Thursday, 9 February, 2023

BB relaxes policy for loan write-off

  • Staff Correspondent
  • 6 January, 2023 12:00 AM
  • Print news
BB relaxes policy for loan write-off

Bangladesh Bank on Thursday eased its write-off policy, allowing banks to write off a greater amount without filing a lawsuit.

The central bank's Banking Regulations and Policy Department issued a circular enabling banks to write off loans up to Tk 5 lakh without filing lawsuits. Previously, the limit was Tk 2 lakh.

After three years of being classified as non-performing loans without any chance of recovery, banks can write off the loans under the new policy.

In a circular sent to the banks on Thursday, the central bank said, "In the case of foreclosure of loans/investments in agriculture and CMSME (cottage, micro, small, medium-sized enterprises) and other sectors, if they are not necessarily actionable, five lakh taka can be written off without filing a case with the court."

By issuing the new policy, BB has expanded banks' capacity to write off bad loans and strengthen their balance sheets.

Banks must include bad loans in their balance sheets regardless of the loans remaining outstanding for long periods of time, causing balance sheets to be unnecessarily inflated.

In its explanation, the central bank states that litigation costs for small loans are usually higher due to their debt status. Therefore, if required, small loans can be foreclosed without litigation.

According to an earlier policy issued by the central bank in 2019, defaulted loans cannot be cancelled without filing a case against defaulters of more than Tk 2 lakh.

A case must be filed according to the Arthorin Adalat Act, 2003 before the loan can be cancelled. Other conditions of loan cancellation have not changed.

And in another circular issued last June, Bangladesh Bank has instructed that loans distributed in the name of fraudulent or fraudulent and non-existent organizations can only be forfeited after legal action is taken.

At present, the amount of defaulted loans in the country is more than Tk 1.13 trillion.

A total of Tk 580 billion of loans have been written off, equivalent to 51 percent of all defaulted loans in the banking sector. As of last June, the status of written-off debt has increased to around Tk 440 billion.