The slow pace underscores a structural bottleneck: while the central bank offers low-cost liquidity, commercial banks bear the full credit risk and remain solely responsible for evaluating borrower viability.
A Tk20,000 crore refinancing scheme launched by Bangladesh Bank to revive shuttered factories has met with a sluggish response, as commercial banks remain hesitant to assume fresh risks on financially distressed businesses.
Four months after the scheme’s announcement in June, the central bank had received loan applications totaling Tk800 crore but had disbursed only Tk110 crore across eight companies as of 30 September, according to Bangladesh Bank data.
The slow pace underscores a structural bottleneck: while the central bank offers low-cost liquidity, commercial banks bear the full credit risk and remain solely responsible for evaluating borrower viability.
Under the mechanism, borrowers apply through commercial banks, which then submit approved applications to the central bank for funding.
The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) certified roughly 200 garment units for the scheme following audits confirming they met the required criteria. However, none have received funding so far, according to the trade body.
“As far as we know, not a single factory has received funds under the scheme,” said Md Shehab Udduza Chowdhury, Vice-President of the BGMEA. Four factory owners interviewed by The Business Standard confirmed they were still awaiting disbursement.
The stagnation mirrors broader trends across Bangladesh Bank’s 15 refinancing facilities worth Tk60,000 crore in total, where total applications reached Tk9,832 crore and disbursements in different schemes stood at Tk6,681 crore as of 27 September.
Unveiled on 23 May, the overarching Tk60,000 crore stimulus package aims to reopen closed factories, boost stalled exports, and generate jobs through concessionary loans priced as low as 4%.
Governor Md Mostaqur Rahman noted at the launch that the initiative could generate nearly 25 lakh jobs. Of the total allocation, Tk41,000 crore was set aside for refinancing, with Bangladesh Bank contributing Tk19,000 crore from its internal resources.
Risk aversion and liquidity preferences
Commercial bankers argue that cheap funding alone cannot override prudent risk assessment.
“If credit risk is high, the ultimate liability rests on our balance sheet,” a senior executive at a leading private commercial bank told TBS. “Closed factories are essentially failed projects. Banks cannot jeopardize depositors’ funds without a credible recovery blueprint.”
Another senior banker noted that lenders prefer parking surplus liquidity directly with the central bank under stimulus facilities to secure a guaranteed return rather than exposure to high-risk projects.
Formed on 5 June, the three-year Tk20,000 crore facility provides liquidity to revive closed industrial and service enterprises. Commercial banks borrow at 4% and lend to end-borrowers at up to 7%. The scheme offers a six-month interest waiver before regular repayments begin, with individual exposure capped at Tk200 crore per entity or group for a one-year tenure, renewable subject to performance and fund availability.
Addressing the low disbursement rates, Bangladesh Bank spokesperson Arief Hossain Khan told TBS that caution is deliberate.
“Lending to closed factories is an untested model for us. Scrutinising applicants takes time because public money is involved,” Khan said. “We will not extend facilities to wilful defaulters or companies unaffected by the global economic crisis. While initial progress is slow, momentum will pick up as viable applications clear the pipeline.”
Restructuring as a precondition for fresh capital
To navigate the deadlock, some lenders are requiring distressed borrowers to restructure balance sheets via asset sales and equity injections before granting fresh credit.
Sohail R K Hussain, Managing Director of Bank Asia, explained that his institution has prepared proposals for dozens of firms, provided they first pledge additional collateral or liquidate assets to adjust existing liabilities.
Hussain cited Abdul Monem Sugar Refinery Ltd, which sold assets to Abul Khair Group to settle liabilities with Bank Asia. Supported by a fresh equity injection, the refinery is now positioned to resume operations. Similarly, Bengal Plastic sold its under-construction Swiss Tower to clear debt, enabling Bank Asia to approve low-cost refinancing against its improved balance sheet.
Bank Asia has taken similar steps with other distressed companies before providing fresh financing.
“This is a win-win game for both parties,” Sohail said, adding that the process had helped the bank reduce default loans while allowing distressed companies to survive through fresh equity.
He also cited City Group, saying the company would first need to inject equity by selling assets. “Only bank loans cannot help them survive,” he said.
Factory owners warn of impending closures
The banking sector’s caution comes at a precarious time for partially operating manufacturers struggling with the aftermath of the July–August 2024 domestic unrest, US reciprocal tariffs introduced in mid-2025, persistent gas and power shortages, and shrinking export orders.
Dhaka-based Nofs Garments Ltd applied for a Tk25 crore loan through Uttara Bank’s Foreign Exchange Branch two months ago but has yet to receive approval.
“If funding fails to materialise, we risk defaulting on workers’ wages and shutting down completely,” said Managing Director Tanveer Islam.
The company, which previously posted annual exports of Tk120 crore and employed 850 workers, saw its operations severely disrupted after transaction restrictions were placed on First Security Islami Bank following 5 August 2024. The resulting six-week delay in opening letters of credit (LCs) and processing export proceeds created a backlog that paralyzed supply chains. While buyer relations remain intact and orders are returning, liquid capital remains missing.
Similarly, Chattogram-based Classical Fashion Ltd applied for refinancing through Uttara Bank’s Laldighi Branch. The firm, which exports entirely to the US, saw its workforce shrink from 650 to 150 workers, with only 120 of its 450 sewing machines currently operational.
“Bank officials informed us they have not received funds or instructions from the central bank,” said Managing Director Mohammad Nazim Uddin. He noted that order cancellations during the 2024 unrest, compounded by US reciprocal tariffs in mid-2025, severely eroded cash flow, though existing infrastructure would allow the plant to scale back to full capacity if financing is granted.
Source: The Business Standard
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