Write-off recovery performance to determine bank MD appointments

The appointment and re-appointment of bank managing directors will depend on their performance of recovering written-off loans, says a Bangladesh Bank guideline that reduces the write-off period from three years to two.

The central bank issued the guideline on Sunday, detailing the formation of the write-off recovery unit at banks and its functions.

The Bangladesh Bank aims to reduce non-performing loans to 8% of total loans by June 2026, as per the condition included in the $4.7 billion loan agreement with the International Monetary Fund. Meanwhile, it has set a target to reduce the NPLs of state-owned banks and private banks below 10% and 5%, respectively.

The banking regulator has outlined 11 action plans in a "roadmap" to reduce default loans and ensure good governance in the banking sector.

Among them, write-off is one of the working methods. The central bank's policy states that initiatives have been made to implement the roadmap according to international best practices.

Of the recovered amount against the written-off loans, 5% will be disbursed to the officers involved in the recovery as an incentive. The chief executive officer of the bank can receive a maximum of 10% of the distributable money.

If an asset management company is set up in the future, banks will be able to sell their written-off loans to it, according to the new guideline.

A write-off debt recovery unit will be formed under the direct supervision of the managing director or the chief executive officer of the bank. For this, an officer not more than two steps below the CEO should be appointed as the head of the unit.

The unit will hold monthly meetings chaired by the managing director or the CEO, and the decisions made will be recorded in meeting minutes.

At the end of December last year, bad debt in the country's banking sector stood at Tk1.26 lakh crore, which accounts for 87% of the total defaulted loans.

The Bangladesh Bank had earlier stated that through the new write-off policy, about Tk43,000 crore, or 2.76% of the total defaulted loans, can be reduced.

At the end of June 2023, the total amount of written-off loans by the country's banks stood at Tk67,721 crore. Additionally, the current amount of defaulted loans in banks is Tk1.45 lakh crore, which represents 9% of the total disbursed loans.

According to the new policy, banks can write off the debt of a deceased person in their own name or in the name of a sole proprietorship at their discretion. However, in the case of a sole proprietorship, consideration should be given to whether the deceased has an earning successor.

Debt settlement method

If the property mortgaged against a loan is attempted to be sold according to the rules, and if the loan guarantor is unable to pay the amount due, the loan will be eligible for write-off. For a write-off, a suit must be filed in connection with the loan at the money loan court.

If no provision is kept in respect of each loan for write-off, a provision should be made from the bank's current account. However, no loan can be partially written off.

Recovery and monitoring of written-off loans

According to the Bank Company Act, the bank's debt claims will remain intact even after write-off, and the legal process for its recovery will continue.

Skilled officers, including at least one of them with a law degree, should be appointed to the debt recovery unit.

The unit will have to present the loan recovery progress report at the board meeting of the bank every three months, and skilled lawyers should be appointed for the speedy disposal of cases.

The write-off loan recovery unit should be formed within 15 days after the introduction of the policy, and the necessary officers should be appointed within 30 days.