‘Banks must inform borrowers before write-off’

Staff Reporter:

Banks will now be required to notify borrowers at least 30 working days in advance before writing off any classified loan, according to a new circular issued by Bangladesh Bank on Sunday.

The directive, which takes immediate effect, aims to bring greater transparency and accountability to the loan write-off process in the banking sector.

Loan write-off is a process through which banks remove long-overdue non-performing loans (NPLs) from their balance sheets while continuing recovery efforts.

The central bank’s new rules make it mandatory for banks to inform borrowers beforehand, ensuring they are aware of their loan status and obligations even after the write-off.

According to the circular, banks can offer cash incentives to employees involved in the recovery of written-off loans based on their own policies. If no such policy exists, banks must develop one and obtain board approval.

As per the revised guideline, any loan that remains in the bad/loss category for two consecutive years becomes eligible for write-off, with older loans given priority.

However, even after being written off, the borrower will continue
to be listed as a defaulter until the debt is fully repaid.

The Financial Stability Report 2024 shows that total written-off loans in the banking sector stood at Tk62,300 crore.

Meanwhile, the Classified Loan Report reveals that as of March 2025, total defaulted loans amounted to Tk4.20 lakh crore, with 81.37 percent (Tk3.42 lakh crore) falling under the bad/loss category.

Under the new rules, banks can only write off loans if they maintain 100 percent provisioning against them. If any shortfall exists, it must be adjusted from the bank’s current year’s income before proceeding with the write-off.