The regulatory landscape for banks in Bangladesh is set to undergo a major transformation, with the introduction of a forward-looking provisioning model designed to estimate potential credit losses in advance. The new framework, based on the International Financial Reporting Standards (IFRS 9), aims to modernise the banking sector and strengthen financial stability.
Bangladesh Bank (BB) has issued detailed guidance for implementing the Expected Credit Loss (ECL) provisioning model, which will apply to both funded and non-funded credit facilities from 1 January 2028 for all scheduled banks. A subsequent phase will extend these rules to other financial instruments from 1 January 2029.
Currently, banks follow BRPD Circular No. 15 of 2024, relying on an incurred-loss model that triggers provisions only after signs of loan deterioration become evident. By contrast, the ECL framework requires banks to proactively assess and account for credit risks using forward-looking estimates.
“This shift represents a fundamental departure from the previous system. Banks must now factor in macroeconomic indicators such as GDP growth, inflation, and interest-rate trends when estimating potential credit losses,” said a Bangladesh Bank official, requesting anonymity.
Under IFRS 9, credit exposures will be classified into three stages, with provisions calculated according to the risk profile:
| Stage | Loan Status | Provision Basis |
|---|---|---|
| Stage 1 | Performing loans | 12-month expected credit loss |
| Stage 2 | Loans with significant credit risk increase | Lifetime expected credit loss |
| Stage 3 | Credit-impaired loans | Lifetime expected credit loss |
The framework also extends provisioning requirements to off-balance-sheet exposures, including loan commitments, guarantees, and unused credit lines. In addition, the recognition of interest income will be tied to the stage classification, providing a more accurate reflection of both asset quality and bank earnings.
Industry experts emphasise that implementing the ECL model will require significant investments in data infrastructure, risk modelling, and staff training. BB has committed to providing regulatory guidance and supervisory support to ensure a smooth transition.
Dr. Md. Touhidul Alam Khan, Managing Director and CEO of NRBC Bank PLC, described the adoption of IFRS 9 as a watershed moment for Bangladesh’s banking sector. “This transition goes beyond mere compliance. It will strengthen institutional resilience, restore investor confidence, and enhance overall economic stability,” he said. Dr. Khan added that the move positions Bangladesh as a more transparent, globally aligned, and competitive financial market.
As the sector prepares for this transformation, experts note that while the implementation path will be challenging, the long-term benefits—including improved stability, transparency, and stakeholder trust—are expected to be substantial.