Bank Asia moves to clean up bad loans through equity injection over arbitrary rescheduling

Bank Asia is moving to clean up its bad loans by insisting on equity injection from borrowers, attaching additional collateral and proper repayment plans, rather than allowing arbitrary rescheduling.

In an interview with The Business Standard, the bank's Managing Director Sohail RK Hussain said the bank aims to bring default loans down to a single digit by next year through a disciplined approach.

He also noted that stricter loan classification norms would require higher provisioning, which may temporarily affect profitability and capital adequacy.

Looking ahead, he said Bank Asia wants to be among the top two or three banks in the country within the next three to five years, not only in asset size and profits but also in efficiency, asset quality, capital strength, governance, transparency and sustainability.

Tell us about Bank Asia's performance amid the ongoing political and economic crisis.

Despite the challenging economic and political environment, Bank Asia has delivered solid results in the first nine months of 2025. Profit after tax reached Tk351 crore, up 71% year on year, while earnings per share rose 79% to Tk2.58. Net asset value improved 21% to Tk29.28.

We have maintained a strong financial position, with sound liquidity — an LCR of 356% and an NSFR of 106% — and a capital adequacy ratio of 14.82%. Our cost-to-income ratio of 36.8% remains one of the lowest in the industry, reflecting strong operational efficiency.

As there was weak demand for private sector credit, we deployed surplus liquidity in government securities, nearly doubling investment income, and grew deposits by 12% to Tk446,153 million.

Bank Asia's classified loan ratio has crossed double digits, but the bank remains well protected as we have maintained adequate provisions. Our provision coverage has improved to 86.39%, reflecting a strong buffer against potential loan losses. The rise in non-performing loans is largely due to the tough economic environment, recent geopolitical unrest and stricter loan classification rules introduced on 1 April.

Importantly, we have taken a disciplined approach. We avoided arbitrary rescheduling, instead insisting on equity injection, additional collateral and proper repayment plans. We are also using legal measures where necessary. With these corrective actions underway, we expect our NPL ratio to decline and our loan book to be significantly cleaner by next year.

How does your bank differentiate itself from others in terms of product offerings?

At Bank Asia, our focus has always been on inclusivity and innovation. We have built a diverse portfolio of products that cater to every segment — from individuals and families to corporates and entrepreneurs — across both urban and rural areas.

We offer a wide range of deposit products, including Regular and Star Savings Accounts, Double and Triple Benefit Schemes, Monthly Benefit Schemes, and the Nirbhabona Account for senior citizens. Our Star Savings Account stands out for providing life and OPD insurance coverage, which we have also extended to beneficiaries of foreign remittances.

For long-term savers, we have DPS Plus and the Achol Account for women, while products such as Shanchoy e Kotipoti and Vromon help customers plan for specific financial goals. We also offer Islamic Mudaraba Accounts, as well as Student and Payroll Accounts, with flexible options and competitive returns.

On the digital side, we have made banking simpler and smarter. Our Bank Asia SmartApp enables fully digital onboarding through e-KYC and NID verification, while our "Ghore Bose Hisab Khulun" feature allows customers to open accounts remotely at any time. We have also introduced digital platforms for CMSE loan applications and online approvals to support small businesses.

Ultimately, what differentiates Bank Asia is our effort to build a complete financial ecosystem that empowers customers through accessibility, innovation and trust.

What challenges do you see for the banking sector in complying with the new classification and default loan guidelines?

The new master circular on loan classification and provisioning, issued by Bangladesh Bank in November 2024, has introduced a more rigorous framework for the sector. Over the next two years, banks will also need to transition to the Expected Credit Loss methodology under IFRS 9, which marks a significant change in how credit risk is assessed and managed.

In the immediate term, we may see an increase in non-performing loans, as the revised rules shorten the overdue period for classification. The circular effectively withdraws the nine-month grace period introduced in 2019, meaning loans will now be categorised as defaulted much earlier than before.

The stricter norms will also require higher provisioning, which could temporarily affect banks' profitability and capital adequacy. Implementing the ECL-based model will demand significant investment in systems, data analytics and forecasting capabilities, as banks will need to assess potential future credit losses rather than rely solely on past performance.

Equally important is capacity building. Our people must be well prepared to interpret and apply these new standards effectively. With the right preparation, however, I believe this transition will ultimately strengthen the sector by promoting more prudent risk management and enhancing overall financial stability.

What strategy has Bank Asia taken to manage upcoming challenges ahead of the election, including rising default loans?

While there are some positive signs in the economy — foreign exchange reserves rising to $31.43 billion, remittance inflows up 12% to $2.68 billion in September, RMG exports growing by 4.2%, and taka has remained relatively stable — political stability remains critical for new investment. Until a political government is in place post-election, businesses will remain cautious, affecting borrowing and investment.

Amid this uncertainty, the banking sector continues to face pressure, with non-performing loans reaching Tk6 lakh crore, or more than 34% of total loans. Against this backdrop, Bank Asia's strategy focuses on loan recovery and regularisation, while maintaining strict prudence in lending.

We are carefully assessing new credit, particularly for large corporates and financial institutions, to ensure there are no hidden risks. We are also identifying marginal accounts within our portfolio and developing tailored strategies to address underlying issues. Facility approvals are being aligned closely with the nature and risk profile of each borrower's business.

At the same time, we are strengthening risk management and post-disbursement monitoring to ensure that credit is deployed responsibly and sustainably. Our goal is to protect asset quality while supporting businesses that demonstrate credible repayment capacity.

What challenges do you see for bank business amid low investment demand?

The overall economic environment has been challenging. GDP growth slowed to 3.97% in FY2024–25 — the weakest pace in more than three decades, excluding the pandemic — and private sector credit growth fell to a 22-year low of 6.4%. This reflects weak investment appetite.

For banks, the immediate impact is sluggish loan growth. When private investment slows, credit demand naturally falls, affecting core lending income. At the same time, excess liquidity builds up in the system, increasing the cost of carry and putting pressure on profitability, especially as returns on government securities are declining.

Competition for quality borrowers has intensified, leading to margin compression. Asset quality risks are also rising as some businesses in stagnant sectors struggle to service existing loans. Fee-based income has declined, with lower trade, LC and guarantee volumes.

Meanwhile, fixed operating costs remain high despite slower business expansion, challenging efficiency and profitability. Overall, banks must balance growth while meeting shareholder expectations in a subdued investment climate.

That said, the sector has shown resilience time and again. This is a time to focus on innovation, digital transformation and exploring new financing avenues that can support the real economy and sustain long-term stability.

How do you assess progress in enacting legislation and regulations to reform the banking and financial sector?

Recent initiatives by Bangladesh Bank and the interim government to strengthen the legislative and regulatory framework are encouraging. We are seeing progress on several fronts, including proposed amendments to the Bank Company Act, the Money Loan Court Act and the Bankruptcy Act, as well as the introduction of the Distressed Asset Management Act and the Bank Resolution Ordinance, 2025.

Collectively, these measures address long-standing structural challenges in the sector. The proposed changes to the Bank Company Act are expected to improve governance and discipline, with clearer guidelines on board composition, well-defined roles for the board and management, and greater accountability.

The revised Money Loan Court framework should help expedite loan recovery and reduce case backlogs, while the Bank Resolution Ordinance introduces modern tools to manage stressed or failing institutions in an orderly manner.

However, the most critical requirement is ensuring the full and unquestioned autonomy of the central bank. The sector has suffered significant damage from governance failures over the past 10 to 15 years. It is imperative that the central bank remains free from political influence; otherwise, we risk repeating past mistakes. What has happened cannot be allowed to happen again.

While effective implementation will be key, the direction of reform is positive. As industry stakeholders, we welcome these steps and believe they will help build a more resilient and efficient banking sector.

What are Bank Asia's aspirations for the future?

Our goal is to position Bank Asia among the top two or three banks in Bangladesh within the next three to five years — not only in terms of asset size and profitability, but also in efficiency, asset quality, capital strength, good governance, transparency and sustainability. Promoting financial inclusion, gender-sensitive finance and environmental, social and governance practices will remain central to our operations.

We are focusing strongly on expanding our retail and SME portfolios, with a target to make these segments at least 50% of total advances within three years.

We also plan to expand our presence at home and abroad through new branches, agent networks and overseas offices, while continuing to lead in innovation and digital transformation.

In essence, Bank Asia aspires to be a technology-driven, customer-centric, sustainable and inclusive financial institution, creating lasting value for all stakeholders.