BM Desk: Bangladesh Bank has allowed the opportunity to write off long-standing default loans on a priority basis. At the same time, the central bank has instructed that officials involved in recovering written-off loans be given cash incentives.

The Banking Regulation and Policy Department (BRPD) of Bangladesh Bank issued a circular in this regard on Sunday (October 18).

According to Bangladesh Bank, keeping long-standing default loans on the banks’ balance sheets unnecessarily inflates their financial statements. As per internationally recognized practices, such bad and loss-category loans are written off under specific rules to present a clearer picture of a bank’s actual financial condition. However, a write-off does not mean loan forgiveness — the borrower will continue to be considered a defaulter until the full repayment of the debt.

The revised directive states that bad and loss-category loans with little chance of recovery may be written off. However, loans that have remained unpaid for a long time must be prioritized for write-off. In addition, the borrower concerned must be notified at least 30 working days before any loan is written off.

Furthermore, banks will have the option to provide cash incentives to officials directly involved in recovering written-off loans, in accordance with their own internal policies. If a bank does not already have such a policy, it must formulate one with the approval of its board of directors.

Bangladesh Bank also said that this directive has been issued under the authority of Section 45 of the Bank Company Act, 1991, and will take immediate effect. The new policy is expected to make banks’ financial reports more realistic and strengthen the recovery process of written-off loans.