Bangladesh’s banks are urging a series of bold legal and regulatory reforms to tackle a surge in non-performing loans (NPLs), warning that decisive action is needed to restore discipline, transparency and public confidence in the country’s struggling financial sector.
The Association of Bankers, Bangladesh (ABB) has proposed sweeping measures including travel bans on loan defaulters, public disclosure of their names and photographs, and disqualification from elections to business associations. Experts say, if implemented effectively, these steps could curb wilful default, improve recovery, and strengthen trust in the banking system.
According to Bangladesh Bank data, classified loans reached a record Tk6.44 lakh crore as of 30 September 2025, representing 35.73% of total disbursed loans of Tk18.04 lakh crore. The figure has climbed sharply from Tk4.20 lakh crore in March, largely due to stricter loan-classification rules and recognition of previously underreported bad loans.
Dr Zahid Hussain, former lead economist at the World Bank, warned that without decisive reforms, default loans could rise further, weakening banks’ balance sheets and restricting credit to productive sectors. “ABB’s proposals represent a critical opportunity to reset the system,” he said. “If implemented effectively, they could deter wilful default, improve recovery rates, and gradually restore confidence in the banking sector.”
Mustafa K Mujeri, former chief economist of Bangladesh Bank, said: “Since the change in government, there has been renewed focus on recovering loans from influential borrowers. However, beyond punishing defaulters, banks need stronger technical skills in loan analysis and improved corporate governance to prevent loans from going bad in the first place.”
Tough stance on wilful defaulters
At the heart of ABB’s recommendations is a call for stricter measures against wilful defaulters. The proposals include barring defaulters from travelling abroad without bank or court permission, publishing their names and photographs, and declaring them ineligible to contest business association elections.
Bankers argue these measures would apply social and reputational pressure, discouraging habitual default and the misuse of political or business influence.
Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank, described public naming as a “logical and necessary step” to curb the culture of impunity. “Defaulters should not hold positions of influence or participate in policy seminars. This is a social issue, not just a financial one,” he said.
Balancing enforcement with relief
Alongside punitive measures, ABB has proposed limited, time-bound relief for borrowers facing genuine hardship due to death, terminal illness, or natural disasters. This includes partial write-offs in line with international standards, faster cashing of liened shares, and procedural relaxation for interest waivers on personal, home, credit card, and small enterprise loans.
Experts say this dual approach – strict action against wilful defaulters alongside compassionate relief for genuine cases – could improve fairness and align Bangladesh’s practices with global norms.
Accelerating loan recovery
ABB has also recommended measures to speed up loan recovery, including tax and duty exemptions on properties sold or purchased through bank auctions, income tax incentives for auction buyers, and removal of district administration approvals for transferring auctioned assets. The proposals also call for greater cooperation from land registry offices to ensure swift mutation and automatic, cost-free transfers of court-awarded properties to banks.
The bankers’ body has suggested reforms to strengthen court enforcement, including faster access to defaulters’ financial and asset information, stricter conditions for stay orders, quicker execution of arrest warrants, and the establishment of dedicated Money Loan Courts in districts with high default cases. Amendments to the Money Loan Act are also proposed to shorten litigation and reduce abuse of legal delays.
Preventing future defaults
To prevent new NPLs, ABB recommends creating a central database of mortgaged land and valuations under Bangladesh Bank, publishing an approved list of land surveyors and valuers, and making collateral verification easier at land and registry offices. Bankers say these steps would curb inflated valuations and weak collateral practices, a key cause of bad loans.
Courtesy: Daily Sun.
Bd-pratidin English/TR
