Bangladesh’s banking sector is attempting what it has never done before at this scale: a 36-bank syndicated rescue of a single private conglomerate: City Group, whose outstanding debt of roughly Tk26,600 crore spans nearly every major domestic and foreign lender operating in the country. If it succeeds, it could become the corporate rescue template for how Bangladesh handles future corporate distress. If it fails, it risks becoming a cautionary tale about moral hazard and weak credit discipline in our financial sector.
City Group’s troubles stem from a familiar, but poorly managed cocktail of macroeconomic shocks and strategic overreach. The taka’s depreciation from around Tk86 to Tk122 per US dollar in 2022 eroded the group’s import capacity by an estimated 42 percent, and wiped out roughly $900 million in dollar-denominated credit lines.
Simultaneously, the group poured over Tk10,000-14,000 crore into six industrial units at the Hosendi Economic Zone, only to find gas connections which were promised never reached the industrial zone, leaving expensive capacity idle for years. Add rising domestic and dollar borrowing costs, and a leadership vacuum since founder Fazlur Rahman’s death in 2023, and the result was a conglomerate with strong revenue of Tk32,000 crore annually, but collapsing liquidity.
Read more: City Group plans to raise up to Tk1,500cr from capital market
What makes this event unusual is not the crisis itself. Bangladesh has experienced corporate defaults before, but the response this time was something new. Thirty-six banks, both local and foreign, including HSBC and Standard Chartered, have voluntarily organized a syndicated restructuring plan built around a “waterfall mechanism”: an escrow account collects all of City Group’s cash receipts and distributes them in a fixed order: operating expenses first, then working capital, then debt service (to these 36 banks). Lenders are also placing two to three board representatives inside City Group to monitor operations, corporate governance and cash flow directly.
Bangladesh Bank introduced a formal corporate debt restructuring (CDR) framework back in 2014. But that mechanism was regulator initiated, applied case by case, and never coordinated dozens of lenders around a single conglomerate with board level oversight.
Read more: 36 banks move to restructure Tk26,600 crore loans to support City Group
City Group’s rescue is different: it is lender/bank led rather than regulator mandated, happening at an unprecedented scale, and it explicitly borrows from global restructuring practice rather than domestic precedent.
Bangladesh Bank Governor Mostaqur Rahman has endorsed the private sector led approach rather than imposing a top-down solution, telling banks he would “support” whatever plan they devise.
There are good reasons this could work. City Group’s core businesses encompass edible oil, sugar, flour remain profitable and essential to daily consumption, supplying roughly 35 percent of the country’s edible oil and 40 percent of its sugar.
Unlike a company whose business model has collapsed, City Group’s problem is a liquidity mismatch, not a viability crisis: long gestation industrial investments funded with short term bank debt, compounded by currency losses. That is, in principle, fixable through tenor extension and better cash discipline, which is exactly what the waterfall structure attempts to impose. The appointment of a globally acclaimed independent auditor (Ernst & Young) to assess the true financial position before any final restructuring proposal also signals a degree of rigor that past ad hoc rescues in Bangladesh have lacked.
Yet, despite everything, the risks are substantial. Coordinating 36 separate institutions with differing risk appetites, provisioning pressures, and board approval processes is organizationally fragile : a single large lender hesitating at the terms could unravel the entire syndicate.
Bangladesh’s banking sector is also in unusually poor health to absorb further stress: the sector posted its first net loss in over a decade in 2025, and roughly half of loans held by the top ten banks are already flagged as risky. Layering a Tk26,000 crore workout onto an already strained system leaves little margin for error. There is also the governance question: City Group’s board seats for lenders are a sound monitoring tool, but only if banks actually exercise oversight rather than treating it as a formality, as often happens in Bangladesh’s relationship-driven lending culture.
City Bank CEO Mashrur Arefin’s stated that this is “not just for a single entity” is the right lens for the financial sector to adopt. If the waterfall mechanism, escrow discipline, and board oversight structure actually deliver a working repayment plan within the three-year horizon City Group has proposed, Bangladesh will have proven that its banking sector can self-organize a complex, multi-creditor workout without regulatory forbearance turning into a permanent bailout culture. That would be a meaningful institutional achievement for a banking system long criticized for evergreening bad loans rather than restructuring them properly.
But if the rescue stalls through lender defection, continued gas shortages, or simple execution failure, it will confirm the worse fear: that Bangladesh’s banks lent on reputation rather than rigor, and that the country still lacks the institutional muscle to manage corporate distress without either state bailouts or disorderly collapse. The next three to six months, as the review committee’s findings translate into a binding agreement, will determine which story Bangladesh tells about its own financial maturity.
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This OP-ED is written by Shafqat Aziz, a barrister-at-law of Lincoln’s Inn and an accredited civil-commercial mediator with ADR-ODR International. The views expressed in this OP-ED are solely those of the author and do not necessarily reflect the views or opinions of Markedium.
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