The Illusion of Profit: How Loan Rescheduling Masks Bangladesh's Banking Crisis
There’s something deeply unsettling about the recent headlines touting record profits for Bangladesh’s state-owned banks, particularly Sonali Bank. On the surface, a 33% surge in net profit sounds like a triumph—until you dig deeper. What many people don’t realize is that these gains are not the result of robust banking practices but rather a clever accounting sleight of hand. Personally, I think this is a classic case of kicking the can down the road, and it raises a deeper question: Are we witnessing a genuine recovery, or is this just a temporary band-aid on a gaping wound?
The Smoke and Mirrors of Rescheduling
One thing that immediately stands out is the central role of loan rescheduling in this financial charade. Sonali Bank’s staggering profit of Tk1,313 crore in 2025 wasn’t driven by improved core banking activities like interest income or loan disbursement—both of which actually declined. Instead, it was fueled by a massive rescheduling of default loans under a relaxed policy from the central bank. This policy allowed banks to slash their default loans by 22.32% in just three months, reducing provisioning costs and artificially inflating profits.
What makes this particularly fascinating is how this strategy exposes the fragility of the banking sector. By deferring interest payments for two years and locking bad loans into a 10-year rescheduling plan, banks are essentially postponing the reckoning. From my perspective, this is less about solving problems and more about hiding them. It’s like a homeowner ignoring a leaky roof by painting over the water stains—the issue is still there, and it’s only going to get worse.
The Hidden Costs of Temporary Relief
A detail that I find especially interesting is how this rescheduling policy impacts borrowers and depositors. On the one hand, it provides temporary relief to struggling businesses, easing their immediate burden. But what this really suggests is that the underlying issues—cash flow crises, shuttered factories, and financial gaps—are far from resolved. If you take a step back and think about it, this policy isn’t reviving businesses; it’s just delaying their inevitable collapse.
For depositors, the situation is equally troubling. Cleaner balance sheets and lower default rates might encourage them to place more funds in banks, but this is a mirage. Once the grace period ends, these rescheduled loans are likely to default again, eroding capital and leaving depositors at risk. In my opinion, this is a ticking time bomb, and the banking sector is playing with fire.
The Broader Implications: Moral Hazard and Systemic Weakness
What this crisis really highlights is the moral hazard embedded in such policies. When borrowers see that repeated concessions are available despite failing to repay loans, they’re incentivized to act recklessly. Expensive cars, foreign travel—these become more appealing than investing in productive sectors. This undermines discipline in the banking system and discourages honest borrowers.
Moreover, the practice of rescheduling erodes the long-term sustainability of the banking sector. Zahid Hussain, former lead economist at the World Bank’s Dhaka office, aptly compares it to “continuous bleeding”—a gradual weakening of financial institutions. The World Bank’s warning in its 2025 Bangladesh Development Update couldn’t be clearer: delaying the recognition of bad loans only slows the repair of balance sheets.
The Future: A Looming Credit Crunch?
If there’s one thing that keeps me up at night, it’s the prospect of a credit crunch in the coming years. As banks defer repayments and interest income, their lending capacity is squeezed. This isn’t just a theoretical concern—private sector credit growth has already plummeted to an all-time low of 6.03%. What many people don’t realize is that this isn’t just a banking crisis; it’s an economic one. Without access to credit, businesses can’t expand, and the entire economy suffers.
Final Thoughts: A Call for Real Reform
In my opinion, the current approach to loan rescheduling is a dangerous game of musical chairs. Once the music stops—likely in two years—the banking sector could face a sharp deterioration. The question is: What then? Will we finally address the root causes of this crisis, or will we continue to patch over the cracks?
Personally, I think the only way forward is through genuine reform. Banks need to stop engineering their balance sheets and start building adequate buffers. Borrowers need to be held accountable, and the central bank must enforce stricter governance. Until we do, these record profits will remain nothing more than an illusion—a fleeting mirage in a desert of financial instability.
