Bangladesh Bank Brings a Five Year Bad Loan Roadmap to Parliament, Betting on Private Firms to Buy Up Distressed Debt

Bangladesh Bank took its bad loan problem to parliament this week, presenting a five year, thirteen point reform roadmap to the parliamentary standing committee on the finance ministry that leans on a mix of tighter supervision, new legislation and a market based mechanism for offloading distressed debt that the banking sector has never tried at this scale before. The scale of what it is trying to fix is not in dispute: non-performing loans stood at Tk6.06 lakh crore as the roadmap was presented, close to a third of everything the banking system has lent out, a level that keeps Bangladesh among the world's most burdened banking sectors by this measure.

Thirteen Points, One Central Bet

The roadmap itself covers familiar ground reorganised into a longer time horizon: risk based supervision that will score banks on management quality, governance and internal controls rather than treating every institution the same; tighter limits on how much a single borrower can owe across multiple banks at once, a loophole that has let serial defaulters rack up debt in several places simultaneously; and measures aimed squarely at identifying deliberate defaulters rather than borrowers who fell behind for genuinely difficult reasons. None of that is new in spirit, Bangladesh Bank has talked about risk based supervision for years. What is newer, and what the roadmap leans on most heavily, is a push to let private capital take distressed loans off banks' books entirely through a proposed Distressed Asset Management Act, abbreviated locally as DAMA, which would need parliament's approval to take effect.

What the Law Would Actually Let Happen

The draft DAMA law, which has already been circulating for public comment since July, would license private Distressed Asset Management Companies to buy non-performing loans directly from banks and then do largely as they please with them commercially: convert debt into equity, reschedule a borrower's repayment terms, inject capital to modernise a struggling business, enforce against collateral and sell it, or wind the asset down inside a bankruptcy remote trust structure. Eligible buyers span local entrepreneurs, foreign asset managers, private equity and credit funds, and multilateral development agencies, though the law would bar these companies from borrowing from local banks to fund their purchases, a safeguard meant to stop the scheme from simply recycling risk back into the same banking system it is trying to relieve. A new unit inside Bangladesh Bank, the Distressed Asset Management Unit, would be set up under a deputy governor rank official to license and police the new industry, while separate Loan Servicing Companies would handle the less glamorous work of tracing borrowers and negotiating settlements, explicitly barred from filing lawsuits, taking deposits or using coercive collection tactics.

Nazma Mobarek, secretary of the Financial Institutions Division, told stakeholders during the law's public comment period that draft legislation in Bangladesh generally draws very little feedback and that the ministry hopes DAMA proves an exception. The reactions on record so far suggest cautious welcome rather than enthusiasm. Prof Abu Ahmed, a former ICB chairman, called introducing private asset management companies "a highly positive and timely reform," while Syed Abu Naser Bukhtear Ahmed, Agrani Bank's chairman and a former managing director of the bank, said he hoped the law would fix weaknesses that have persisted for years. Tareq Refat Ullah Khan, BRAC Bank's managing director, offered a more operational set of recommendations for making the mechanism work in practice rather than on paper, the kind of detail that tends to separate a law that changes behaviour from one that mostly generates press releases.

How Big Is the Pile, Really

Part of what makes this story hard to tell cleanly is that Bangladesh publishes more than one number for the same underlying problem, depending on which definition is in use and when it was measured. The roadmap presented to parliament this week cites Tk6.06 lakh crore in officially classified non-performing loans, a 32.78 percent ratio BD Financial Review has reported before in the context of Bangladesh Bank's separate 18 month bullet payment settlement plan. A broader measure cited when DAMA was first drafted in July put total distressed or at risk loans, a wider category than the strict regulatory classification, at Tk10.91 trillion, or roughly 60 percent of all disbursed credit. Neither figure is wrong; they are simply measuring different things, and the gap between them is itself a reminder that the headline NPL ratio understates how much of the banking system's loan book regulators privately consider shaky.

Measure	Figure	As reported
Officially classified NPLs (sector wide)	Tk6.06 lakh crore (32.78%)	Presented to parliament, October 2026
Broader distressed or at risk loans (sector wide)	Tk10.91 trillion (approx. 60%)	DAMA draft law, data as of December 2025
BASIC Bank's own classified loans	Tk8,153 crore (64.49%)	BASIC Bank, September 2026

The Bank That Shows Why This Is Hard

If anyone wants a preview of how slowly even a well designed roadmap translates into a healthier balance sheet, BASIC Bank is sitting right there as the cautionary case. BD Financial Review reported this week that the bank's September figures show 64.49 percent of its loan book, or Tk8,153 crore, still classified as bad, more than thirteen years after the Sheikh Abdul Hye Bachchu era loan scandal first came to light, with a Tk5,148 crore capital shortfall and top 20 defaulters who have repaid roughly 2 percent of what they owe. BASIC's chairman has said a turnaround is possible within three years given Tk5,000 crore in low cost deposits, a timeline that would still run well past this new five year roadmap's own horizon if it starts from here. The gap between a national reform plan announced in a parliamentary committee room and a single bank's defaulters who have spent over a decade barely repaying anything is exactly the gap DAMA is designed to close, by giving banks like BASIC a buyer for debt they have otherwise been unable to shake loose through the courts.

What Would Have to Go Right

Economists quoted around the draft law have mostly welcomed the concept while flagging that its success depends entirely on execution details the roadmap has not yet nailed down: how aggressively the new Distressed Asset Management Unit enforces against buyers who cherry pick only the easiest to recover loans, whether pricing of distressed debt sales is transparent enough to avoid insider deals between bank boards and favoured buyers, and whether the ban on debt funded purchases actually holds once private equity funds start structuring offshore financing around it. None of that is unique to Bangladesh; distressed debt markets elsewhere have struggled with exactly these problems. What is specific to Bangladesh is the scale, a banking system where close to a third of lending by the strict measure, and perhaps three fifths by the broader one, needs somewhere to go, and a five year window in which Bangladesh Bank is now on record, in front of parliament, promising it will.

What to Watch Next

DAMA still needs to clear parliament before any of this becomes operational, and a public comment period that has drawn thinner feedback than the ministry hoped is not the same as a bill ready for a floor vote. For bank investors and depositors watching from the outside, the more useful signal in the months ahead will not be the roadmap's thirteen points themselves but three narrower things: whether the Distressed Asset Management Unit actually gets staffed and funded rather than existing only on paper, whether early DAMA transactions include genuinely hard cases like BASIC Bank's own defaulters rather than only the easiest loans a buyer can flip quickly, and whether Bangladesh Bank publishes transaction level data on what distressed debt actually sells for once the market opens. Until those three things happen, the Tk6.06 lakh crore figure and the five year promise attached to it remain a plan rather than a track record.