BB offers one-time exit facility for bad loans at finance companies

Bangladesh Bank has introduced a special one-time exit facility, allowing finance companies to settle classified bad and loss loans in a move aimed at improving asset quality and easing liquidity pressures in the sector.

The central bank's Finance Company Regulation and Policy Department (FCRPD) issued a circular on Thursday, instructing all managing directors and chief executive officers of finance companies to implement the scheme with immediate effect.

According to the circular, borrowers across various sectors have come under financial strain due to adverse economic conditions beyond their control, with many businesses becoming loss-making or shutting down altogether. As a result, finance companies have struggled to recover loans, prompting the central bank to introduce the one-off settlement mechanism for eligible borrowers.

Under the facility, finance companies may, subject to board approval, offer a one-time settlement to borrowers whose loans were classified as bad or loss as of 30 June 2026. Eligibility will be determined based on each institution's relationship with the borrower.

Borrowers seeking to avail themselves of the facility must repay their entire outstanding liability in a single payment.

The circular stipulates that the principal amount of a loan cannot be waived. However, finance companies may waive interest following due verification and selective scrutiny. Where an interest waiver requires relaxation of fund utilisation conditions or deviation from approved income sectors, the decision must be supported by the institution's internal audit and endorsed by the Head of Internal Control and Compliance (HICC).

Loans involving fund diversion, fraud, forgery or other irregularities in disbursement will not qualify for the facility.

The circular also states that loss-classified loans rescheduled between 6 August 2024 and 30 June 2026 will be eligible under the scheme.

Priority will be given to short-term agricultural loans and cottage, micro and small enterprise (CMSME) loans.

Finance companies have been directed to notify eligible borrowers in writing and take the necessary steps to implement the facility.

The one-time exit scheme will remain in force until 31 December 2026. The circular has been issued under Section 41 of the Finance Company Act, 2023, and took effect immediately.