With the aim of expediting the recovery of defaulted loans, Bangladesh Bank has emphasised dispute resolution before resorting to litigation. The financial sector regulator has issued directives to implement “pre-litigation mediation” by selecting skilled and neutral mediators.
In a notification issued on Wednesday, the central bank stated that selecting qualified and experienced mediators is crucial for effectively implementing alternative dispute resolution methods outside the court. Therefore, banks have been instructed to appoint mediators from panels of recognised institutions, or individuals such as retired judges, former officials of banks or financial institutions, lawyers, or persons with a proven track record in successful mediation.
The notification has been sent to the Managing Directors of all scheduled banks.
Bangladesh Bank stated that recent government policy initiatives have also prioritised pre-litigation mediation. Particularly, the Commercial Court Ordinance 2026 and the Legal Aid (Amendment) Ordinance 2025 have made mediation mandatory before filing lawsuits for resolving commercial disputes. Consequently, following the same procedure in the banking sector could play an effective role in recovering defaulted loans.
The central bank further noted that existing legal provisions regarding mediation after filing a lawsuit will remain unchanged. Under the Money Loan Court Act 2003, parties may resolve disputes through mediation at any stage after filing a lawsuit, and in that case, the relevant provisions of the act will apply.
Bangladesh Bank recalled that a circular issued earlier on 12 May 2024, placed special emphasis on recovering defaulted loans through alternative dispute resolution. That directive instructed each bank to set a target of recovering at least 1 percent of their total defaulted loans in cash by 30 June 2026.
According to central bank officials, effective implementation of pre-litigation mediation could become a crucial tool for recovering defaulted loans in the banking sector by avoiding prolonged court proceedings, reducing case backlogs, and ensuring quick dispute resolution at lower costs.
