When Default Becomes a Business Strategy

In Bangladesh, there are two very different experiences of borrowing money from a bank. For an ordinary borrower, a missed instalment can quickly become a source of anxiety. There may be phone calls, reminders, notices and eventually legal action. For a powerful borrower with a large loan, however, default can sometimes become the beginning of a negotiation. More time can be requested, repayment can be restructured, and new concessions can be introduced to protect businesses and employment.
This is not merely an unfortunate inconsistency. It is one of the central reasons why Bangladesh's banking crisis has become so difficult to resolve. The country's defaulted loans have grown from around Tk 22,000 crore in 2009 to Tk 201,000 crore in June 2024. By March 2026, the figure had reached Tk 5.88 lakh crore, according to figures cited in the discussion surrounding the crisis. These enormous numbers represent money that depositors entrusted to banks, capital that could have financed productive businesses and resources that are no longer available to circulate through the economy.
Yet the most disturbing question is what the system teaches people about the cost of losing it. A banking system ultimately depends on trust. Depositors trust banks with their money. Banks trust borrowers to repay. Regulators are supposed to ensure that neither side abuses that relationship. When a borrower deliberately refuses to repay a loan and repeatedly receives concessions instead, that chain of trust begins to break.

This is where Bangladesh's current approach deserves much closer scrutiny. Bangladesh Bank's latest policy support gives borrowers with loans exceeding Tk 1,000 crore up to 15 years to repay after rescheduling or renewing their loans, with no instalments required during the first two years. The intention is understandable. A functioning factory can employ thousands of people, generate exports and eventually repay at least part of its debt. A dead factory can do none of those things. 
But the distinction that matters is between a viable business temporarily unable to pay and a borrower who has discovered that refusing to pay is an effective financial strategy. These two categories cannot be treated alike. A genuinely distressed entrepreneur may deserve breathing space. A wilful defaulter deserves scrutiny. The first needs restructuring; the second needs consequences. The danger begins when the financial system becomes so generous in its treatment of both that the distinction disappears. If repeated concessions are offered to large defaulters while smaller honest borrowers continue to face strict repayment schedules, the system creates a perverse reward for bad behaviour. Why struggle to maintain repayment discipline if default eventually brings an opportunity to renegotiate the terms?
That is how a financial problem becomes a cultural problem. The message does not remain confined to corporate boardrooms. It travels throughout society. People observe who gets pursued and who gets protected. Once people begin to believe that the rules are different for the powerful, compliance itself becomes irrational. This is why simply reducing the headline figure of defaulted loans through rescheduling may not necessarily mean that Bangladesh's banking sector has become healthier. A loan does not become healthy merely because its classification changes. The real test is whether the money eventually comes back.
There is a legitimate argument that recovering half of a doubtful loan through negotiation may be better than recovering nothing after years of litigation. But that argument only works if negotiation is backed by credible enforcement. Without the possibility of punishment, a concession is not necessarily an incentive to repay; it can become an incentive to wait for the next concession.
Banks must make provisions against bad loans. When they cannot make adequate provisions, their financial strength weakens. When liquidity becomes scarce, legitimate businesses find it harder to obtain credit. Interest rates rise. Investment suffers. Depositors become nervous. Ultimately, the cost of somebody else's unpaid loan can appear in the price of credit paid by ordinary people.
In that sense, the biggest victims of Bangladesh's default culture may not be the banks. They may be the borrowers who actually repay their loans. There is another uncomfortable question that Bangladesh must confront. What happens after the current round of concessions ends? If a borrower gets 15 years to repay, including a two-year grace period, what happens if they still fail to pay? What assets can be seized? Who will be held responsible? How quickly will the courts act? Can a person who repeatedly defaults establish another business and borrow again? Unless these questions have clear answers, restructuring merely postpones the crisis. 
Bangladesh does not necessarily need a harsh policy to make a point; it needs a predictable policy. Concessions should be available to businesses that can demonstrate genuine temporary distress. But concessions should come with conditions, transparency and consequences. Wilful default must become expensive, not convenient.
Banks require stronger mechanisms, faster financial courts, accountability for directors and bank officials involved in reckless lending, better monitoring of related-party transactions and much greater transparency regarding large borrowers. Political influence over lending must also be reduced. Otherwise, even the best-designed recovery policy will eventually collide with the same old problem.
The central bank's current strategy may succeed in cleaning up balance sheets and bringing some money back into the banking system. It may even prevent otherwise viable businesses from collapsing. But it cannot, by itself, repair the deeper problem. Bangladesh needs to change the economics of default.
A banking sector cannot be rescued only by recovering money. It must also restore the principle that borrowed money must be repaid, and that power cannot purchase exemption from it. Otherwise, numbers will keep growing, but the deeper loss will be harder to measure: the gradual disappearance of the belief that in Bangladesh, financial rules apply equally to everyone.
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The writer is an academic, 
journalist and political analyst. 
He can be reached at 
[email protected]