Alternative dispute resolution can help reduce bad loans
Alternative dispute resolution (ADR) should be used to curb the spiralling bad loans, which pose a serious challenge for the banking sector as well as the economy, analysts said yesterday.
“To reduce the number of cases in the banking industry and bring down the non-performing loans to a tolerable level, the ADR can be used as an effective alternative mechanism,” said Abul Kasem Khan, president of DCCI.
He spoke at a roundtable on “ADR in managing the risk of non-performing bank loans” jointly organised by Bangladesh International Arbitration Centre (BIAC) and Dhaka Chamber of Commerce and Industry (DCCI) at the DCCI auditorium in the capital.
At the end of March 2018, the NPL in the banking industry stood at Tk 88,500 crore, according to Khan.
Bad loans stand at 10.78 percent in Bangladesh, compared to 1.6 percent in Malaysia, 1.9 percent in the Philippines, 2.9 percent in Thailand and Indonesia, about 2.5 percent in Cambodia, 2.6 percent in Sri Lanka and 2 percent in Nepal, he said.
Khan recommended for improvement of corporate governance at banks, adopting zero-tolerance policy towards loan recovery, bringing loan defaulters and their collaborators to justice and introducing alternative recovery options.
While presenting the keynote paper, Shafayat Ullah, head of legal affairs at City Bank, said: “The ADR saves time, cost and it is confidential.”
He said large defaulters are rarely penalised; rather loans are being restructured.
To overcome the problems, he stressed the need for the introduction of the ADR as an alternative route that can be used in managing default loans. “All organisations should incorporate mediation-arbitration clause in the commercial contracts.”
He said 11 percent of the total loans are bad loans in Bangladesh at present.
Mohammad Shahidul Haque, senior secretary of the legislative and parliamentary affairs division of the law ministry, said: “We need to concentrate on the implementation part of our legislation.”
Haque said 2 percent NPL is allowable in developed nations whereas it is more than 10 percent in Bangladesh which is not acceptable.
He said if policy reforms are needed to reduce the NPL, the government is willing to do that.
Effective implementation of law is mandatory to convert NPL into performing loans, said Mahbubur Rahman, chairman of BIAC.
He called for implementation of law and amendment of regulations, if needed, for a healthy banking sector.
“Our financial sector can be further strengthened if we can bring down the volume of NPL in the financial industry.”
The NPL is linked with the liquidity of banks, said Muhammad A (Rumee) Ali, BIAC CEO.
“There must be a way out before going to courts to realise bad loans. There should be arbitration clause in the contract.”
He sought cooperation from the legislative and parliamentary affairs division for popularising the ADR and hoped that the use of ADR would be put in place to mitigate NPLs before going to courts.
Nasreen Begum, additional secretary of the legislative and parliamentary affairs division, said the Artha Rin Adalat Ain 2003 needs to be amended and needs to include the provision of arbitration.
Salma Nasreen, additional secretary of the financial institutions division, said a sound economy depends on an efficient banking system.
Tanjina Ismail, president of the Bangladesh Women Judges Association, said it is time for banks to rethink and redefine their loan recovery systems.
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