Bangladesh Bank has suspended a key provision of the Bank Company Act, 1991, to enable five defaulting subsidiaries of the country’s leading industrial conglomerate City Group to access a Tk 3,000 crore working capital loan facility.
The waiver, effective until December 31, 2027, was issued on November 4, 2026, under the signature of Deputy Governor Kabir Ahmed.
It clears the way for a City Bank-led syndicate of eight banks to provide the financing despite the group’s extensive loan default status.
The five beneficiary companies—City Seed Crushing Industries Ltd, City Sugar Industries Ltd, City Edible Oil Ltd, City Dal Mills Ltd, and Shampa Flour Mills Ltd—are all currently classified as defaulters. Under normal rules, Section 27(KaKa)(3) of the Bank Company Act bars banks and financial institutions from extending fresh loans or credit facilities to classified defaulters.
Bangladesh Bank invoked its authority under Section 121 to suspend this restriction specifically for the proposed syndicated working capital facility.
An earlier plan for Tk 1,700 crore in fresh financing has been scaled up, with the total facility set at Tk 3,000 crore; banks have so far agreed on the initial Tk 1,700 crore tranche (City Bank contributing Tk 300 crore and the other seven banks Tk 200 crore each).
Loan agreements are expected shortly, with disbursements to begin soon after.
Heavy Debt Burden and Default Status
City Group’s total outstanding exposure stands at around Tk 26,000 crore (reports range from Tk 24,185 crore as of March 2026 to over Tk 26,600 crore) across 43–48 domestic and foreign banks and financial institutions.
A large portion of these loans has already been classified as non-performing after a special central bank directive that kept the group’s loans unclassified until September 30, 2026, expired. That earlier facility had prevented roughly Tk 26,000 crore from being treated as defaulted.
Once it lapsed, many lenders began classifying the exposures, cutting off access to new loans and letters of credit (LCs) and creating risks of large provisioning charges that would pressure bank profitability.
Previous restructuring discussions involved proposals to reschedule the Tk 26,000 crore over 12 years while seeking additional working capital of up to Tk 6,000 crore. Banks were reluctant to inject further funds into a stressed borrower, citing concerns that new money could simply worsen overall repayment problems. Some foreign lenders, including HSBC, had already moved to classify portions of the exposure.
Bangladesh Bank has repeatedly urged lenders to avoid actions that could force the group to shut operations, citing its role in essential commodity supply (including the Teer brand) and the potential impact on food security ahead of Ramadan, as well as the systemic provisioning burden on the banking sector.
Conditions Attached to the New Facility
The central bank has imposed strict conditions to limit risk. Neither the government nor Bangladesh Bank will assume any liability for the loans, and syndicate members (led by City Bank) cannot later seek financial support from either. City Group must provide unencumbered assets—not already pledged against other loans—as registered mortgage collateral.
Sales proceeds from goods financed by the syndicated facility must be deposited into a designated bank account, from which syndicate lenders receive priority proportional repayment. Imported raw materials purchased with the funds will be controlled by the lenders’ security agent; the borrower companies will act as custodians during processing. These measures are intended to give banks tighter oversight of fund use, inventory, and cash flows.
Underlying Economic Challenges
City Group, which generates roughly Tk 32,000 crore in annual revenue and employs about 25,000 people, has faced a confluence of pressures that culminated in its first request for regulatory support in more than 50 years of operations. Key factors include:
- Sharp taka depreciation (around 42% against the US dollar over four years), which generated substantial forex losses (reported over Tk 2,500 crore in some periods) and cut the group’s effective import financing capacity by an estimated $900 million as the dollar value of existing credit limits eroded.
- Rising borrowing costs, with domestic rates up 4–5 percentage points and USD-linked costs roughly tripling since 2022.
- Prolonged gas shortages that left six major industrial units (involving investments of Tk 12,000–14,000 crore, largely at the Hosendi Economic Zone) idle or underutilized, generating ongoing fixed costs and interest without corresponding revenue. Broader gas and energy constraints have also cut production across edible oil, flour, and related units.
- Liquidity and confidence issues in parts of the banking sector that restricted working capital and made some local LCs less acceptable to foreign suppliers, further disrupting raw-material imports and sales (which fell sharply in some periods).
The group has explored selling non-core assets to generate funds for debt repayment. Bankers have described the situation as a genuine business crisis rather than fund diversion, but they note the heavy exposure raises questions about earlier credit risk assessments, particularly regarding projects advanced without assured gas supply.
Broader Banking Sector Context
This case sits against a banking sector where non-performing loans have hovered around 30–33% of total outstanding loans in 2026 (reaching roughly Tk 6 trillion or more at points), with concentration in a relatively small number of banks. Classification of a large exposure like City Group’s would amplify provisioning needs, capital pressures, and constraints on fresh lending across multiple institutions. Central bank interventions of this type aim to keep viable operations running while protecting systemic stability, though they also underscore ongoing challenges with large corporate defaults, energy bottlenecks, currency volatility, and the need for sustained restructuring and recovery efforts.
The waiver provides short-term breathing room for City Group’s essential commodity operations, but long-term resolution will depend on improved cash generation, asset sales, gas availability, and disciplined use of the new funds under the central bank’s stipulated controls.