Govt Forms DAMCs to Buy, Manage Defaulted Loans
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The banking sector is grappling with a high volume of defaulted loans, a crisis that kept the economy under sustained pressure.
To break this cycle, the government is initiating the creation of specialized “Distressed Asset Management Companies” (DAMCs) to purchase and manage defaulted and written-off loans.
These entities will handle loan restructuring, rescheduling, collateral seizure, asset sales, and legal proceedings. They will also have the authority to convert debt into equity and, if necessary, modernize or facilitate new investments for struggling industrial firms.
A New Legal Framework and Autonomous Oversight
Ministry of Finance drafted the “Distressed Asset Management Act 2026” to provide a formal legal foundation for these operations. This legislation allows DAMCs to form joint investment funds with both domestic and international investors.
Oversight will be managed by a specialized Distressed Asset Management Unit (DAMU), an autonomous body operating under Bangladesh Bank (BB). The head of this unit will hold a rank equivalent to a Deputy Governor, serving a maximum three-year term.
Candidates must possess at least 15 years of experience in banking economics or asset management and must be under 65 years of age.
Moreover, the law mandates the formation of a Distressed Asset Management Taskforce to ensure the rapid recovery of assets, with all public and private agencies legally required to provide necessary documentation to the group.
Economic Impact and Implementation Challenges
Economist MK Mujeri highlighted both the potential and the pitfalls of the new legislation. He told Agamir Somoy, “There are also some important challenges in implementing the law. Especially the correct valuation of defaulted assets, implementation free from political influence, and strong supervision.
“If those can be addressed, it will be possible to quickly remove the huge amount of defaulted loans from the banks’ balance sheets. At the same time, the lending capacity of the banks will increase in a new way.”
The absence of an integrated law for recovering non-performing loans (NPLs) trapped risky assets on bank balance sheets, stifling new lending and normal financial operations.
Operational Standards and Professional Recovery
To ensure transparency, the law requires that purchased assets be held in separate trusts rather than as a company’s own assets, protecting them from creditors if a DAMC faces bankruptcy.
Companies must obtain a license from the DAMU and meet strict criteria regarding paid-up capital and management expertise.
Boards must include at least 20 percent independent directors who hold no financial interests in the company’s management. Authorities will revoke licenses for involvement in money laundering, terror financing, or fraud, though companies retain the right to appeal.
While DAMCs can raise funds through bonds and foreign investment, they are barred from taking direct loans from banks to prevent conflicts of interest.
Finally, the act introduces “Loan Servicer Companies” (LSCs) to provide professional recovery services, such as debtor negotiations and asset searches.
However, these firms are prohibited from accepting public deposits or using illegal coercive methods for debt collection.
