FROM PAGE B1

transparency and long-term institutional stability should be prioritised in any resolution process.

BAB also urged the BB to consult it before finalising proposed amendments to the Bank Company Act, saying the changes could have a significant impact on board governance, capital raising, sponsor shareholding structures, independent director frameworks and management accountability.

The association said the banking sector is going through one of its most difficult periods.

“Elevated non-performing loans, provisioning and capital adequacy pressures, weak private sector credit growth, legal recovery bottlenecks, rising cost of funds, declining investor confidence, and global economic uncertainties continue to place significant stress on the sector.”

It added that the sector is suffering from broader confidence challenges.

“Public confidence, depositor trust, investor confidence, and international perception regarding governance, transparency, and institutional accountability within the banking sector are now critical issues requiring coordinated and balanced action.”

BAB urged the central bank to retain existing incentive bonuses for bankers in order to help banks retain skilled professionals. It also called for access to the BB’s refinance schemes for banks with non-performing loan ratios below 20 percent.

The association further pressed for changes in rules on income recognition, classification and provisioning, arguing that current requirements place undue pressure on capital buffers and restrict credit flow. It suggested allowing interest income recognition after the expiry of grace periods.

On rescheduled loans, BAB said existing classification and provisioning rules significantly increase risk-weighted assets and capital adequacy pressures, limiting banks’ ability to extend fresh lending to productive sectors.

It also proposed the creation of a professionally managed national Asset Management Company (AMC) to acquire classified loans, support restructuring and assist sector recovery, citing examples from Malaysia, South Korea and Indonesia.

On legal recovery challenges, BAB said the process for recovering defaulted loans remains slow and complex owing to case backlogs, delayed hearings, misuse of stay orders and weak enforcement of judgments.

To overcome this, BAB proposed amendments to the Artha Rin Adalat Ain to include ultimate beneficiaries and beneficial owners, the introduction of fast-track financial courts and dedicated recovery benches, along with mandatory hearings before stay orders are issued and time-bound limits on such orders.

“A major challenge currently faced by banks relates to accounts where courts direct loans to remain unclassified while regulatory inspections require provisioning treatment as ‘bad and loss’,” it said.

BAB said this creates inconsistencies in provisioning, affects profitability, increases capital stress and reduces lending capacity. It called for separate regulatory treatment for loans under litigation or stay orders, along with a phased provisioning framework.

“Such an approach will improve regulatory consistency while maintaining prudential discipline,” said the association.