Banks must notify clients 10 working days before writing off loans

Banks will now be required to inform customers at least 10 working days before writing off a non-performing loan (NPL), according to a new Bangladesh Bank directive issued today (19 November).

This instruction replaces the 19 October circular, which required banks to inform customers 30 days in advance.

A central bank official told TBS, "One of the main reasons for reducing the time from 30 days to 10 is that it takes a long time to settle a case. Due to this, such a decision has been taken."

To formally remove an NPL classified as a bad debt or loss from the balance sheet, the bank must perform a write-off, which is the required accounting action to acknowledge the loss.

According to the circular, banks may offer cash incentives to officials for recovering written-off loans in line with their own policies. If a bank lacks such a policy, it must formulate one and obtain approval from its board of directors.

The directive further states that older loans must be prioritised for write-off, and only loans already categorised as bad or loss are eligible.

Even after a loan is written off, the borrower will continue to be treated as a defaulter until the liability is fully repaid. For this reason, prior notification to borrowers has been made mandatory.

According to the Financial Stability Report 2024, written-off loans totalled Tk62,300 crore.

Meanwhile, the central bank's Classified Loan Report states that defaulted loans reached Tk4.20 lakh crore as of March 2025, of which Tk3.42 lakh crore, 81.37%, were in the bad debt or loss category.

Under Bangladesh Bank rules, a loan in the bad debt or loss category may be written off only if the bank maintains 100% provisioning against it. If there is any shortfall in provisioning, banks must adjust it from their current year's income accounts before proceeding with the write-off.