The Bangladesh Bank has allowed banks to waive the entirety of uncharged interests of classified loans as the central bank seeks to improve the economy’s domestic loan landscape.

Charged interests can also be waived but after proper scrutiny and a case-by-case review, according to a circular issued Monday.

Before approving the waivers for either uncharged or charged interests, banks will no longer be required to ensure that the defaulters have paid the cost of funds.

Furthermore, defaulters can also choose to waive all the recorded interest by paying the full principal amount in a one-time settlement, as per the circular.

It is worth noting that uncharged interests in the banking sector hit Tk1 lakh crore as of December 2025. Waiving all of these would slash the country’s default loan rate to 25% from 30.60%, which was recorded in December 2025.

Following the fall of Awami League regime on 5 August 2024, the central bank introduced rescheduling policies to help regularise bad loans.

However, over the course of time, many of the regularised loans have become default again.

Before issuing the circular on Monday, Bangladesh Bank Governor Mostaqur Rahman held a meeting with all the top executives in the banking sector where both principal and interest waiver options were discussed to reduce default loan volume in the balance sheet of banks.

The options were raised by the central bank on the grounds that most rescheduled loans approved under the policy committee turned defaulted again, several top executives told The Business Standard.

However, banks opposed waiving principal loans as it goes against the Banking Company Act but accepted the option of waiving interest in suspense accounts as those are not taken in income.

Waiving charged interest will be considered on a case-by-case basis, as doing so would directly reduce banks’ income in 2026, one executive said.

The central bank came up with the new option as it was desperate to reduce default loans due to pressure from the IMF (International Monetary Fund), he added.

Bangladesh Bank is going to have a meeting with the IMF for a new loan package very soon and before that they want to bring down the default loan rate by any means, he added.

The country’s total distressed assets including default loans, rescheduled loans and written off loans rose to Tk10.87 lakh crore at the end of 2025 which was 60% of total loans in the banking industry.

Source: The Business Standard