Bangladesh needs a national asset management company urgently

The banking sector in Bangladesh ended 2025 with non-performing loans (NPLs) of over Tk 5.57 lakh crore, 30.6 percent of the total outstanding loans in the country. Earlier in September 2025, the NPL ratio had neared 36 percent. Although the Bangladesh Bank has attempted to reduce this ratio, mainly through loan rescheduling facilities, the underlying problem remains severe.

In 2024, Bangladesh had one of the highest bad loan ratios in Asia, according to the Asian Development Bank. At the end of 2025, more than a dozen banks had default rates above 50 percent. The situation at the Islami Bank Bangladesh PLC, the country’s largest private bank, illustrates how rapidly the financial health of a banking institution can deteriorate. Its classified investment to total investment ratio stood at just 4.32 percent in 2023. By 2024, it reached 42.36 percent, and by 2025, it rose further to 49.65 percent, almost half of the bank’s entire investment portfolio. This sharp deterioration followed the concentration of large loans within a small number of corporate groups, which subsequently defaulted suddenly as a result of political regime change in 2024. At the same time, its capital adequacy ratio fell from 12.62 percent in 2023 to 7.57 percent in 2024 and further to 6.42 percent in 2025, which is less than half the regulatory minimum of 12.5 percent required under the Basel III framework.

Tap Here to Add The Daily Star As A Trusted Source

These figures are not just statistics. Every taka stuck in a defaulted loan is money that cannot be used to finance new businesses, generate income for banks, or support depositors. High levels of bad loans reduce profitability, weaken liquidity, and can undermine public confidence in the banking system. The problem now affects state-owned, private, and recently merged banks simultaneously. In fact, it has become a major threat to financial stability and economic growth, not merely an issue of rescuing a few troubled institutions.

The traditional approach to loan recovery is struggling. Banks mainly rely on court cases and property auctions. Both methods are slow and often ineffective; many cases take years to resolve. A task force on economic reforms noted that, as of February 2024, more than Tk 1.78 lakh crore was tied up in 72,543 pending cases. During the litigation period, collateral such as factories, machinery, and land often depreciates and loses significant value. Auctions are frequently announced but fail to attract buyers. As a result, banks spend significant time and resources chasing recoveries instead of supporting new financing and acquiring new customers.

Globally, other countries facing similar bad asset problems have adopted a different solution: a dedicated asset management company (AMC). An AMC takes distressed loans off the banks’ books and specialises in recovering value from them. Malaysia’s Danaharta is one of the best-known examples. It was created after the Asian Financial Crisis of 1997-98. Danaharta acquired bad loans worth 19.71 billion Malaysian ringgit at a 54.6 percent discounted price of 8.9 billion ringgit. It also managed another 27.97 billion ringgit of distressed assets on the government’s behalf. With special powers, it recovered 30.35 billion ringgit before closing in 2005, achieving a recovery rate of 58 percent.

South Korea’s Korea Asset Management Corporation (KAMCO) is another example of success, having purchased NPLs and successfully recovered more than it paid for them. KAMCO acquired NPLs with a face value of over 110.2 trillion won for about 39.8 trillion won and recovered over 48.1 trillion won, more than its acquisition cost.

Ireland’s National Asset Management Agency (NAMA) is noted as one of the most successful AMCs in the world. Established in 2009 after the global financial crisis, it acquired about 74 billion euros of troubled loans from Irish banks. By the end of 2025, NAMA had generated 48.5 billion euros in cash, repaid 30.2 billion euros of government-guaranteed debt, and reduced its remaining loan portfolio to only 46 million euros. Rather than imposing tax on the general public, NAMA is expected to deliver a surplus of 5.6 billion euros to the Irish state.

These examples show that specialised institutions can often recover distressed assets more effectively than individual banks. Bangladesh should adopt a similar model. A national AMC could take over large and complex bad loans that banks have failed to recover for years. These assets would be transferred at independently assessed market values. The AMC may be funded through government-backed bonds. Banks would recognise their losses upfront, but they would also receive cleaner balance sheets and more room to resume normal financing. A dedicated AMC would bring together legal, valuation, restructuring and property management expertise that individual banks often lack. It could restructure viable businesses, lease unused assets, redevelop land, and sell properties when market conditions improve.

The need is especially clear in the case of Islami Bank, from which S Alam Group and its associate companies took loans worth Tk 74,900 crore, 47 percent of its outstanding financing as of March 2024.

Banks struggling with NPLs have perhaps tried to sell factories, land, and commercial properties held as mortgaged collateral against defaulted loans. Many of these efforts may not have produced the desired results, because potential buyers often fear future legal disputes, especially when politically influential borrowers are involved. In addition, many of these assets are simply too large for most investors to purchase in a single transaction.

A national asset management company could address these challenges. It could combine assets from multiple banks into a single professionally managed portfolio. Large properties could be divided into smaller units for easier sale. Idle assets could be leased to generate income. The AMC could also market assets to a wider group of domestic and foreign investors.

Of course, an AMC is not without risks. In some countries, AMCs became warehouses for unsellable assets because transfer prices were set too high or political interference slowed decision-making. For this reason, strong safeguards are essential.

All transferred assets should be valued independently and priced transparently. The AMC should have a professional and independent board, clear performance targets, and a fixed lifespan. Its activities, recoveries, and losses should be publicly disclosed. Most importantly, it must not become a vehicle for giving politically connected defaulters another opportunity to avoid repayment.

An AMC should also be part of a broader reform agenda. Bangladesh still needs faster court procedures, stronger bank governance, and an effective insolvency and bankruptcy framework.

Bangladesh’s bad loan problem has reached a scale where litigation and auctions alone are unlikely to be enough. Policymakers should consider the experiences of Danaharta, KAMCO, and NAMA when formulating distressed asset management related reforms. With proper safeguards, a professionally managed national AMC could become an important part of the solution for the country.

No single institution can solve every weakness in the banking sector. But a well-designed AMC could help clear the growing backlog of distressed assets, unlock value from large unsold properties, and restore confidence in the country’s banking system.

Muhammad Arifur Rahman is advocate at the Supreme Court of Bangladesh. He can reached at khan.arif.du@gmail.com.

Views expressed in this article are the author's own. 

Follow The Daily Star Opinion on Facebook for the latest opinions, commentaries, and analyses by experts and professionals. To contribute your article or letter to The Daily Star Opinion, see our guidelines for submission.