The Bangladesh Bank tightened loan classification and reporting rules to contain defaulted loans.
The central bank in a circular issued on Thursday stated that borrowers would be defaulters if they fail to repay a continuous loan within its tenure.
Continuous loans, typically granted for up to 12 months to support businesses with operational expenses, are supposed to be repaid or formally renewed at the end of the loan term.
Interest is charged only on the portion of the loan that is actually used, not on the full sanctioned amount.
However, many borrowers have exploited loopholes by rolling over these loans without repaying the outstanding amounts, often creating new credit lines that include the unpaid dues, the circular said.
In some cases, banks have allowed borrowers to exceed their approved credit limits and then transferred the excess portion into separate loans 鈥� effectively bypassing repayment obligations and masking defaults, it said.
The new directive prohibits such practices.
From now on, no continuous loan can be renewed unless the borrower adjusts any outstanding amount that exceeds the sanctioned limit.
Banks are also barred from separating the excess portion of a loan and converting it into a new loan or shifting it under another credit account.
The move is intended to end the longstanding misuse of renewals that allowed borrowers to remain officially non-defaulted despite persistent non-repayment. On the same day, the central bank also issued a master circular updating the loan classification and provisioning framework, with changes set to take effect from the quarter ending September 30, 2025.
This directive strengthens reporting standards and clarifies definitions, especially regarding fixed-term loans and overdue installments.
The format titled 鈥楽ummary of Loan Classification And Provision鈥� and 鈥楻eturns of Classification of Short Term Agricultural Credit鈥� must now be generated through banks鈥� Core Banking Systems.
The both formats must be submitted using an updated Enterprise Data Warehouse template and uploaded on the Bangladesh Bank website.
These submissions must include data from both domestic operations and offshore banking units.
The circular defines that if a borrower fails to repay any installment or part of an installment by its due date, the amount will be marked as overdue.
If the overdue portion equals or exceeds the value of installments due over a three-month period, the entire loan must be classified as sub-standard.
For instance, missing three monthly installments or one quarterly installment for over three months would trigger the full loan to be downgraded.
