In a major policy shift aimed at reducing the weight of long-standing non-performing loans, Bangladesh Bank has for the first time allowed banks to partially write off bad and loss-category loans.
In a directive issued on Thursday, the regulator said banks may now write off the unsecured and non-recoverable portions of loans that are deemed irrecoverable.
According to Bangladesh Bank, a large volume of uncollected loans was being carried on bank balance sheets, distorting the true financial position of institutions.
By permitting partial write-offs, banks will now be able to remove the non-recoverable portions from their balance sheets, disclose their real risk exposure more accurately, and focus recovery efforts on the remaining collectible amounts.
The new policy instructs banks to write off the interest component first, maintain separate accounting for uncharged interest, revalue collateral where necessary, and adjust any recovered amount against the written-off portion before applying it to outstanding dues shown in the balance sheet.
Under the revised recovery rules, any payment made by a borrower without invoking collateral must first be set off against the written-off portion. Once that amount is fully adjusted, the remaining recovered funds must then reduce the outstanding loan reported on the balance sheet.
When calculating total outstanding liabilities, banks must consider three components simultaneously: the outstanding loan shown on the balance sheet, the uncharged interest, and the written-off but unrecovered portion.
The circular also states that even after a partial write-off, banks may still offer rescheduling or exit facilities to enable recovery of the remaining balance. Bangladesh Bank has revoked the earlier BRPD circular that prohibited any form of partial write-off.
The regulator expects the new framework to curb inflated loan figures, improve balance-sheet transparency, and strengthen overall NPL management. The directive has come into immediate effect.
