Written by The Banking Post
Provisioning requirements for banks are set to become stricter as Bangladesh Bank moves to introduce a new framework requiring lenders to estimate potential credit losses in advance.
The central bank has decided to adopt the IFRS 9-based Expected Credit Loss (ECL) model as part of efforts to modernise the banking sector and align financial reporting practices with global standards.
According to implementation guidelines issued on Sunday, the new framework will come into effect for both funded and non-funded credit facilities from January 1, 2028 for all scheduled banks. The rules will be extended to other financial instruments from January 1, 2029.
Currently, banks classify loans and maintain provisions under a rules-based system that follows the incurred-loss model, where provisions are generally made after a loan shows signs of deterioration. Under the new system, banks will shift to a forward-looking approach that requires estimating and recognising potential credit losses in advance.
Officials say the reform will enable banks to identify risks earlier and maintain more prudent provisions against possible loan losses.
Under the IFRS 9 framework, credit exposures will be classified into three stages. Performing loans will fall under Stage 1, where provisions will be calculated based on 12-month expected credit losses. Loans with a significant rise in credit risk will be placed in Stage 2, requiring provisions based on lifetime expected losses. Stage 3 will cover credit-impaired exposures, which will also require lifetime loss provisioning.
The framework will also extend provisioning requirements to off-balance-sheet exposures such as loan commitments, guarantees and unused credit lines, ensuring a more comprehensive assessment of banks’ credit risks.
In addition, interest income recognition will be linked to the stage classification of credit exposures, allowing a more accurate reflection of asset quality and earnings.
Banks will need to upgrade their data infrastructure and risk-modelling systems to implement the framework, while the central bank will provide regulatory guidance and supervisory support to facilitate the transition.
Dr Md Touhidul Alam Khan, managing director and chief executive officer of NRBC Bank PLC, described the move as a major milestone for the banking industry.
“The adoption of IFRS 9 and the Expected Credit Loss framework marks a watershed moment for Bangladesh’s banking sector. By following a structured roadmap and strengthening institutional capacity, banks can ensure a smooth transition to the new provisioning system,” he said.
He noted that the shift to a forward-looking credit-risk model would strengthen financial resilience, enhance transparency and boost investor confidence.
“This transition goes beyond compliance—it will strengthen the financial health of banks, restore confidence among investors and support the overall stability of the economy,” he added.
Successful implementation, he said, will require careful planning, stronger infrastructure and continued skills development across the banking sector.
