Roundtable on Alternative Dispute Resolution (ADR) to help reduce Non Performing Loan

Bangladesh International Arbitration Centre (BIAC) and Dhaka Chamber of Commerce & Industry (DCCI) jointly organized a Roundtable Discussion themed “ADR in Managing the Risk of Non Performing Bank Loans” at DCCI Auditorium, Dhaka on 21 July 2018. Mr. Mohammad Shahidul Haque, Senior Secretary, Legislative and Parliamentary Affairs Division of the Ministry of Law, Justice & Parliamentary Affairs attended as Chief Guest and Mr. Ahsan-uz Zaman, Managing Director & CEO of the Midland Bank Limited and Professor Imran Rahman, Special Advisor to the Board of Trustees ULAB were present as Special Guests. Mr. Mahbubur Rahman, Chairman, BIAC moderated the programme.

The Keynote paper was presented by Barrister Shafayat Ullah, EVP & Head of Legal, The City Bank Limited. He said large defaulters are rarely penalised, instead loans are being restructured. To overcome the problems he emphasized introduction of ADR as an alternative route that can be used in managing default loans. He informed that the 11% of the total loans are bad loans in Bangladesh at present. All organizations should incorporate Mediation-Arbitration Clause in the commercial contracts with the provision of both Mediation and Arbitration under an institutional framework with rules to administer these processes like BIAC, he opined. He also said the Artha Rin Adalat Ain 2003 should be amended and include the provision of arbitration within the ambit of the definition of ‘Adalat’. He said ADR saves time, cost and it is confidential.

Mohammad Shahidul Haque, Senior Secretary, Legislative and Parliamentary Affairs Division of the Ministry of Law, Justice & Parliamentary Affairs, said that we need to concentrate on the implementation part of our legislation. BIAC’S joining the process of settling commercial disputes beyond the court has created a ray of hope. BIAC’s activities in the last 7 years including handling NPL cases, arbitration, mediation, training, workshops have substantial contribution in the field of promoting ADR. He said equality and equal opportunity in the eye of law must be ensured. He said in the developed nations 2% NPL is allowable where in Bangladesh it is over 10%, which is not acceptable. If policy reform is needed to reduce NPL, government is willing to do that. Financial Institutions Division, should come up with a few proposals of how to address the NPL issues. He said Bangladesh Bank, Office of the Chief Justice, Ministry of Law, Bankers’ Association and Ministry of Finance should work collectively to address the NPL issues.

Chairman of BIAC Mahbubur Rahman said that to convert non performing loans into performing loans, effective implementation of law is mandatory. For a healthy banking sector he urged for implementation of law and amendment of regulations. He said that the aggravated situation with NPL in our country continues to be a matter of great concern. Our financial sector can be further strengthened if we can manage down the volume of NPL in the financial industry. BIAC is working closely with the financial sector to address the issues of managing the risk of Non Performing Loans, he said. BIAC along with Bangladesh Bank and Association of Bankers Bangladesh (ABB) has been working out a draft guideline for the banks which will expedite the process of ADR and make it more effective in the country.

Abul Kasem Khan, President, DCCI said at the end of March 2018, NPL in banking industry stood at taka 885 billion. NPL is at 1078% of total outstanding debt which was 9.31% in December 2017. He said NPL in Malaysia is 1.6%, Philippines is 1.9%, Thailand and Indonesia is 2.9%, Cambodia is around 2.5%, Sri Lanka is 2.6% and Nepal 2%. He also recommended for improvement of corporate governance of banks and under proper due diligence process, adopt zero tolerance policy on loan recovery, bring loan defaulters and their collaborators under law and introduce alternative recovery options. To reduce the number of cases in banking industry and bring down the NPL to a tolerable level, ADR can be used as an effective alternative mechanism, he said.

Chief Executive Officer of BIAC Muhammad A. (Rumee) Ali said that NPL is linked with liquidity of banks. There must be a way out before going to the court for realization of the bad loans so there should be arbitration clause in the contract. He sought cooperation from the Legislative & Parliamentary Affairs Division for popularizing ADR and hoped that ADR would be more and more in practice for mitigating NPLs before going to the courts.

Ahsan-uz Zaman opined that the arbitration clause may work better post litigation and Imran Rahman stated that ADR can be a start to resolving this problem because assuming the entire defaulter population as willful is inappropriate. Proper research on the volume can make a huge difference.

Distinguished scholars, high Government officials, Judges, eminent bankers and lawyers participated in the discussion. Other Panelists of the session were  Nasreen Begum, Additional Secretary, Legislative and Parliamentary Affairs Division, Salma Nasreen, ndc, Additional Secretary of the Financial Institutions Division, Tanjina Ismail, President, Bangladesh Women Judges Association and Member, Labour Appellate Tribunal, Md. Abdul Wadud, DMD & Chief Risk Officer from the City Bank Limited, Mohammad Mamdud Rashid, Additional Managing Director of United Commercial Bank Ltd, Mustafizur Rahman Khan, Barrister-at-Law, Shireen Scheik Mainuddin, Principal Consultant, ASAAN,  Saqeb Mahbub, Barrister-at-Law, Margub Kabir, Barrister-at-Law, Syed Yusuf Saadat, Research Associate, Centre for Policy Dialogue (CPD), Khandoker M. S. Kawsar, Barrister-at-Law, Nur Hossain Al Kaderi, Country Head, Special Asset Management Group, Standard Chartered Bank Bangladesh and Mir Iqbal Hossain, Head of Remedial Asset Management, IFIC Bank Limited. Asif Ibrahim, former President of DCCI and members of the Board of Directors of the DCCI and Secretary General of DCCI AHM Rezaul Kabir were also present on the ocasion.

The consolidated recommendations of the panelists included that, to reduce NPL using ADR reforms in the legislation is required along with reforms in the financial recovery system, policies and provisions. Banks should include ADR clause in their contracts and the process of the implementation must be streamlined. The Chief Executive Officers of banks must believe and be involved in the process for the intended change to start. It is crucial that the parties are in consensus and willing to settle because it is not prudent to condemn non-willful defaulters in the same manner as willful defaulters.

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