Bangladeshi banks are utilizing aggressive loan rescheduling to artificially lower non-performing loan (NPL) ratios, creating a temporary illusion of financial health. While institutions like Sonali Bank report record profits, this practice masks systemic vulnerabilities, deferring banking stress and risking long-term instability within the emerging market’s financial architecture.
On the surface, the numbers look stellar. We are seeing record-breaking profit announcements and balance sheets that suggest a resilient recovery. But as someone who has spent two decades watching the gears of international finance turn, I can tell you that these figures are often a mirage. When a bank “reschedules” a loan, it isn’t necessarily recovering the money; it is simply resetting the clock on a debt that may never be paid.
Here is why that matters. When bad loans are rebranded as “performing” through rescheduling, the real risk doesn’t vanish—it just migrates. It moves from the immediate ledger to a future date, growing in the shadows. For the global investor, This represents the financial equivalent of kicking a can down a road that is rapidly running out of pavement.
The Mirage of the Record Profit
The recent announcement that Sonali Bank posted a record profit of Tk1,313 crore in 2025 initially seemed like a triumph of management. In the corridors of power, this was touted as a sign of strength. But look closer, and the narrative shifts. Much of this “growth” is tied to the systemic rescheduling of loans that would otherwise be classified as defaults.
But there is a catch. This practice, often referred to in macroeconomics as “evergreening,” creates a class of zombie borrowers. These are companies that are technically insolvent but are kept alive by banks that are too afraid to admit the loss. If the bank acknowledges the loan as a loss, they must set aside capital for provisions, which eats into their profits and lowers their capital adequacy ratio.
By rescheduling, the bank avoids the provision, keeps the profit high, and keeps the borrower on life support. It is a symbiotic relationship born of desperation. This isn’t just a local accounting quirk; it is a systemic vulnerability that echoes the precursors of the 2008 global financial crisis and Japan’s “Lost Decade.”
The Ghost in the Machine: Global Macro Ripples
You might ask why a banking shuffle in South Asia should concern a portfolio manager in New York or a policymaker in Brussels. The answer lies in the interconnectedness of the International Monetary Fund (IMF) frameworks and global supply chains.
Bangladesh is a linchpin in the global garment trade. The Ready-Made Garment (RMG) sector relies heavily on bank credit to fund raw material imports and operational overheads. If the banking sector is hollowed out by hidden NPLs, the credit crunch won’t just hit the banks—it will hit the factories. When the factories stop humming, global retail giants from H&M to Walmart face supply chain shocks.
the World Bank has frequently warned that emerging markets with opaque banking sectors face higher sovereign risk. When the “hidden” stress finally peaks, it often triggers a sudden currency devaluation or a liquidity crisis, forcing the government to seek emergency bailouts that come with stringent austerity measures.
“The danger of loan rescheduling is that it creates a moral hazard. When borrowers realize that the rules of default can be rewritten, the incentive to maintain fiscal discipline vanishes, leaving the state as the ultimate insurer of private failure.” — Dr. Raghuram Rajan, former Chief Economist of the IMF.
Decoding the Strategy: Rescheduling vs. Recovery
To understand the gravity of the situation, we have to distinguish between genuine recovery and creative accounting. The following table breaks down how these maneuvers impact the bank’s health over time.
| Strategy | Immediate Impact | Long-term Risk | Global Perception |
|---|---|---|---|
| Loan Rescheduling | NPLs drop; Profits rise | Accumulated hidden debt; Zombie firms | High skepticism; Lower credit rating |
| Loan Write-offs | Immediate profit hit | Clean balance sheet; Capital loss | Transparent; Viewed as “house cleaning” |
| Asset Recovery | Slow cash inflow | Low risk; Sustainable growth | High confidence; Attracts FDI |
The IMF Tightrope and the Sovereign Risk
As of this May, the pressure from international lenders has reached a fever pitch. The IMF is no longer accepting “rescheduling” as a viable metric for financial stability. They are pushing for more aggressive provisioning and a transparent cleanup of the banking sector. This creates a diplomatic tug-of-war: the government wants to maintain the appearance of stability to keep foreign investment flowing, while the IMF demands a painful, honest accounting of losses.
But it gets deeper. This tension affects the global credit markets. When a nation’s banking sector is perceived as a “black box,” the cost of borrowing for the sovereign state increases. We are seeing a subtle shift where foreign investors are demanding higher yields on government bonds to compensate for the opacity of the banking system.
In my time covering these shifts, I’ve noticed a pattern. The most dangerous moment for an economy isn’t the crash itself, but the period of “false stability” that precedes it. We are currently in that window. The record profits of 2025 are not a shield; they are a veil.
The Final Word: A Fragile Equilibrium
We are witnessing a high-stakes game of financial musical chairs. The banking sector is playing a melody of growth and stability, but the music is being powered by a generator that is running out of fuel. The transition from “rescheduling” to “resolution” will be painful, but it is the only way to prevent a systemic collapse that could ripple through the South Asian trade corridor.
For the global community, the lesson is clear: do not mistake a lack of reported defaults for a lack of risk. True strength is found in the ability to absorb a loss, not the ability to hide it.
I want to hear from you: Do you think international bodies like the IMF should have more direct oversight of national banking ledgers to prevent “evergreening,” or is that an overreach of sovereign power? Let’s discuss in the comments.
