The government has made a move to bring the non-performing loans under a legal framework through setting up an independent corporation.
The objective of the law styled “Bangladesh Asset Management Corporation Act-2020” is to realize the NPL and its good management, formulating a trading platform to deal with the defaulted loans and expanding the investment opportunities.According to the Ministry of Finance, they have already sent the proposed draft to the Public Administration Ministry for further scrutiny.
The bill is expected to be placed before the cabinet next month.
“The government has an aim to clean up financial sector and reduce the volume of Non-Performing Loans (NPL) of state-owned banks and financial institutions as the loans have remained unrealized for years,” Financial Institution Division joint Secretary Shukur Ali said, adding that they slightly followed the laws of South Korea and Thailand while formulating the provisions of the proposed law.
Sources said the government went for the move after the World Bank recommended recovering the long-standing bad loans.
The proposed law mentions that if anyone uses the name of the corporation for business without its written permission, it will be considered a punishable offence.
The violator will be awarded a highest one-year imprisonment or Tk1 million fine or both for the offence, said the section 33 (1) of the law.The entrepreneurs doing business taking loans from different state-owned banks and paying the installment to the respected banks on a regular basis will not be targeted by the proposed corporation.
Whenever the banks are unable to realize the state money from the habitual defaulters, Bangladesh Asset Management Corporation (BAMCO) will handle it, Shukur Ali said.
The ministry sources said despite several measures, including the implementation of prudent measures in the banking system in 1990 and loan classification and provisioning with the international standards, the default loans in the banking system are still very high.
The proposed BAMCO would take control of the assets of the defaulted individuals or firms, manage them and advise the lenders to manage and recover defaulted loans as well as guide the borrowers.
A 15-member board of directors with a chairman will lead the independent corporation and the duration of the board will be three years.
The paid-up capital of the corporation would be Tk30 billion and authorized capital would be Tk50 billion.
According to sources, the corporation would set up a trading platform to buy and sell default loans and create a competitive market for trade distressed assets.
Not only that, the company would also be able to reschedule and restructure defaulted loans, raise funds from the capital market by issuing bonds.
As per Bangladesh Bank, this is the first time in the country that such corporation is being formed with the power of buying and selling the asset of bad borrowers.
As the draft Act suggests the formation of the board of directors, its chairman will be appointed by the government – a rank similar to the post of deputy governor of the central bank and who has at least 25 years of practical experience to work in banking profession.
The corporation board members won’t be able to hold the post for more than two terms. The tenure of the board would be three years.
The members of the board include a joint secretary of the FID, a member of the National Board of Revenue, registrar of Joint Stock Companies, a joint secretary to the Ministry of Law, Justice, and Parliamentary Affairs, an executive director of Bangladesh Bank, a member of Bangladesh Investment Development Authority, a member from the Securities and Exchange Commission, a member nominated by the FBCCI, the managing director and chief executive officer of corporation.