Bangladesh Bank has authorized partial loan write-offs in order to lower the number of defaulted loans and improve the realism of banks’ financial accounts. In the past, debts may be wiped off after two years of nonpayment; however, this time frame was later shortened to just thirty days following nonpayment with advance notice.

However, partial write-off facilities did not exist under the earlier policy.

In a new notification issued on Thursday (4 December), the central bank stated that due to the absence of partial write-off provisions, long-standing loss-incurring loans used to remain on banks’ balance sheets. This caused unnecessary inflation of balance sheets and made it difficult to determine the true quality of assets. Under the new policy, the unrecoverable portion of such loans can now be removed from loan accounts.

According to the notification, loans classified as “bad and loss” with low recovery prospects can be partially written off. However, the secured portion of such loans must be ensured as recoverable. If necessary, the market value of collateral may be reassessed through professional institutions.

The policy further states that in cases of partial write-off, the interest portion must be written off first. Unapplied interest will be shown in a separate account. Any amount recovered from the borrower without collateral will be adjusted first against the written-off portion. If excess funds remain, they will then be adjusted against the outstanding loan reflected in the balance sheet.

Bangladesh Bank also clarified that even after write-off, recovery efforts will continue and, if necessary, loan rescheduling or exit facilities may be offered. Partial loan write-off is a globally practiced method under Basel guidelines and IFRS, followed in countries such as India, Pakistan, and Sri Lanka.

The central bank expects that the implementation of this new policy will enhance transparency in the actual non-performing loan scenario of the banking sector, improve asset quality, and facilitate better policy decisions.

By maintaining 100 percent provisioning against classified loans, banks can reduce the visible volume of defaulted loans through write-offs. At the end of 2024, the outstanding balance of written-off loans stood at Tk 62,327 crore. In a directive issued in February this year, loans remaining in the “bad and loss” category for two consecutive years were allowed to be written off. A later directive removed the two-year condition and allowed write-offs after 30 days of default with prior notice. The new policy has further reduced the notice period.

According to Bangladesh Bank data for 2024, the total volume of distressed loans in the banking sector stood at Tk 7,57,335 crore, which is 44.26 percent of total loans. Of this amount, rescheduled non-performing loans amounted to Tk 3,48,461 crore, regular classified loans stood at Tk 3,46,547 crore, and written-off loans amounted to Tk 62,327 crore.