Bangladesh sustainable loan rescheduling jumps 80pc as recoveries fall

Bangladesh Bank figures show banks leaned more heavily on restructuring in early 2026, raising concerns over project viability, borrower stress and future loan quality in sustainable finance.

Bangladesh’s sustainable and green finance sector came under growing repayment pressure in the first quarter of 2026, with recoveries falling sharply as loan rescheduling rose, central bank data showed.

Rescheduling of sustainable finance increased 80.5 per cent year on year during January-March, while green-finance rescheduling surged 675.8 per cent, according to Bangladesh Bank data.

The contrasting movement points to growing pressure on borrowers involved in environmentally and socially sustainable projects, with financial institutions increasingly relying on restructuring arrangements as recoveries weaken.

The trend was particularly pronounced in the broader sustainable-finance segment, where private commercial banks continued to account for the largest shares of both recovery and rescheduling.

The strong recovery recorded a year earlier was not sustained in the latest quarter, indicating worsening repayment conditions across a significant portion of the sustainable-finance portfolio.

Green-finance recovery also weakened during the quarter, although the decline was less severe than in the wider sustainable-finance segment.

At the same time, the sharp increase in green-loan rescheduling indicates that some borrowers may be struggling to meet existing repayment schedules amid persistent economic and financial pressures.

The changes were accompanied by significant shifts in the contributions of different categories of banks and financial institutions. While private commercial banks remained the main source of sustainable-finance recovery, specialised banks and non-bank financial institutions moved against the broader trend and recorded higher recoveries than a year earlier.

Commercial banks and finance companies recovered Tk 523.77 billion in sustainable finance during January-March 2026, down 32.8 per cent from Tk 779.47 billion in the same period of 2025.

By contrast, rescheduled sustainable finance rose 80.5 per cent year on year to Tk 37.24 billion in the first quarter of 2026 from Tk 20.63 billion a year earlier.

The steep increase in rescheduling alongside the decline in recovery points to greater reliance on restructuring as financial institutions manage their sustainable-finance exposures.

Green-finance recovery fell 10.3 per cent to Tk 50.38 billion in the first quarter of 2026 from Tk 56.15 billion a year earlier. The decline was therefore considerably smaller than the fall recorded across the broader sustainable-finance portfolio.

Green-finance rescheduling, however, climbed sharply to Tk 4.12 billion from Tk 530.6 million in the first quarter of 2025, a year-on-year increase of 675.8 per cent.

Private commercial banks or PCBs, remained the biggest contributors to sustainable-finance recovery despite a substantial decline. They recovered Tk 304.24 billion in the first quarter of 2026, down 42.3 per cent from Tk 527.52 billion in the corresponding period of 2025.

Their share of total sustainable-finance recovery also fell to around 58.1 per cent from nearly 67.7 per cent a year earlier, reflecting a broader shift in the composition of recoveries across financial institutions.

Islamic banks recorded the second-highest sustainable-finance recovery at Tk 102.17 billion, down 18.3 per cent from Tk 125.09 billion in the first quarter of 2025.

Foreign commercial banks recovered Tk 52.78 billion, compared with Tk 69.67 billion a year earlier, a decline of 24.3 per cent.

Specialised commercial banks moved against the overall trend, with sustainable-finance recovery increasing 14.3 per cent to Tk 28.72 billion from Tk 25.12 billion.

Finance companies also performed more strongly, with sustainable-finance recovery rising 25.9 per cent to Tk 26.54 billion from Tk 21.09 billion.

State-owned commercial banks recovered Tk 9.32 billion in the first quarter of 2026, down 15.1 per cent from Tk 10.98 billion in the same period of 2025.

The restructuring pattern also changed significantly between the two years.

Rescheduled sustainable finance at private commercial banks jumped to Tk 35.64 billion in the first quarter of 2026 from Tk 8.46 billion a year earlier, making them the dominant contributor to overall rescheduling in the latest quarter.

Islamic banks, which accounted for the largest amount of sustainable-finance rescheduling in the first quarter of 2025 at Tk 11.11 billion, recorded only Tk 125.1 million in the first quarter of 2026.

Finance companies rescheduled Tk 6.39 billion in sustainable finance during the quarter, up from Tk 5.54 billion a year earlier, while state-owned commercial banks increased their rescheduled amount to Tk 8.36 billion from Tk 5.00 billion.

The green-finance segment showed a similar shift.

Private commercial banks recovered Tk 28.45 billion in green finance in the first quarter of 2026, down 9.7 per cent from Tk 31.49 billion a year earlier, while Islamic banks’ recovery declined 13.2 per cent to Tk 13.69 billion from Tk 15.77 billion.

Financial institutions, however, increased green-finance recovery by 61.9 per cent to Tk 6.78 billion from Tk 4.19 billion.

Foreign commercial banks recovered Tk 444.9 million, down from Tk 875.8 million, while state-owned commercial banks’ green-finance recovery dropped sharply to Tk 1.01 billion from Tk 3.82 billion.

Green-finance restructuring recorded the most dramatic year-on-year change.

Private commercial banks rescheduled Tk 3.42 billion in the first quarter of 2026, compared with only Tk 165.5 million a year earlier.

State-owned commercial banks, which reported no green-finance rescheduling in the first quarter of 2025, recorded Tk 686.7 million in the latest quarter.

Financial institutions rescheduled Tk 10.9 million in green finance in the first quarter of 2026, the same amount reported a year earlier, while Islamic banks recorded no green-finance rescheduling during the latest quarter against Tk 354.3 million in the first quarter of 2025.

People familiar with the developments said the sustainable-finance market entered 2026 with a weaker recovery environment but substantially greater use of restructuring mechanisms.

Dr Masrur Reaz, chairman of Policy Exchange Bangladesh, said the sharp decline in sustainable-finance recovery alongside the significant rise in rescheduling suggested borrowers were facing increasing financial stress.

“The numbers indicate that repayment capacity has weakened, and financial institutions are increasingly using rescheduling to manage stressed exposures. This is a warning sign that needs closer monitoring, particularly because sustainable finance is expected to support long-term investments and resilience,” he said.

Reaz said rescheduling could provide temporary relief to viable projects but should not become a mechanism for masking deterioration in loan quality.

“Banks need to assess whether these projects remain fundamentally viable and whether borrowers have the capacity to resume regular repayments. Otherwise, the rise in rescheduling could eventually translate into higher non-performing loans,” he added.

Syed Mahbubur Rahman, Managing Director and CEO of Mutual Trust Bank PLC, said the recent increase in loan rescheduling should be viewed within the broader financial pressures facing businesses and borrowers.

“Rescheduling gives viable borrowers an opportunity to overcome temporary liquidity and cash flow pressures and continue their businesses. Therefore, an increase in rescheduling does not necessarily mean that the underlying projects are weak,” he said.

“The focus should be on identifying viable projects, supporting them through temporary difficulties and ensuring that financing ultimately contributes to sustainable business growth and repayment,” he added.

“Rescheduling is appropriate for customers who have genuine cash-flow challenges and a clear path to recovery. This is a globally accepted practice. But in our country, much of the rescheduling is done mainly to improve the appearance of the balance sheet, even when we know the account may deteriorate again. This approach resembles evergreening,” he said.

Source: The Financial Express