BB allows partially write off default loans

Business Desk :

As the true scale of long-hidden non-performing loans (NPLs) began to surface following the fall of the Sheikh Hasina-led government last year, Bangladesh Bank has allowed banks to partially write off bad and loss-category loans with little chance of recovery. The circular, issued on Tuesday takes immediate effect and updates earlier regulations.

Rationale and global precedent
The central bank said the previous requirement to keep large portions of unrecovered loans on balance sheets inflated NPL figures and distorted asset quality. Bangladesh Bank noted that partial write-offs are widely practiced under Basel principles and IFRS standards in countries such as India, Pakistan, and Sri Lanka.

The decision comes amid the worst NPL crisis in Bangladesh’s history. NPLs were Tk2.11 lakh crore (12.5 percent) in June, rising to Tk3.45 lakh crore (20.20 percent) by December. According to the latest data, NPLs reached Tk6.44 lakh crore at the end of September-35.73 percent of all outstanding loans.

Governor’s warning on corruption
Bangladesh Bank Governor Ahsan H Mansur earlier warned that the NPL rate could exceed 35 percent. He said the irregularities and corruption in the sector over the past 15 years are “rare in world history,” adding that major business groups, including S Alam and Beximco, have allegedly taken loans totaling nearly Tk2.5 lakh crore.

Under the new policy, banks may write off the unsecured portion of bad or loss-category loans where recovery prospects are minimal. Collateral-backed portions must remain classified as recoverable. Accrued interest must be written off first, and unrealised interest recorded separately. Any future recovery must be adjusted against the written-off amount, and banks may reschedule or offer exit facilities afterward.

Bankers welcome move
Bankers broadly welcomed the policy. Bank Asia MD Sohail RK Hussain said the decision aligns with international standards and would reduce pressure on NPL figures. Agrani Bank MD Md Anwarul Islam called the move positive but emphasised the need for strong monitoring. Mutual Trust Bank MD Syed Mahbubur Rahman cautioned that writing off interest first may complicate early settlements.

Economists said the reform could help if implemented with strict governance. CPD’s Towfiqul Islam Khan urged Bangladesh Bank to clearly define eligibility and ensure the policy is not misused, especially ahead of elections.