CEOs urge BB to tackle willful defaulters amid rising bad loans

CEOs of commercial banks have urged Bangladesh Bank to take strict action against ‘wilful defaulters,’ warning that escalating bad loans are reaching alarming levels and posing a serious threat to the country’s economic growth.

The Association of Bankers Bangladesh (ABB), a platform of private bank CEOs,made the appeal in a letter to the Governor of Bangladesh Bank, urging immediatemeasures to recover defaulted loans and safeguard depositors’ funds.

The ABB proposed several steps, including cancelling trade licences for defaulters,banning foreign travel, restricting land and flat registration, and preventing themfrom forming new companies or attending state functions.

“If provisions on wilful defaulters are removed from the law, controlling defaultedloans will become far weaker, putting depositors’ money at risk,” the ABB warnedin its letter, delivered on Thursday. To further encourage repayment, theassociation also suggested allowing partial or full waiver of interest if loans arerepaid within a specified period.

As of September, last year, defaulted loans stood at Tk 6,44,515 crore, roughly 36percent of total loans. Recovery has been slow due to a backlog in the money loancourts. The ABB warned that weakening legal provisions against wilful defaulterswould further jeopardise the banking sector.

A “wilful defaulter” is a borrower who deliberately fails to repay a loan despitehaving the financial capacity to do so. The term is defined under the BankCompanies Act, 1991 (amended) and is a legal category that allows banks andregulators to take strict action against such borrowers to protect the financialsystem and depositors’ money.

The ABB stressed that the current definition of wilful defaulters under the BankCompanies Act—covering misuse of loan funds, providing false information, orremoving collateral without bank consent—is both realistic and effective, enablingbanks to identify and act against defaulters.

“Existing laws address borrowers who default for legitimate reasons. Relaxingstrict provisions for those deliberately refusing to repay despite having the capacitywill undermine discipline in the sector,” the letter said.

The association noted that countries including India, China, the UK, Australia,Canada, and Singapore maintain strict measures against wilful defaulters, such asclosure of banking facilities and public disclosure of names.

When Bangladesh Bank proposed removing these provisions last December,managing directors of private banks—including Bank Asia, Mutual Trust Bank,and Trust Bank—urged they be retained, arguing that declaring wilful defaultersapplies pressure on borrowers and often leads to quicker loan recovery.

“The Bankers’ Meeting discussed removing the wilful defaulter provision, butbankers demanded it be retained. The Governor assured us he would review thematter and advised submitting a formal letter, which we have done,” a private bankmanaging director said.

The problem of defaulted loans has long undermined the stability, governance, andgrowth of Bangladesh’s banking sector. To address this, the amended BankCompanies Act 2023 categorised defaulters as either ‘wilful’ or ‘loan defaulters.’

However, in ongoing banking reforms, the draft of the proposed amendmentomitted provisions to identify and act against wilful defaulters, citing complexityand potential misuse.

ABB, along with economists, insists that strict measures for deliberate defaultersmust remain in force. Former Director General of the Bangladesh Institute of BankManagement (BIBM), Dr Toufiq Ahmed Chowdhury, said: “Discipline will notreturn to the banking sector unless strict provisions are enforced against those whointentionally default despite having the ability to repay. Weakening the legal basiswill only encourage further defaults.”

He added that banks are responsible for distinguishing between wilful andinvoluntary defaulters, emphasising that identifying them is neither complicatednor impossible.