Written by The Banking Post
The central bank brings some changes in the existing policy of written-off loans with instructing the commercial banks to inform the borrowers at least 30 days before the loans being written-off.
Bangladesh Bank (BB), the country’s central bank, issued the directive so that the defaulted borrowers can avert the post-BLW (Bad/Loss-Write Off) consequences through taking measures to repay, sources at the BB.
The banking regulation and policy department (BRPD) of the banking regulator officially issued the instruction on Sunday, ordering the commercial lenders to follow the compliance.
Seeking anonymity, a BB official said the status of the borrowers will automatically be converted into the category of BLW in the Credit Information Bureau (CIB) once the defaulted loans are being written-off by the banks.
It (BLW) means the borrowers will not be able to get fund from any commercial lenders, which could be disastrous for them. “That’s why, we instructed the banks to notify the borrowers at least 30 days before the written-off move. So that the borrowers can get time to repay,” the BB official said.
Citing existing policy, the central banker said banks can write off the default loans that have been in the bad and loss category for two years from their balance sheet. “From now on, banks can write off loans any time with keeping 100 per cent provisioning against the loans.”
Simultaneously, the central banker said the regulator instructed the lenders to provide cash incentive to the officers involved in the recovery of written-off loans and asked the banks having no such cash incentive policy to introduce such system with the approval from their board of directors.
The circular also stated that the borrower will continue to be identified as a defaulter until the full repayment of the liability even after a loan is written off.
As of December 31, 2024, the total volume of outstanding written-off loans in the banking sector stood at Tk 816 billion, marking a sharp increase from Tk 536 billion a year earlier.
Of the total amount written off by the end of 2024, state-run banks wrote off Tk 258 billion followed by private commercial banks (Tk 528 billion).
Nine foreign banks operating in Bangladesh wrote off Tk 23.53 billion during the period of time.
The practice of writing off loans allows banks to remove irrecoverable debts from their balance sheets, transferring them to off-balance sheet records, according to the bankers.
