Loan restructuring of City Group hangs in balance

The fate of the proposed restructuring of the country's one of the largest business conglomerates City Group's massive bank loans remains uncertain as 36 lending banks continue working on a coordinated recovery plan, even as many lenders privately admit they remain uncertain about its eventual success.

The banks, which together have an exposure of about Tk26,600 crore to the conglomerate, have formed a high-level review committee to devise a more flexible loan recovery framework instead of pursuing separate legal actions.

*    City Group sought a comprehensive restructuring of about Tk26,600 crore in loans from 36 banks
*    A 13-member review committee working on the assessment

Meanwhile, City Group has requested Bangladesh Bank (BB) to suspend the classification of its loans until September 30, 2026, arguing that such relief is essential to complete its financial recovery.

Although discussions have been progressing for weeks, banking officials said the central bank has yet to make any final regulatory decision on the request.

The restructuring initiative began after City Group sought a comprehensive restructuring package for its loans, prompting lenders to adopt a coordinated strategy to prevent one of the country's largest corporate debt exposures from escalating into a major non-performing loan (NPL) crisis.

As part of the process, the lenders agreed to appoint an independent international audit firm to conduct a detailed assessment of the group's financial health, cash flows, repayment capacity and long-term business viability. The audit findings are expected to form the basis of any restructuring package and possible regulatory support.

Pending the review, most banks have refrained from classifying the loans as defaults.

Lenders are also considering appointing nominee directors or observers to strengthen financial oversight, closely monitor cash flows and ensure that any fresh working capital is used solely for business operations.

According to banking sources, City Group has proposed selling non-core assets, improving internal cash generation and implementing operational reforms to restore liquidity and gradually repay its lenders.

Bankers believe the group's core manufacturing businesses remain commercially viable, making restructuring a more practical option than immediate enforcement measures.

The proposed framework follows a coordinated creditor approach under which all participating lenders would pursue a common recovery strategy rather than individual settlements, with the aim of maximizing recovery while avoiding disruption to one of Bangladesh's largest industrial conglomerates.

However, several critical issues remain unresolved.

Banks are still awaiting the independent audit report, agreement on restructuring terms, Bangladesh Bank's position on loan classification, possible rescheduling conditions, fresh working capital support and the treatment of accrued interest during the restructuring period.

According to bankers, the City Group case could become a major test of Bangladesh's corporate debt resolution framework. A successful restructuring could establish a model for handling future large corporate distress, while failure could trigger a sharp increase in classified loans, force banks to make higher provisions and place additional pressure on their capital positions.

When contacted, Bangladesh Bank spokesperson Arif Hossain Khan said there had been no new development regarding the proposal.

However, he acknowledged that classifying such a large volume of loans would have serious consequences.

"It would be disastrous if such a large exposure becomes classified. It would send a negative signal across the corporate sector," he said.

A senior banker involved in the process said the 13-member review committee comprises mid-level executives from the lending banks who are working closely on the assessment.

"The review is progressing and the findings will soon be placed before the respective bank boards," he said.
Given the size of the exposure and City Group's importance as one of the country's largest consumer goods manufacturers, every step in the process requires careful consideration, he added.

According to sources, City Group has proposed a three-year turnaround plan aimed at reducing debt, improving cash flow and restoring financial stability.

Under the proposal, the conglomerate plans to sell or bring in investors for several non-core businesses, including the Hoshendi Economic Zone in Munshiganj, BRAC Banskhali Tea Garden, its LPG business and Ekhon TV.

The company is also seeking strategic local and foreign investors, private equity funds and may list some businesses on the stock market to raise fresh capital.

City Group's total outstanding liabilities stand at around Tk25,000 crore, owed to 48 banks and non-bank financial institutions. Its major lenders include The City Bank, Eastern Bank, Prime Bank, BRAC Bank, Mutual Trust Bank, United Commercial Bank, Dutch-Bangla Bank, Pubali Bank and Bank Asia, alongside several foreign banks and international financing institutions.

Following Bangladesh Bank's advice, the lenders met on June 18 and formed the high-level review committee to assess City Group's financial position and recommend appropriate support measures.

The committee includes senior representatives from Mutual Trust Bank, The City Bank, UCB, Prime Bank, Midland Bank and several other lending institutions.

It is examining the group's financial condition, restructuring options, working capital requirements and possible regulatory support before submitting its recommendations to the chief executives of the participating banks and Bangladesh Bank.

In its letter seeking regulatory relief, City Group cited the sharp depreciation of the taka, rising borrowing costs and prolonged gas shortages as the key reasons behind its financial stress. It requested Bangladesh Bank not to classify its loans until September 30, 2026, to allow time for implementing its recovery plan.

Bankers say a coordinated restructuring package could help restore the group's operations while preventing a significant surge in non-performing loans across the banking sector. Failure to reach an agreement, however, could have far-reaching implications for both the lenders and the broader financial system.