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 immediate measures 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 them from forming new companies or attending state functions.
"If provisions on wilful defaulters are removed from the law, controlling defaulted loans will become far weaker, putting depositors' money at risk," the ABB warned in its letter, delivered on Thursday. To further encourage repayment, the association also suggested allowing partial or full waiver of interest if loans are repaid within a specified period.
As of September, last year, defaulted loans stood at Tk 6,44,515 crore, roughly 36 percent of total loans. Recovery has been slow due to a backlog in the money loan courts. The ABB warned that weakening legal provisions against wilful defaulters would further jeopardise the banking sector.
A "wilful defaulter" is a borrower who deliberately fails to repay a loan despite having the financial capacity to do so. The term is defined under the Bank Companies Act, 1991 (amended) and is a legal category that allows banks and regulators to take strict action against such borrowers to protect the financial system and depositors' money.
The ABB stressed that the current definition of wilful defaulters under the Bank Companies Act-covering misuse of loan funds, providing false information, or removing collateral without bank consent-is both realistic and effective, enabling banks to identify and act against defaulters.
"Existing laws address borrowers who default for legitimate reasons. Relaxing strict provisions for those deliberately refusing to repay despite having the capacity will 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 as closure 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 defaulters applies pressure on borrowers and often leads to quicker loan recovery.
"The Bankers' Meeting discussed removing the wilful defaulter provision, but bankers demanded it be retained. The Governor assured us he would review the matter and advised submitting a formal letter, which we have done," a private bank managing director said.
The problem of defaulted loans has long undermined the stability, governance, and growth of Bangladesh's banking sector. To address this, the amended Bank Companies Act 2023 categorised defaulters as either 'wilful' or 'loan defaulters.'
However, in ongoing banking reforms, the draft of the proposed amendment omitted provisions to identify and act against wilful defaulters, citing complexity and potential misuse.
ABB, along with economists, insists that strict measures for deliberate defaulters must remain in force. Former Director General of the Bangladesh Institute of Bank Management (BIBM), Dr Toufiq Ahmed Chowdhury, said: "Discipline will not return to the banking sector unless strict provisions are enforced against those who intentionally default despite having the ability to repay. Weakening the legal basis will only encourage further defaults."
