Devising a policy to resolve NPL issue

Among the many factors contributing to the unrelenting rise in the volume of non-peforming loans (NPLs) are reportedly the unresolved default loan recovery cases stacking up on the shelves of some 67 Money Loan Courts (MLCs) across the country. But it is not just that the existing number of courts is not enough to handle all the cases within the mandated time of 150 working days as required by money loan court act 2003. Going by the experience of the banks fighting legal battles to recover their money by selling the mortgaged properties of the bank defaulters, they find few interested parties to buy those assets. It is because the properties involve legal complications that put off prospective buyers, so the reports go. Add to this the fact that out of some 1,500 to 2,000 cases, reportedly, disposed of annually by the four MLCs in Dhaka, only three to four properties related to the cleared cases could find a willing customer.

The upshot of it all is that the unsold properties at auction again return to the court for a decree and the process goes on. This obviously puts a damper on the willingness of the bank officials concerned to continue with loan recovery cases, simply because they have other work to do at their office desks. That calls for employing dedicated desks to carry out the task of dealing with court cases, or outsourcing the job from an expert legal aid team.

Until such measures are taken to deal with the unresolved court cases, the size of the NPLs will continue to grow to the distress of the suffering banks and other NPL-burdened financial institutions. Notably, by December 2024, the volume of NPLs hit the staggeringly high record of Tk 3.5 trillion. Meanwhile, the size only kept on rising. How are then the commercial banks going to get out of this vicious circle? Since the burden of NPLs is stubbornly on the rise, the Bangladesh Bank (BB), as some experts viewed, should find out a way to unburden the banks of the unsettled NPls. Otherwise, there is the risk of the excessively burdened banks failing. The banks, especially the state-run ones, must not be allowed to fail by all means. Take, for instance, the textbook case of how an otherwise healthy state-run financial institution, the Janata Bank, has been overwhelmed with NPLs. In January 2025, bad loans surpassed 65 per cent of its portfolio. Its defaulting clients were none other than the notorious conglomerates, Beximco and S Alam groups. The said bank was trying to recover their defaulted loans worth hundreds of billions of taka through putting their assets used as collateral against the loans on auction. Ironically though, while in the process of auction was ongoing, the said bank, at a point, came up against the unexpected situation of paying salaries of Beximco employees. Since the employees are not to blame for their employers' alleged offences regarding defaulted loans, the lending bank had to look for ways to get around the predicament. Oddly enough, the BB had to compromise on the relevant rules in the bank company act to sanction a fresh loan against the defaulting conglomerate worth Tk1.8 billion. The unanticipated developments only point to how complex and unpredictable the path to the recovery of the defaulted bank loans are. The NPLs are not simply an issue for the banks alone to resolve. The BB, or the government for that matter, will be required to devise a policy to address the difficult issue of NPLs once and for all.