Bangladesh Bank Overhauls Rules—Banks Ordered to Notify Borrowers Ahead of Write-Offs

Bangladesh’s banking sector has been grappling with an escalating non-performing loan crisis for years, prompting regulators to tighten rules and enhance transparency. In a new directive issued on Monday (19 November), Bangladesh Bank has ordered all banks to inform customers at least 10 working days before writing off any non-performing loan (NPL).

This new rule replaces the earlier circular issued on 19 October, which required a 30-day advance notice. According to a senior official of the central bank, the decision to shorten the notice period was taken because the previous timeframe was slowing down case settlements and prolonging the overall recovery process.

Loan write-offs are an accounting mechanism used by banks to remove long-outstanding, irrecoverable loans—classified as bad or loss—from their balance sheets. However, the central bank clarified that even after a loan is written off, the borrower remains a defaulter until the full outstanding amount is paid. Thus, the mandatory notification aims to ensure borrowers are properly informed before any final accounting step is taken.

Under the revised rules, banks must prioritise older loans for write-off and ensure that 100% provisioning has been maintained against any loan they intend to remove from the books. If there is a shortfall in provisioning, it must be covered from the bank’s current year’s income before the write-off can proceed.

The circular also permits banks to offer cash incentives to their officials for recovering written-off loans, provided such incentives align with the institution’s internal policies. Any bank that lacks such a policy must now formulate one and obtain board approval.

According to the Financial Stability Report 2024, total written-off loans in Bangladesh have reached Tk 62,300 crore. Meanwhile, the central bank’s Classified Loan Report shows that as of March 2025, total defaulted loans climbed to an alarming Tk 4.20 lakh crore, of which Tk 3.42 lakh crore—or 81.37%—falls under the bad or loss category.

The new directive aims to streamline banking operations, enforce greater discipline, and provide borrowers with an opportunity to settle their dues before their loans are permanently removed from bank ledgers. For the banks, the rule is expected to accelerate the clean-up of longstanding NPLs and strengthen the sector’s financial reporting.