may veer off its growth trajectory if efforts to recover defaulted loans do not succeed.
"Their [banks'] profit growth will not sustain if there are any mismatches between expectations and the recovery of rescheduled loans," said Asif Khan, chairman of EDGE Asset Management.
Talking to The FE, officials from some private banks and the central bank said they were optimistic about loan recovery, as the opportunities provided should help entrepreneurs kick-start their businesses.
Speaking in favour of the rescheduling of defaulted loans, the managing director and CEO of Southeast Bank, Md. Khalid Mahmood Khan, said all loans might not be recovered, but a positive aspect was that "some of our clients have started paying instalments".
Alongside the scope for loan rescheduling, the BB also permitted deferrals in fulfilling provisioning requirements, considering lenders' poor financial health to enable them to continue operations.
This is the backdrop against which very few banks, such as BRAC Bank and Eastern Bank, experienced significant profit growth in a real sense in 2025, riding on deposit growth, among other factors.
BRAC Bank saw deposit growth of 30 per cent in 2025, compared to the industry average of 10 per cent, following an increased inflow of depositors who had burnt their fingers in weak banks.
Mr Khan said the overall performance of the banking sector in 2025 was not good in a "real sense".
Al-Arafah Islami Bank maintained provisions of Tk 19.85 billion against a requirement of Tk 69.83 billion, with approval from the central bank.
Consequently, the bank was able to report an EPS (earnings per share) of Tk 0.74 in 2025, marking a 12 per cent increase from the previous year.
NRB Bank also reported an 81 per cent year-on-year growth in its consolidated EPS to Tk 0.20 in 2025. It had a provisioning shortfall of Tk 1.8 billion as of the reporting date. The central bank allowed deferral in fulfilling provisioning requirements following the company's plea.
When asked, the BB's spokesperson, Arif Hossain Khan, said some banks had been offered the scope of deferral in provisioning as they were not in a position to fully meet the requirements.
"Those banks have been given this scope against a promise that they would fulfill provisioning shortfall," Mr Arif said.
On the outcome of loan rescheduling, he said banks depended on the performance of their clients.
"Many clients fell into a troublesome situation as they failed to do business as per projections. So, they should be offered an opportunity to reschedule loans for the sake of loan recovery."
But what about the case of wilful defaulters?
The BB spokesperson said banks themselves would face difficulties if they allowed the rescheduling of loans for such clients.
Asked about the accounting standards followed by banks, Mr Arif said the lenders, except for a few, were unable to follow IFRS 9 accounting standards. A majority of them followed IFRS 7 or IFRS 8 standards.
There is another factor highlighted by experts as worrisome.
Mr Khalid said income from fixed-income securities helped many banks record growth in operating profits.
Banks' income from fixed-income securities will depend on the continuation of the government's demand for funds. Therefore, to sustain profit growth, banks must shift their focus towards loan recovery.
Md. Ashequr Rahman, managing director of Midway Securities, said it is difficult to recover loans that have been rescheduled repeatedly.
Banks failed to recover loans when the economy was in good shape before and after the COVID-19 pandemic.
Afterwards, the economy faced one shock after another-caused by the war between Russia and Ukraine and tensions involving the US, Israel, and Iran. Businesses are still struggling to regain momentum.
"In such a situation, the possibility of loan recovery is thin unless an ecosystem is established that has a system for managing distressed debts," Mr Rahman said.
In other countries, distressed debts are sold to debt management entities that strive to recover them.
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