BAB seeks relaxation on officials' bonuses, raises concern over IFRS-9 provisioning

Representatives of the Bangladesh Association of Banks (BAB), an organisation of chairmen of private banks, held their first formal meeting with Bangladesh Bank governor today (9 March), where they raised concerns over the potential impact of International Financial Reporting Standard (IFRS) 9 provisioning and sought relaxation in rules regarding bonuses for bank officials.

During the meeting, central bank Governor Mostaqur Rahman emphasised restoring discipline in the banking sector and creating employment opportunities, according to sources present at the meeting.

BAB representatives, however, said banks already facing capital and provisioning shortfalls may struggle if required to implement new provisioning rules under IFRS-9. They also requested special relaxation to allow such banks to provide bonuses to their officials.

A participant at the meeting confirmed the developments to The Business Standard.

In December last year, the central bank issued a directive stating that banks suffering financial losses or capital shortfalls would not be allowed to provide incentive bonuses to their employees.

According to the official who attended the meeting, the governor reiterated his commitment to maintaining the independence of the central bank and strengthening supervision of banks.

BAB representatives argued that each bank faces different challenges and requested relaxation of the existing restrictions on bonuses and other benefits for officials of banks with provisioning or capital shortfalls.

Bangladesh Bank plans ECL system to strengthen banking risk management

They said motivating bank officials is necessary to help struggling banks recover, and therefore, suspending their benefits may not be appropriate.

Meanwhile, Bangladesh Bank has recently taken the initiative to introduce the Expected Credit Loss (ECL) method to align credit risk management and financial reporting standards in the country's banking sector with international practices.

The system will be introduced in line with the International Financial Reporting Standard (IFRS-9), with implementation scheduled to begin in 2028.

In response to the circular, BAB informed the governor that banks may face difficulties maintaining additional provisions under IFRS-9, particularly after the central bank allowed long tenures of up to 10 years and grace periods for loan rescheduling under its policy framework.

They said maintaining fresh provisions against such loans could be challenging for many banks, and in some cases, it may not be feasible to implement provisioning requirements under IFRS-9.

BAB Chairman Abdul Hai Sarker also expressed concern over attempts made during the tenure of the previous interim government to introduce changes to the provisions regarding independent directors in the Bank Company Act.

He proposed holding further discussions with stakeholders before implementing any such changes.

A bank chairman present at the meeting told TBS that private banks had already submitted a letter to the central bank outlining international examples.

He said active participation from entrepreneurs is essential in private banks, and therefore, a balance should be maintained between ownership and governance structures when appointing independent directors.

Speaking to journalists after the meeting with the governor, BAB Chairman Abdul Hai Sarker also commented on the potential impact of geopolitical tensions on remittance inflows.

He said remittance flows would remain stable if expatriate workers in the Middle East are able to continue working despite the ongoing conflict involving Iran, Israel, and the United States.

"If expatriates in the Middle East can continue working, the remittance flow will remain stable. If work stops, then they will not be able to work there, and a negative impact will inevitably follow. So at this moment it is difficult to say. It will depend on how long the war continues," he said.

Sarker added that maintaining regular communication between private banks and the central bank is essential for effective policymaking.

"If there is regular interaction with the Bangladesh Bank, policies can be taken properly. But if a gap is created with the central bank, it will not be possible to formulate the right policies. We have been asked to protect weaker banks. The governor seems quite positive about the mindset of private banks," he said.

Remittance flow will not be disrupted if expatriates can continue working in Middle East: BAB chairman

Responding to a question about the possible impact of IFRS-9 provisioning requirements, he said the policy will take time to assess.

"A circular has only just been issued, which will come into effect from 2028. We are working on how provisions can be maintained. It is difficult to say anything right now. This policy is followed internationally, so it is nothing new. However, the issue is how effectively it can be implemented in the context of Bangladesh, because our infrastructure is not like that of other countries," he added.