Editorial, News & commercial office:
55/A, H M Siddique Mansion (Level-7), Purana Paltan, Motijhel C/A, Dhaka-1000. Phone: +8802226640056,
e-mail: [email protected], [email protected]
The mountain of defaulted loans has become the banking sector's most pressing challenge, placing a prolonged strain on the economy. To address the problem, the government is set to establish specialised Distressed Asset Management Companies (DAMCs) to purchase, restructure and dispose of defaulted and written-off loans.
Under the proposed framework, DAMCs will be authorised to acquire distressed loans, restructure and reschedule them, take possession of collateral, sell assets, conduct legal proceedings and, where appropriate, convert debt into equity. They will also be able to facilitate the restructuring, modernisation and fresh investment of financially distressed industrial enterprises.
To provide the legal basis for these companies, the government has initiated a new law titled the Distressed Asset Management Act, 2026. The Ministry of Finance has already prepared a draft of the legislation. The draft also allows DAMCs to establish joint investment funds with domestic and foreign investors, as well as various investment funds, for the purchase of non-performing loans.
However, the activities of DAMCs will be overseen by an independent regulatory unit under the Bangladesh Bank. In addition, a Distressed Asset Management Taskforce will be formed to accelerate the recovery and enforcement of distressed assets. The proposed law will require all public and private organisations to provide the taskforce with the necessary information and documentation upon request.
Economist M K Mujeri said the proposed legislation would face several important implementation challenges, particularly in ensuring the accurate valuation of distressed assets, insulating the process from political influence and establishing robust regulatory oversight. If these challenges can be addressed, he said, banks will be able to remove a significant volume of bad loans from their balance sheets more rapidly, thereby enhancing their capacity to extend fresh credit.
According to the draft law, Bangladesh currently lacks a comprehensive legal framework for recovering or selling defaulted, written-off and non-performing loans held by banks and financial institutions. As a result, large volumes of risky assets remain locked on banks' balance sheets, hindering new lending and disrupting the normal functioning of the financial sector. Once enacted, the law is expected to create opportunities for domestic and foreign investors to purchase, restructure and recover such assets.
According to officials familiar with the proposal, the Distressed Asset Management Unit (DAMU) will operate administratively under Bangladesh Bank but will enjoy autonomous powers in enforcing the law. The head of the unit will hold a rank equivalent to that of a Deputy Governor of Bangladesh Bank and will be appointed for a maximum term of three years.
The position will require at least 15 years of experience in banking, finance or asset management, while no individual aged over 65 will be eligible to remain in office.
The draft legislation also requires the establishment of one or more trusts. Any distressed assets purchased from banks will not become the direct property of the DAMC but will instead be held in the name of separate trusts.
Consequently, assets held in trust will remain legally separate from the company's own assets. Even if a DAMC becomes insolvent, its creditors will have no claim over assets held in those trusts.
The proposed law calls for the formation of a strong Distressed Asset Management Taskforce responsible for identifying distressed assets, collecting information, recovering assets and coordinating legal actions. All relevant agencies will be legally obliged to provide the information required by the taskforce.
Any company seeking to operate as a Distressed Asset Management Company must obtain a licence from the Distressed Asset Management Unit (DAMU).
In addition, it must be incorporated under the Companies Act and satisfy prescribed requirements relating to paid-up capital, professional management, an experienced board of directors and the "fit and proper" criteria. At least 20% of each company's board must consist of independent directors, who must have no financial interest in the ownership or management of the company.
If a registered DAMC is found, following an investigation, to have been involved in money laundering, terrorist financing, fraud or activities contrary to the public interest, its licence will be revoked. The proposed law, however, provides companies with the right to appeal such decisions within a specified period.
The proposed legislation will allow DAMCs to raise funds from both domestic and international sources through borrowing, the issuance of shares and bonds, joint investment arrangements, securitisation and foreign investment.
However, restrictions will apply to borrowing or obtaining financial facilities directly from banks or financial institutions in order to prevent conflicts of interest.
The draft law also provides for the establishment of Loan Servicer Companies (LSCs) to professionalise the recovery of defaulted loans.
These firms will negotiate with borrowers, facilitate loan rescheduling, trace assets, conduct data analysis, provide litigation support and employ technology-driven recovery methods. However, they will not be permitted to file lawsuits in their own name, accept deposits from the public or recover loans through coercive or unlawful means.
