Loan Write Off Policy and procedures of Banks in Bangladesh

What is Loan Write-Off:
Loan write off is a process of removal of Bad/Non performing/toxic loan from the Balance Sheet. The writing-off of a toxic loan does not mean the loan has been forgiven. It means that the bank has made 100% provisioning (setting aside capital) against the loan, to protect depositors even if not a paisa of that loan is repaid. The amount that the bank has written off will not be counted as part of its gross and net non-performing assets. Bank Uses writing off to reduce non performing loans from the book as well as to minimize their tax liabilities. The borrower will not be exempted or pardoned from debt repayment as banks will not halt recovery. When a value is realised, it goes into the profit and loss account of the bank, and boosts the bank’s bottomline.

Loan Write off policy for Banks in Bangladesh:

Bangladesh Bank vide BRPD circular no. 1 dated February 06, 2019 on Loan Write-Off given updated policy guideline for writing off loans/investments of the Banks in Bangladesh and declared all other previous circulars/instructions on write off will be treated as null and void. Summary of the policy is depicted below:

1. Eligibility of Loans/Investments for Write-Off:

• No recovery since long and there is no hope for recover in near future
• Remain classified as Bad & Loss continuously for the last three years 

Exception: In case of dead person’s loan in his name or in his proprietorship concern’s name, Bank may write off the loan in their own judgement regardless of classification status and without filing a case against the borrower if not eligible to sue under Artha Rin Adalat Ain 2003. But, in case of proprietorship concern, earning capable heir of the dead man to be taken into consideration. 

2. Loan/Investment Account Write-Off procedure:

• Banks must take necessary action to sell mortgaged property against the loans/investments to be written-off and to recover the impaird asset from guarantors. If after taking necessary steps stated above, the loan remains unrecovered it will be eligible for write-off.

• Legal suit must be filed under Artha Rin Adalat Ain- 2003 before writing-off the loans/investments. Exception: loan amount below Tk. 200000 and not mandatory to sue under Artha Rin Adalat Ain 2003.

• 100% provision must be kept for the amount equals Loan Balance before write-off minus interest kept in suspenses. If already kept provision is less than required provision then additional provision to be kept by deducting present year income account.

• No Loan/Investment account can be write-off partially i.e. partial write-off is prohibited.

• Board of Directors approval must be obtained before Loan/Investment account write-off.

3.Recovery off Written-off Loans:

• Bank must form separate recovery unit to recover the written off loans.
• All out legal actions to be continued for recovery of the loan

4. Reporting of Written-off loans:

• Written-off loans must be report in the CIB report of Bangladesh Bank as “BLW”

5. Other Instructions:

• Written-off loan can no be restructured and rescheduled. Only new repayment scheduled may be granted for settlement under exit plan. However, in CIB report it must be reported as “BLW”.
• Prior approval from Bangladesh Bank required for loans related to director/prior director of a Bank.