Bangladesh Bank has issued comprehensive implementation guidance for International Financial Reporting Standards (IFRS) 9 based Expected Credit Loss (ECL), marking a significant step in aligning the nation’s banking sector with international accounting standards.
The central bank released the circular on Sunday as part of a three-phase roadmap for IFRS 9 adoption, providing preparatory instructions for banks to implement the framework by 2027.
Under the new framework, banks will transition to a forward-looking ECL recognition system that facilitates earlier identification and provisioning of potential credit losses.
While the current system only requires provisions after a loan shows signs of default, IFRS 9 mandates that banks estimate and recognise expected credit losses in advance, allowing for more prudent risk detection.
This new assessment process requires banks to incorporate forward-looking information, including macroeconomic indicators such as GDP growth, inflation, and interest rate trends, alongside the historical performance of borrowers.
Three-stage classification and staging mechanism
Credit exposures will be classified into three distinct stages to allow banks to identify the deterioration of credit quality at an earlier juncture.
The first stage covers performing exposures with provisions based on 12-month expected credit losses, while the second stage includes exposures with a significant increase in credit risk.
The third stage addresses credit-impaired exposures, with both the second and third stages requiring provisions based on lifetime expected credit losses.
Additionally, interest income recognition will now be linked to these stage classifications to better reflect the underlying credit quality of assets and related income.
Implementation timeline and sector resilience
The framework extends ECL provisioning to off-balance sheet exposures, including loan commitments, guarantees, and unused credit lines, to provide a more comprehensive measure of credit risk.
To support this, the central bank has guided banks to strengthen data infrastructure and credit risk modelling capabilities, including the use of historical credit data and validation processes.
The new framework will become effective for funded and non-funded credit facilities from January 2028 for all scheduled banks, followed by other instruments from 01 January 2029.
The adoption of IFRS 9 is expected to improve transparency and comparability in financial reporting while strengthening the overall resilience and stability of the banking sector.
According to the central bank, these reforms may further boost confidence among depositors, investors, and international stakeholders.
Bangladesh Bank confirmed it will continue to provide regulatory guidance, supervisory engagement, and implementation support to ensure a smooth transition across the sector.
