• Saturday, Sep 22, 2018
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‘ADR can help reduce non-performing loans’

  • Published at 12:23 am July 22nd, 2018
ADR can help reduce non-performing loans
Experts speaking at the round-table discussion on using ADR to managing risks of non performing loans Courtesy

'BIAC along with Bangladesh Bank and the Association of Bankers Bangladesh Ltd has been working out a draft guideline for the banks which will expedite the process of ADR and make it more effective'

Speakers at a discussion posited that alternative dispute resolution (ADR) can help reduce non-performing loans.

They came up with the suggestion at a roundtable titled “ADR in Managing the Risk of Non Performing Bank Loans” at the Dhaka Chamber of Commerce and Industry (DCCI) auditorium on Saturday, according to a statement.

Bangladesh International Arbitration Centre (BIAC) and DCCI co-organized the event.

Md Shahidul Haque, senior secretary at legislative and parliamentary affairs division of the Ministry of Law, stressed the importance of the implementation part of the legislation.

He lauded the BIAC for joining the process of settling commercial disputes beyond the court.

Shahidul said in the developed nations only 2% of a bank’s loans is allowed to be non-performing whereas in Bangladesh it is over 10% which is not accepted.

He said the Financial Institutions Division should come up with a few proposals about how to address the issues of non-performing loans.

Bangladesh Bank, Office of the Chief Justice, Ministry of Law, Bankers’ Association, and Ministry of Finance should work collectively to address the issue, the secretary added.

Shafayat Ullah, head of legal at the City Bank Limited, who read out the keynote paper, said large defaulters are rarely penalised. Instead, loans are restructured.

To overcome such problems he recommended the introduction of ADR as an alternative route that can be used in managing default loans.

BIAC Chairman Mahbubur Rahman said to convert non performing loans into performing loans, effective implementation of the law is mandatory.

He voiced concern over the aggravated situation in Non Performing Loans (NPL).

BIAC along with Bangladesh Bank and the Association of Bankers Bangladesh Ltd has been working out a draft guideline for the banks which will expedite the process of ADR and make it more effective, Mahbub said.

DCCI President Abul Kasem Khan said non-performing loans account for 10.78% of total outstanding loans, which represents an increase from 9.31% in December 2017.

He recommended improving the corporate governance of banks, ensuring proper due diligence processes, adopting zero tolerance policies on loan defaults, taking legal action against loan defaulters and their collaborators, and introducing alternative recovery options.

To reduce the number of cases in the banking industry and bringing down non-performing loans to a tolerable level, ADR can be used as an effective alternative mechanism, he said.

BIAC Chief Executive Officer Muhammad A (Rumee) Ali said non-performing loans are linked with the liquidity of banks.

There must be a way out before going to the court for the realization of bad loans so there should be an arbitration clause in the contract, he said.

The BIAC boss sought cooperation from the legislative and parliamentary affairs division for popularizing ADR to mitigate non-performing loans as a resort prior to legal action.