The government is reviewing proposals for establishing asset management companies to recover bad loans from the errant borrowers according to officials of the financial institutes division of the finance ministry
The asset management companies, both private and public, are being proposed by enacting a new act with the securitization of nonperforming loans in view, they said. The companies will be empowered to sell off or handover mortgage of the errant borrowers with the help of district magistrates or chief metropolitan magistrate.
The proposals made by a committee appointed by the financial institutes division on March 21 were now being examined, FID secretary Ashadul Islam told the New Age.
Experts said the initiative should be welcomed as the amount of bad loan has already doubled to Tk 93,911.4 crore in 2018 from Tk 43,485.71 crore in 2015, crippling the capacity of many banks especially the state-owned banks to issue fresh loans.
They also said that other recovery efforts should be expedited to ensure success of the proposed asset management companies.
Led by joint secretary Md Shukur Ali, the three-member committee reviews activities of asset management companies in India, Thailand and Malaysia to prepare the proposals. The committee recommended maximum 20 per cent of bad loan as fee for recovering non-performing loans by the companies.
On March 14, finance minister AHM Mustafa Kamal said that the government would hire asset management companies to recover bad loans.
An initiative to allow defaulters to restructure bad loan on relaxed condition has already been taken. Besides, the definition of bad loan has already changed although the measures were criticized as artificial ones to contain the increasing size of bad loan.
Former Bangladesh Institute of Bank Management director general Toufiq Ahmed said many initiatives had already been taken by the present finance minister to recover bad loans. The success of the initiatives largely depended on the political will of the government, he said.
Centre for Policy Dialogue distinguished fellow Mustafizur Rahman said appointment of asset management companies could be an option to recover bad loans.
Such an option also make it necessary to expedite other recovery efforts including disclosure of identity of the big loan defaulters on the web-page of the respective bank, notice boards and or any visible places such as newspapers.
It is imperative that a cell in Bangladesh Bank to monitor default loans over Tk 100 crore is established and a separate High Court bench is constituted for speedy disposal of writs against loan recovery, he added.
In many western and Asian countries there are asset management companies who recover bad loans and also sell those to another party.
A similar initiative was taken to establish asset management companies during the tenure of the Bangladesh Bank governor Farashuddin Ahmed in the late 1990s, but the plan did not pan out.
The rising NPL has already been identified as the major problem of the country’s banking sector by finance minister AHM Mustafa Kamal on a number of occasions.