The Bangladesh Bank (BB) yesterday asked banks to adopt alternative dispute resolution (ADR) to reduce their non-performing loans (NPLs).

The ADR is a process of resolving disputes within the shortest possible time beyond the regular course of business and without a trial.

Common ADR processes include mediation, arbitration, and neutral evaluation. These processes are generally confidential, less formal, and less stressful than traditional court proceedings.

The central bank issued a notice in this regard saying that the Money Loan Court Act-2003 emphasised the importance of ADR for speedy recovery of defaulted loans.

The central bank asked banks to fix a minimum of 1 percent cash recovery target of their defaulted loans by using ADR within June 30, 2026.

The notice reflects a government target to reduce bad loans of state-run banks to 10 percent and that of private commercial banks to 5 percent by 2026 in line with International Monetary Fund's prescriptions centring a $4.7 billion loan.

At the end of December, bad loans in the banking sector stood at Tk 145,633 crore, accounting for 9 percent of the funds disbursed, BB data showed.

Bad loans held by state banks totalled Tk 65,781 crore, making up 20.99 percent of their outstanding credit.

Defaulted loans of private banks amounted to Tk 70,981 crore, which was 5.93 percent of their outstanding loans.

The distressed assets in the entire banking sector were to the tune of Tk 375,000 crore last year.

These include defaulted loans, rescheduled loans, written-off loans, and the credits that were regularised following court orders.