Defaulting City Group gets fresh Tk 30b loan

Bangladesh Bank has approved Tk 3,000 crore in fresh working capital loans for five companies of City Group, despite the conglomerate's troubled outstanding liabilities of around Tk 26,000 crore (30 billion) to 48 banks and financial institutions.

The financing will be arranged through a syndicated loan led by City Bank PLC, following a relaxation of a key provision of the Bank Company Act to allow the selected companies to access fresh credit despite their default status.

The move is intended to keep supplies of essential commodities uninterrupted ahead of Ramadan, when demand for sugar, edible oil, flour and other daily necessities typically rises.

The five companies covered by the approval are City Seed Crushing Industries, City Sugar Industries, City Edible Oil Ltd, City Dal Mills and Shampa Flour Mills, all involved in producing or processing essential food items.

In a notification issued on Wednesday, Bangladesh Bank said the restriction under Section 27KaKa(3) of the Bank Company Act 1991 would remain relaxed until December 31, 2027, for the proposed Tk3,000 crore syndicated financing.

Under the existing law, banks and financial institutions cannot extend fresh loans to defaulting borrowers, subject to certain exceptions. The central bank's decision effectively allows the five companies to obtain new financing despite their classified loan status.

City Group's loans turned classified in September after the expiry of a special loan-classification facility on September 30, 2026, exposing lenders to substantial repayment risks. The conglomerate owes around Tk26,000 crore to 48 domestic and foreign banks and financial institutions, although not all its borrowing entities have been confirmed as defaulters.

The proposed financing had created differences among banks over whether the group should receive fresh credit or face the usual consequences of default. At a recent meeting with bank managing directors, lenders expressed differing views on the rescue arrangement.

The central bank has opted for syndicated financing to bring participating banks under a common lending structure rather than allowing individual lenders to take separate decisions.

The fresh loans, however, will be subject to strict safeguards. Participating banks must take new collateral, while proceeds from the sale of goods purchased with the financing must be deposited in a designated bank account. The lenders will recover instalments from that account in proportion to their respective shares in the loan.

Bangladesh Bank has also made it clear that neither the government nor the central bank will bear any financial liability arising from the arrangement. City Bank and other participating lenders will not be entitled to seek government or central bank assistance in connection with the financing.

Under the arrangement, the borrowing companies will import raw materials on behalf of the lending banks through an appointed security agent and process them as custodians. Banks will supervise the movement of funds and goods, and the companies will not be allowed to divert the money for other purposes.

A senior Bangladesh Bank official said the objective was to help the conglomerate overcome its financial difficulties and recover.

"Everyone wants the group to overcome its difficulties and recover," the official said.

A senior banker, requesting anonymity, said the group's financial troubles stemmed partly from poor business decisions and investments outside its core operations.

The arrangement seeks to maintain the supply of essential commodities while containing the risk of further losses for banks. However, questions remain over how the lenders will recover the group's massive outstanding liabilities while extending fresh credit to its companies.