Banks asked to use mediation for NPL recovery

The Bangladesh Bank has directed banks to use the mediation process to recover default loans, as part of the Alternative Dispute Resolution (ADR) system.

To implement the new process, banks have to reduce their default loan ratio by at least one per cent within June 30, 2026, according to a circular published on Sunday.

It read that for the new process, banks can take help from the Bangladesh International Arbitration Centre (BIAC), or retired judge, former banker or relevant institutions like NBFIs, or lawyer or any skilled and experienced person.

The regulator body indicated that the mediation process should be applied on a case-to-case basis considering the ability of the customer to recover the defaulted debt.

The mediation person or institution's remuneration shall be determined in agreement with the bank and the customer. Besides, the paying party must also be determined.

The circular adds that the highest responsibility of the banks will be to monitor the recovery of default loans. An update on the default loan recovery situation must be shown at every board meeting, and if necessary, direction will come from board members.

The Banking Regulation and Policy Department of the Bangladesh Bank had issued a circular on Alternative Dispute Resolution (ADR) in 2016. But mediation is not being utilised by banks, as a result, court cases are not being settled properly, insiders say.