Bangladesh Bank Eases Limits on Bad Loan Write-offs

New policies on write-offs are aimed at reducing NPLs on banks’ books. Meanwhile, the government has revealed a plan to probe defaulting borrowers and their bankers.

Bangladesh Bank has issued new rules making it easier for banks in the country to write off bad loans, as it seeks to reduce the amount of non-performing loans on their books.

As of September last year, defaulted loans in the banking sector accounted for 11.45 percent of all outstanding loans, or BDT 993.7 million, the largest amount recorded in 48 years, according to a Daily Star report.

Under the new rules, banks will no longer need to file a lawsuit for recovery of loans worth up to BDT 200,000. They will need to wait for three years after classifying them as non-performing before writing them off. Previously, banks were allowed to write off bad loans worth BDT 50,000 five years after becoming classified as such, and only after filing a lawsuit against the defaulting parties.

Banks will also be able to write off bad loans worth any amount where the debtor is deceased or a firm owned by a deceased person, without having to take any legal action.

Separately, local media reported that Bangladesh’s government is in talks with the central bank over a plan to appoint three firms to conduct a special audit on the country’s banks to probe information about defaulting borrowers and their loans.

“‘We wanted to know the truth behind all irregularities in the country’s banking sector,” said Finance Minister AHM Mustafa Kamal at Rupali Bank’s annual conference on 6 February 2019, adding that tough measures would be taken against “dishonest” loan defaulters and the “corrupt bankers'” facilitating them.

The audit is intended to improve transparency and integrity of the financial sector, Kamal said.

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