New Law Arms Asset Firms With Sweeping Recovery Powers

The government is preparing a powerful new legal weapon to break the logjam over Bangladesh’s bad loans, proposing sweeping powers for specialised asset management companies to seize, sell and restructure mortgaged assets�"and, where necessary, take control of defaulting borrowers’ businesses.

The urgency is underscored by the scale of the crisis. Banks’ non-performing loans surged to Tk6,06,555 crore by the end of June 2026, accounting for 32.78 per cent of their total outstanding loans, according to Bangladesh Bank data. The stock increased by Tk17,851 crore in just three months from March.

The proposed Distressed Asset Management Act, 2026 would establish a dedicated mechanism to purchase and resolve bad loans and distressed assets that have remained stuck for years, potentially unlocking capital trapped in the banking system and providing lenders with a new channel to recover long-outstanding dues.

The Ministry of Finance has invited stakeholders to submit their views on the draft law, officials said.

Under the proposed framework, licensed Distressed Asset Management Companies (DAMCs) would be authorised to purchase defaulted loans and other distressed assets from banks and financial institutions, restructure and manage them, take possession of mortgaged property, and sell or securitise the assets.

Where necessary, a DAMC could also take control of a borrower’s business to facilitate recovery. A senior Finance Ministry official said the legislation was being prepared to accelerate recovery of long-outstanding defaulted loans and put distressed assets back into productive use.

“Once the law comes into effect, a specialised framework will be established to manage defaulted loans and assets that have remained stuck for a long time,” he said.

Although supervised by the central bank, DAMU would operate autonomously while exercising powers vested in it by law. Headquartered in Dhaka, the unit could establish regional offices if necessary. It would license, supervise, inspect and regulate DAMCs and loan-servicing companies, with powers to suspend or cancel licences and impose administrative penalties for violations.

DAMU would also register, classify, value, acquire and monitor distressed assets and coordinate among banks, financial institutions, DAMCs and eligible institutional investors. A central database or digital platform would be created to facilitate information-sharing and improve access to distressed-asset information.

The unit would have extensive powers to demand information, reports and records from DAMCs and loan-servicing companies and conduct audits, inspections and investigations. It could also form a Distressed Asset Enforcement Taskforce (DAET) to assist in recovering defaulted assets.

DAMU would be headed by a chief appointed by the government on the recommendation of the Bangladesh Bank governor. The chief would hold a rank and receive benefits equivalent to those of a Bangladesh Bank deputy governor and serve a single three-year term.

The candidate would require at least 15 years’ professional experience in banking, finance or distressed asset management and could not remain in office beyond the age of 65.

Companies seeking to operate as DAMCs would have to be registered under the Companies Act, 1994, and maintain the minimum paid-up capital prescribed by DAMU, fully paid in cash.

Their directors, chief executive and key officials would need relevant experience in banking, financial services, asset recovery or law and meet prescribed “fit and proper” criteria. At least 20 per cent of the board would have to comprise independent directors.

DAMU would retain the power to amend, suspend or cancel licences for breaches of the law or licence conditions, involvement in money laundering or activities deemed contrary to the public interest.

A DAMC could purchase distressed assets directly from a bank or financial institution after their value had been determined. The purchase price would have to be paid entirely in cash to the concerned institution.

Economist Muslim Chowdhury, former chairman of Sonali Bank, said the success of the proposed market would depend heavily on the quality and valuation of underlying collateral.

“An asset management company will purchase loans for business purposes. If a loan worth Tk10 is purchased for Tk5, there must be adequate and genuine assets against it,” he said.

He cautioned that foreign and private investors might have little interest in purchasing loans without adequate collateral or where collateral values had been significantly inflated.

Before any mortgaged or encumbered asset is sold, its market value would have to be determined by a valuation firm approved by Bangladesh Bank. DAMU would prescribe the procedure for fixing the reserve price.

The borrower would then be served notice and given 60 days either to repay the outstanding dues or recover the asset by paying the prescribed reserve price. If the borrower refused to surrender possession, the DAMC could seek assistance from the district magistrate.

The proposed framework is intended to turn the recovery of distressed assets from a prolonged legal and administrative process into a specialised resolution mechanism, potentially freeing capital locked in bad loans and giving banks greater scope to restore productive lending.