Experts call for reforms to tackle Tk 6 lakh crore bad loans

Banking experts have called for specialized legal mechanisms, a national asset management company and stronger supervision to address the banking sector's mounting bad-loan burden, estimated at nearly Taka 6 lakh crore.

They today made the call at the second day of the 11th Annual Banking Conference held at the Bangladesh Institute of Bank Management (BIBM) in Mirpur-2 in the city, said a press release.

In his keynote paper, Dr. Barkat-e-Khuda, former professor and chairman of the Department of Economics at the University of Dhaka and former Dr Muzaffer Ahmad Chair Professor at BIBM, outlined a series of measures to address the sector's major challenges and accelerate economic growth.

He called for specialized legal mechanisms, including the proposed Distressed Asset Management Act (DAMA) and the Insolvency and Bankruptcy Act, to deal with the massive volume of non-performing loans (NPLs).

He also emphasized strengthening Bangladesh Bank's supervision, conducting independent audits and establishing a national asset management company to manage legacy bad debts.

The keynote paper recommended holding willful defaulters of state-owned commercial banks legally and financially accountable, including through asset freezes and enforcement of single-borrower exposure limits.

Dr. Barkat-e-Khuda further called for operationalizing the Bank Resolution Department and the Bank Restructuring and Resolution Fund (BRRF) to conduct asset quality reviews (AQRs) and implement prompt corrective action (PCA) 
measures.

He also stressed addressing structural weaknesses affecting the advance-deposit ratio (ADR), including high NPLs, weak credit demand in productive sectors and inadequate liquidity management.

Comprehensive bankruptcy laws and the removal of judicial bottlenecks delaying loan recovery are also necessary, he said.

Professor Dr Mahbub Ullah, national professor and former professor and chairman of the Department of Development Studies at the University of Dhaka, attended the conference as the chief guest.

Chairing the session, BIBM Director General Dr. Md. Ezazul Islam said NPLs accounted for roughly one-third of outstanding bank loans as of June 2026.

Governance failures, capital and provisioning shortfalls, money laundering and productivity constraints continued to weaken the banking sector, he said.

Highlighting the uneven distribution of liquidity across the banking system, Dr. Islam said some banks were facing severe liquidity stress while substantial excess liquidity remained elsewhere in the system.

"This is a reminder that rebuilding trust and directing funds towards viable investment matter just as much as the availability of funds," he said.

He called for credible and coordinated reforms focusing on stronger supervision, independent governance, transparent asset quality reviews, effective recovery and resolution of distressed loans, adequate capital buffers and robust depositor protection.

Digital tools, including improved credit assessment and transaction monitoring, could support the reform process, he said, adding that technology must be accompanied by professional ethics, skilled personnel and institutional accountability.

"Above all, a healthier banking sector should expand responsible financing for productive businesses, agriculture and CMSMEs," he added.

The two-day conference features 13 plenary sessions and presentations of 104 research papers, bringing together more than 800 expected participants, including policymakers, bankers, researchers, academics and students from home and abroad.

BIBM has been organizing the Annual Banking Conference since 2012, providing a platform for experts and researchers to exchange knowledge and discuss emerging challenges and sustainability issues in banking, finance and the economy, reports BSS.