China's remarkable success in recovering non-performing loans (NPLs) has been a topic of discussion for over a decade and a half. In response to the global financial crisis of the early 21st century, which led to the collapse of several major banks, China adopted proactive measures. The country built and implemented an extensive NPL infrastructure in the region, scaling up institutional depth and resolution tools to protect its banks from the burden of non-performing or defaulted loans.
This strategy provided opportunities for entrepreneurs to recover through support mechanisms while also enforcing strict measures such as blacklisting to recover funds from defaulters. As a result, since 2008, the NPL rate of Chinese banks has never crossed the 2 percent threshold. In 2007, amid economic crises in the U.S. and Asia, the NPLs rate in Chinese banks stood at 2.43%.
China has built a robust institutional framework for debt recovery. An "NPL (Non-Performing Loan) Management Market" has emerged outside traditional banks, involving the Chinese government, private enterprises and foreign entities. A dynamic loans recovery structure has been established through coordination among the People's Bank of China, the Ministry of Finance and the National Financial Regulatory Administration. Local courts and law enforcement agencies are also integral to this system. Together, they have created an extensive infrastructure, enhanced institutional capacity and ensured practical solutions and tools for recovery.
According to the Asian Development Bank's (ADB) recent report "Non-Performing Loans Watch in Asia 2025," China's NPL recovery framework is widely considered the most developed among Asian countries. However, Western economists and human rights activists often criticize the overly stringent policies involved. The report notes that China's NPL rate was 1.40 percent in 2024, down from 1.50 percent the previous year.
In contrast, among South Asian countries, Bangladesh has the highest NPL rate and is labeled as having the weakest banking system in Asia. By the end of 2024, Bangladesh's default rate reached 20.20 percent, equivalent to $20.27 billion. Since 2021, the NPL rate in Bangladesh has increased each year-from 8 percent in 2021 to 9 percent in 2023. Nepal and Sri Lanka have experienced similar trends, while other South Asian countries have seen declines. For example, India's defaulted loans rate dropped from 7.9 percent in 2020 to 2.5 percent in 2024. Pakistan reduced its NPL rate from 9.2 percent to 6.3 percent during the same period.
However, the situation in Bangladesh appears even more alarming when compared with this report. According to the latest data from the Bangladesh Bank, by June 2025, total defaulted loans in the banking sector amounted to Tk 667,000 crore, representing 33 percent of all disbursed loans.
Banks primarily exist to invest in various sectors industry, trade, commerce and personal needs. China has developed a vast banking sector for this purpose. However, loan recovery in China is not solely the responsibility of banks. Instead, a comprehensive and disciplined multi tiered institutional infrastructure has been established. For debt management, China has five national asset management companies (AMCs), 59 regional AMCs, and five provincial asset investment companies. These institutions have government, private, and foreign investments. Typically, defaulted loans are acquired by these AMCs. Some large banks recover debts directly from their defaulters, while smaller banks sell off bad loans to AMCs to maintain healthy balance sheets.
In 2024, Chinese banks transferred overCNY214 billion worth of bad loans to AMCs. The cumulative amount of transferred NPLs now stands at CNY3.5 trillion. In some cases, AMCs even provide capital assistance to borrowers for business recovery. Depending on the borrower's situation, some loans are rescheduled or restructured, enabling many companies to resume production. While genuine defaulters receive support, intentional defaulters face strict actions.
Loan defaulters are blacklisted under court orders to ensure repayment. These individuals are barred from using toll roads, flying, riding high-speed trains, or staying in luxury hotels. Their children cannot attend private schools, and they are denied access to digital payment apps. In China, cash transactions are nearly obsolete, with platforms like Alipay and WeChat dominating. As a result, defaulters face difficulties even purchasing daily essentials. They also cannot obtain certain business licenses or hold government jobs. In some provinces, when relatives call blacklisted defaulters, a recorded debt repayment reminder is played as a welcome tune.
During the COVID-19 pandemic, NPLs in China increased due to genuine causes. Still, defaulters were not given a free pass. Many had to appear in court. Unlike in Bangladesh, Chinese banks do not chase after defaulters, nor do defaulters manage to flee. Due to the strict enforcement, many blacklisted defaulters voluntarily approached banks and courts, seeking help to return to normal life.
Reports published in December 2023 by the Financial Times and Voice of America stated that 8.54 million Chinese citizens had been blacklisted for loan defaults. In 2020, this number was 5.7 million.
In stark contrast, the situation in Bangladesh is quite different. Here, banks are exhausted chasing after defaulters. Instead of being blacklisted, defaulters in Bangladesh are often 'red-listed' with red telephones, red passports, red-brick houses in ministerial zones, and cars flying the national flag. Many become MPs, ministers, business tycoons, or political leaders without repaying bank loans. Since loan recovery is seen as the sole responsibility of banks, they are blamed for rising NPLs.
Although some legal mechanisms exist, government institutions rarely provide necessary support. On the contrary, various orders and stay orders from the judiciary often enable defaulters to become MPs or ministers. Before the 11th National Parliamentary Election in 2028, a controversial verdict by Bangladesh's highest court drew attention. ASM Feroz, Chief Whip of the National Assembly, owned Patuakhali Jute Mills Ltd, which owed Tk 26.8 crore in principal and interest to the state-owned Sonali Bank. The High Court canceled his candidacy until repayment, but the Supreme Court's chamber judge stayed the order, allowing him to contest after the loan was rescheduled for the 9th time despite central bank rules allowing a maximum of 3 rescheduling.
Due to legal weaknesses, by December 2024, a total of 253,091 loan recovery cases remained pending in financial courts, involving Tk 343,242 crore in stuck bank funds
There is an Arabic proverb: "Seek knowledge even if you have to go to China." For us, China is no longer distant. It is one of our largest trade partners. Chinese products are very much available in the Bangladeshi market. Just as we embrace Chinese products, we can also adopt China's debt recovery model. Thanks to a coordinated loan recovery policy, Chinese banks operate efficiently. They have increased industrial productivity through effective investment and captured global markets, helping Chinese banks rank among the world's top institutions.
According to Forbes India, in 2024, four out of the top 10 global banks by capital were Chinese. By following China's policies, Bangladesh's weak and crumbling banking sector can be revived. For sustainable economic development and to curb the influence of defaulters, a robust institutional debt recovery structure must be established. At this critical moment of reform, we hope for swift and effective restructuring of loan recovery policies.
The writer is a Head of Communication Division of NRBC PLC
