Bangladesh Bank Clears Tk1,700 Crore Rescue Loan for City Group, Bypassing Its Default Status

Bangladesh Bank has agreed in principle to let eight private banks extend about Tk1,700 crore in fresh loans and letters of credit to City Group, one of the country's largest conglomerates, despite the group's default status on roughly Tk26,000 crore owed to 48 lenders. The plan, agreed on October 25 at a meeting chaired by Bangladesh Bank Governor Mostaqur Rahman, would use the central bank's power under Section 121 of the Bank Company Act to exempt the lending banks from rules that normally bar fresh credit to defaulters.

• City Bank would lend Tk300 crore, and seven other banks, Mutual Trust Bank, Prime Bank, Dutch-Bangla Bank, Southeast Bank, Trust Bank, NCC Bank and Pubali Bank, would each lend Tk200 crore.
• The relief covers only five City Group entities that lenders must still select, and letters of credit for those entities need separate finance ministry approval.
• Bank executives say City Group controls about 30 percent of Bangladesh's sugar supply, 40 percent of edible oil and 30 percent of other essential commodities.
• Bank Asia, BRAC Bank and Eastern Bank reportedly wanted to pursue legal action against the group instead of joining the rescue.

A default on paper, a lifeline in practice

Bangladesh Bank had quietly asked lenders not to formally classify City Group's loans as defaulted until last September, buying the conglomerate time to work out its finances. That grace period has now expired. HSBC has already classified its exposure to City Group as default, and other lenders must follow under normal rules in October, a step that forces them to set aside provisions against the loans. The fresh lending plan does not reverse that classification. Instead, it carves out an exception so eight banks can keep extending new credit to a borrower that remains, on the books, in default.

Bank	Proposed fresh lending
City Bank	Tk300 crore
Mutual Trust Bank	Tk200 crore
Prime Bank	Tk200 crore
Dutch-Bangla Bank	Tk200 crore
Southeast Bank	Tk200 crore
Trust Bank	Tk200 crore
NCC Bank	Tk200 crore
Pubali Bank	Tk200 crore

Why regulators are shielding a defaulter

Bank officials argue City Group's market share in staple commodities makes an abrupt funding cutoff dangerous for consumers. An anonymous bank chief executive said a sudden loss of supply could let traders exploit shortages and push prices higher, hurting poorer households most. Bangladesh Bank reportedly also views the group's machinery imports, financed in foreign currency, as assets worth protecting rather than letting go to waste mid-installation.

"Factories must operate," said Md Hasan, Managing Director of City Group, who has pointed to foreign exchange losses and shrinking bank support as the main drivers of the group's financial stress.

City Group's troubles trace back further than this year. Founding chairman Fazlur Rahman's death in 2023 left the group without unified leadership just as Bangladesh's banking sector went through its own capital shortfalls and mergers, leaving many lenders unable to extend the working capital the group had relied on. The group says foreign exchange losses have topped Tk2,500 crore since 2022, and taka depreciation cut its import capacity by roughly $900 million.

Bankers are not unanimous

Not every lender is comfortable with the rescue. Syed Mahbubur Rahman, Managing Director of Mutual Trust Bank, defended the group's record even as he joined the plan.

"City Group had never defaulted before and faced no allegations," said Syed Mahbubur Rahman, Managing Director of Mutual Trust Bank.

Other lenders took the opposite view. Bank Asia, BRAC Bank and Eastern Bank PLC reportedly wanted to withdraw from any rescue effort and pursue legal action to recover their money instead, though all three were invited to October's meeting and urged to stay in. The split reflects a broader tension at the heart of the plan: banks that keep lending now are betting that keeping City Group's factories running is less costly than forcing a formal collapse, while banks leaning toward legal action are betting the opposite.

What it means for you

If you buy sugar, cooking oil or other City Group-linked staples, the immediate goal of this plan is to keep those products on shelves at stable prices rather than let a sudden supply shock drive costs up at the till. If you bank with, or hold deposits at, any of the eight lenders involved, it is worth knowing that fresh lending to a defaulted borrower carries real risk, even when regulators sanction it, and that provisioning requirements on City Group's existing loans could weigh on those banks' reported profits this year regardless of how the new credit performs. Savers who prioritise safety over yield can compare current deposit options across banks using the site's FDR rate comparison tool before deciding where to park new deposits.