BB adopts 18-month plan to recover default loans

Highlights 

• Negotiation-based recovery effort in first 6 months
• Legal action in following 12 months
• Two laws being finalised
• 2,22,341 default loan cases pending in courts as of June 2025 
• Total defaulted loans stand at Tk5,88,704cr as of March
• Ultimate beneficiaries of loans to be identified, made accountable
• Monetary policy to be reviewed every three months

Bangladesh Bank has adopted a strict 18-month plan to reduce the huge volume of defaulted loans in the banking sector.

During the first six months of the plan, efforts will be made to recover loans through negotiations between banks and borrowers. In the following 12 months, recovery efforts will be pursued under the proposed Distressed Asset Management Act and an amended Money Loan Court Act.

According to the proceedings of the first meeting of the Parliamentary Standing Committee on the finance ministry, held on 26 July, Bangladesh Bank Governor Md Mostaqur Rahman presented the plan at the meeting.

The second meeting of the committee was held at the Jatiya Sangsad yesterday. At the meeting, the minutes of the first meeting were approved.

According to the minutes, the meeting also decided to review monetary policy every three months instead of every six months and strengthen monitoring to ensure that the Tk60,000 crore incentive fund created by Bangladesh Bank to boost investment and employment reaches genuine businesses. The meeting also discussed extending the safe exit facility for defaulting borrowers.

The meeting was chaired by committee Chairman Mushfiqur Rahman. Finance Minister Amir Khosru Mahmud Chowdhury and other members were present.

According to Bangladesh Bank data, total defaulted loans in the banking sector stood at Tk5,88,704 crore at the end of March, accounting for 32.26% of total loans disbursed by banks at the time. Total outstanding loans stood at Tk18,24,668 crore at the end of March. At the end of December, defaulted loans stood at Tk5,57,217 crore. This means defaulted loans increased by Tk31,487 crore in three months.

According to the meeting proceedings, Bangladesh Bank Governor Md Mostaqur Rahman said, "An 18-month framework has been adopted for managing non-performing loans (NPLs). During the first six months, there will be an opportunity for settlement between banks and borrowers. For the following 12 months, it has been proposed to expedite the resolution of defaulted loans through enactment of the Distressed Asset Management Act and amendment of the Money Loan Court Act, with provisions for disposing of cases within a maximum of six months. 

"At the same time, initiatives have been taken to identify the actual beneficiaries or ultimate beneficiaries of loans and bring them under the law so that the actual parties responsible can be held accountable."

Asked about progress in implementing the plan on 23 August, Bangladesh Bank spokesperson Arif Hossain Khan told TBS, "Work on drafting the Distressed Asset Management Act and the amended Money Loan Court Act has begun. The two laws will be finalised soon."

A Bangladesh Bank official, speaking on condition of anonymity, said the huge volume of defaulted loans has reduced banks' capacity to provide new loans. Some banks are unable to disburse new loans. High default rates are also preventing interest rates from falling.

Banks are paying lower profits to shareholders because they have to maintain provisions against defaulted loans. The government is also receiving less revenue. Overall, the situation is having a negative impact on the economy.

The official said that as of June 2025, there were 2,22,341 cases related to defaulted loans pending in courts across the country. The amount involved in these cases was Tk4,07,435 crore. To expedite the disposal of these cases, banks have already been instructed to contact their defaulting customers and seek loan recovery. Once the new laws are enacted, banks will file cases to recover defaulted loans.

At the meeting, committee member and Dhaka-12 MP Saiful Alam said not only borrowers but also directors who approved the loans should be held accountable for defaulted loans. He said laws should be amended if necessary to ensure this.

Another committee member, Chandpur-2 MP Md Jalal Uddin, and Dhaka-4 MP Zainul Abedin recommended strict compliance with banking-sector requirements for compliance and due diligence. They also called for tougher measures to recover defaulted loans.

Monetary policy to be reviewed every three months

The meeting decided that monetary policy would be reviewed every three months. Currently, Bangladesh Bank formulates monetary policy every six months, covering January-June and July-December.

At the meeting, Bangladesh Bank Deputy Governor Habibur Rahman said that although Bangladesh Bank had raised its policy interest rate over the past three years to control inflation, the expected results had not been achieved. However, monetary policy had played a positive role in stabilising the exchange rate and preserving and increasing foreign-exchange reserves.

He said the policy rate is effective in controlling demand-side pressures but supply-side conditions depend on other government agencies and international markets. Therefore, inflation cannot be controlled without coordinated action on both sides.

Bangladesh Bank is currently moving towards an interest-rate-targeting monetary policy. Previously, the central bank followed a monetary-targeting approach.

At the meeting, Cumilla-4 MP Md Abul Hasnat proposed reviewing monetary policy every three months. He said India has a six-member Monetary Policy Accountability Committee under the finance minister and proposed a similar committee for Bangladesh. He also proposed measures related to inflation measurement.

Lakshmipur-1 MP Md Shahadat Hossain said at the meeting that the failure to reduce interest rates under the current monetary policy was disappointing. High interest rates are a major obstacle to business, investment and employment.

Chandpur-2 MP Md Jalal Uddin said Bangladesh should gradually move from an interest-rate-based monetary policy towards an inflation-targeting monetary policy. To achieve this, he said initiatives must also be taken to address weaknesses in the supply chain, market syndicates, extortion and limitations in the foreign-exchange market.

Another member, Zainul Abedin, said that although 30% of the country's banking sector is Shariah-based, Islamic banking has not been given adequate importance in monetary policy. He called for Islamic banking to be incorporated more explicitly into future monetary policy. He also proposed reviewing monetary policy every three months instead of every six months.

Parliamentary committee calls for strict monitoring of Tk60,000 crore stimulus package

At the first meeting of the Parliamentary Standing Committee on the Ministry of Finance, members said the Tk60,000 crore stimulus package announced by Bangladesh Bank must under no circumstances be used for unproductive sectors, trading activities or refinancing defaulted loans.

Standing committee members said similar stimulus packages had been introduced in the past, but the country's economy had not benefited significantly from them.

Committee member Moinul Islam said there should be clear guidelines specifying what types of industrial enterprises would qualify for the facility and how its contribution to reopening closed industries and creating employment would be assessed. Other members also called for strict monitoring of the fund.

They said measures must be taken to ensure that the money is not misused under any circumstances.

At this point, Governor Mostaqur Rahman told the meeting that strict conditions had been imposed on the Tk60,000 crore stimulus package based on lessons from previous experience. Small and production-oriented entrepreneurs would be prioritised over large business groups, while close monitoring would be carried out to prevent misuse of the fund.

The meeting also recommended extending the Safe Exit facility from 30 December this year to 30 June next year, reducing the policy interest rate and lowering the effective interest rate on loans.