Dhaka, Bangladesh (BBN)– Bangladesh’s top bankers on Sunday proposed amending the existing loan write-off policy so that they could write-off bad loans that were not recoverable, officials said.
The bankers will be empowered to write-off the bad loans overlooking the existing time bar for doing so, according to the proposal that make at a meeting held at the Bangladesh Bank (BB) headquarters in Dhaka with BB Governor Fazle Kabir in the chair.
The senior banker’s proposal came after more than five months of the latest amendment to the write-off policy.
At the meeting, the central bank governor assured the Chief executive officers (CEOs) and managing directors (MDs) of the scheduled banks to revisit the existing policy on loan write-off, according to the BB officials.
Currently, the banks and non-banking financial institutions (NBFIs) are allowed to write off their bad loans after three consecutive years. Earlier the banks had to wait for five years to write-off any loan.
The banks and NBFIs have been empowered to write off a loan amounting to upto BDT 0.20 million instead of BDT 50,000 earlier without filing lawsuit for recovery.
Talking to the BBN, Syed Mahbubur Rahman, chairman of the Association of Bankers, Bangladesh (ABB), said: “We’ve wanted to amend the existing loan write-off policy that will help reducing the volume of non-performing loans in the country’s banking system.”
He also said the proposed measure will help the banks to make their financial statements a bit healthy.
The bankers’ latest move came against the backdrop of rising volume of the default loans in the country’s banking system in the recent months.
The volume of NPLs climbed by more than 18 per cent to BDT 1,108.73 billion in the first quarter (Q1) of this year from BDT 939.11 billion in the previous quarter, the BB data showed.
The central bank of Bangladesh introduced guidelines for writing off classified loans in 2003 aiming to improve loan recovery and make the financial statements of banks more transparent and accountable.
Writing off loans is a global practice. But it will depend on the capability of the banks concerned to write off its bad loans.
Before making any final decision in this regard, the bank management has to ensure 100 per cent provisioning against the amount to be written off.
Meanwhile, the banks have been able to recover less than a fourth of their written off loans in the last 15 years despite close monitoring by the central bank.
Banks were able to recover BDT 118.79 billion until September 30, 2018 against the aggregate amount of BDT 497.45 billion written off in the country’s banking system.
Between January 2003 and September 2018, total outstanding of written-off loans stood at BDT 378.66 billion, according to the central bank’s statistics.