Obaidur Rahman, FCA
Bangladesh Bank has given scope to lenders to partially write off bad debt and non-performing loans (NPLs). The Banking Regulation and Policy Department (BRPD) issued a new circular dated 03 December 2025. It has instructed lenders to go for partially writing off bad and loss category loans that are so hard to recover.
According to the circular that took immediate effect, the portions of such loans, which are not fully recoverable, should be removed from their books as part of writing them off. The latest measure comes as a relief of the loans that remain defaulted and that have little or lower recovery prospects, thereby becoming classified ones. The portion backed by eligible collateral will be considered recoverable, while the unsecured portion may be written off. Banks may reassess collateral values themselves or hire professional valuers to determine the recoverable part.
As per BRPD circular-4 back in February 2024, the central bank barred partial write-offs when it introduced a new framework for loan write-off units and intensified recovery rules, forcing banks to keep large chunks of irrecoverable loans on their balance sheets because they lacked enough provisions to write off full accounts.
People in the banking industry take it as a tool to safeguard big borrowers. As cited in the circular, the partial loan write-off system is a recognised method globally. It is widely practised in South Asian peers like India, Pakistan and Sri Lanka with an eye to baying off bad debt and its all-pervasive curse.
The central bank argued that the change would give banks a more realistic view of asset quality and help them focus on recovering amounts that still hold value. The banking sector has struggled with rising bad loans and weak enforcement, and critics fear that easier write-off rules might reduce the incentive to recover from influential or repeated defaulters.
Partial write-off also shifts more responsibility to banks to correctly assess collateral, which may raise questions about accuracy and oversight. They must write off accrued interest first before touching the principal and must keep clear records of unapplied interest when applying partial write-off. Any subsequent repayment from a borrower, excluding proceeds from collateral, will first be adjusted against the written-off portion kept outside the balance sheet. Only when the recovery exceeds that amount will banks adjust the remaining dues shown on the balance sheet. After clearing the written-off portion, banks may offer rescheduling or exit facilities to recover the remaining balance.
Let us give a demonstration for clear understanding of the latest amendment. For example, XYZ Bank lent a customer Tk100 crore against a mortgage property value of Tk30 crore. After a year, the borrower failed to make any repayment as per terms of the facility. As a result, the bank classified the outstanding balance of Tk114 crore (including Tk14 crore as applied interest) as bad and loss on 31 December 2024.
On the same date, the bank charged Tk84 crore in the profit and loss account to build up a provision against that particular classified loan. As the circular issued on 03 December 2025, the last reporting date shall be considered is 30 September 2025 for latest status of the loan.
In practice, once a loan becomes classified, a bank is not allowed to consider interest income from that particular loan account. So, during the nine-month period from 01 January to 30 September 2025, calculated interest from the outstanding balance in the loan is preserved in the interest suspense account.
As a result, the accumulated interest suspense account balance on 30 September stands at Tk12 crore. So, the total outstanding loan shall finally reach Tk129.5 crore. Now comes the issue of unapplied interest until today (December 10, 2025). If calculated, it stands at Tk3.5 crore. So, the final outstanding balance will be Tk129.5 crore.
Taking this circular into consideration, the partial write-off of the amount shall now be Tk86.66 crore (Tk129.5 crore minus Tk12 crore minus Tk30 crore minus proportionate share of unapplied interest Tk0.84 crore against recoverable amount).
The impact is massive as partial write-off shall release interest suspense accounts balance Tk12 crore and the provision against classified loan balance Tk84 crore. On the other hand, the outstanding loan of Tk30 crore in the financial position shall be disclosed as recoverable amount covered by collateral value of mortgaged property. Moreover, the bank will enjoy lower percentage of NPLs and also enjoy reduced current tax payment of Tk31.5 crore (on provision released Tk84 crore at the rate of 37.5 per cent tax rate).
All said and done, borrowers have an option to reschedule the outstanding amount of Tk30 crore with the payment of a token amount as down payment and can enjoy as unclassified borrowers.
The writer is a Managing Partner Of C-NET
