BB orders banks to strengthen pre-suit mediation to recover defaulted loans
The Bangladesh Bank said each bank has been given a target to recover at least 1% of their defaulted loans in cash through the ADR process by 30 June this year
The Bangladesh Bank has instructed banks to strengthen out-of-court dispute resolution mechanisms in order to accelerate the recovery of defaulted loans.
The central bank has emphasised the effective use of "pre-suit mediation", encouraging banks to resolve disputes through mediation before filing cases in court.
The directive was issued through a circular by the Banking Regulation and Policy Department-2 of the central bank today (11 March).
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In the circular, managing directors and chief executive officers of all scheduled banks were asked to take the necessary steps to implement the instruction.
According to the circular, banks have been advised to give greater importance to using alternative dispute resolution (ADR) mechanisms to recover defaulted loans more quickly. In particular, banks have been urged to actively utilise the pre-suit mediation process to settle disputes through mediation before initiating legal proceedings.
The Bangladesh Bank said each bank has been given a target to recover at least 1% of their defaulted loans in cash through the ADR process by 30 June this year.
To achieve this target, banks have been instructed to appoint skilled and qualified mediators to facilitate the settlement of disputes.
The circular also noted that resolving disputes through mediation before filing court cases can reduce both time and cost, while also helping to decrease the volume of defaulted loans more rapidly.
The Bangladesh Bank has also outlined several qualifications for mediators appointed to conduct pre-suit mediation. These include being listed on the panel of a recognised mediation institution, having no conflict of interest with the parties involved, and possessing at least seven years of experience in law, commerce, banking or corporate management.
Among these, at least three years of experience must be related to banking, commercial contracts or the settlement of commercial disputes.
The mediators must also have a clear understanding of banking and financial regulations and must have received mediation training from a recognised local or international institution. In addition, they must demonstrate impartiality, confidentiality, strong communication skills and proven experience in dispute resolution.
The circular further states that individuals convicted in criminal cases, removed from jobs or professions due to financial irregularities or ethical misconduct, loan defaulters, or those declared bankrupt by courts will not be eligible to serve as mediators.
