NBFIs can now write off more bad loans

Country's non-banking financial institutions (NBFIs) are now allowed to write off more bad loans, particularly retail ones, without filing lawsuit that will help reduce their classified loans in the near future, officials said.

The NBFIs are empowered to write off loans up to Tk 0.20 million instead of the previous ceiling of Tk 50,000 without filing cases for recovery, according to latest loan/lease/investment write-off policy for the NBFIs, issued by the Bangladesh Bank (BB) on Monday.

The policy also allowed the financial institutions to write off such loans after three consecutive years instead of the previous five years.

"The central bank has re-defined the amount of small bad loans for writing off to avoid additional expenses for legal purpose," a BB senior official explained.

Earlier on February 06 last, the central bank issued similar loans write-off policy for the scheduled banks on the same ground.

Senior bankers and experts earlier told the FE that the banks stand to benefit from the policy as they will now write off small-sized loans without resorting to court.

But they said the new policy may not be effective for large loans.

Former BB Governor Salehuddin Ahmed had argued that while potential defaulters would benefit from the latest policy relaxation, small and medium entrepreneurs might face trouble in securing fresh loans.

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.

siddique.islam@gmail.com