Govt moves to set up institution to manage banks’ distressed assets

The finance ministry has moved to amend the draft Bangladesh Asset Management Company Act to create a dedicated institution for managing bad loans and assets of banks and financial institutions.

The law will be renamed "Distressed Asset Management Ordinance", according to an office order issued on 13 January by the Financial Institutions Division.

To this end, a five-member committee has been set up, led by Azimuddin Biswas, additional secretary (Central and Commercial Banks) of the Financial Institutions Division, as its convener, the office order states.

Other members include Joint Secretary Minakshi Barman, Deputy Secretary Afroza Akter Riba of the Financial Institutions Division, and additional directors of the Bangladesh Bank Syed Himyanuddin Ahmed and Mohammad Ashfaqur Rahman.

In 2020, the Awami League government, which was overthrown amid a mass uprising in August last year, drafted the Asset Management Company Act to create a platform for buying and selling defaulted or non-performing loans of banks and NBFIs, establishing a secondary market, broadening investment opportunities, and assisting in related matters.

However, the law has not been passed by parliament, and the growing volume of bad loans – including defaulted, non-performing, rescheduled, and written-off loans – continues to put banks and financial institutions in disarray.

Additional Secretary Azimuddin Biswas told TBS, "The Bangladesh Asset Management Company Act was originally drafted to address distressed assets. As part of the amendment, the name will be changed, and a provision will be added to establish an institution under the new law."

In 2023, the then government signed an agreement to borrow $4.7 billion from the International Monetary Fund (IMF), which includes a condition to reduce non-performing loans in the banking sector.

The IMF requires non-performing loans to be reduced to 8% by June 2026, with state-owned banks reducing theirs to 10% and private banks to 5%.

However, when it comes to the actual calculation of defaulted loans, the situation appears to be moving in the opposite direction.

According to the latest Financial Stability Report from the Bangladesh Bank, the amount of distressed assets in the banking sector was Tk4.87 lakh crore at the end of December 2023.

Officials at the central bank have said this amount has increased further by the end of 2024.