Why Bangladesh must embrace risk-based supervision

The Risk-Based Supervision (RBS), to be implemented from 01 January 2026, is likely to be the most vital lifeline for the banking sector in Bangladesh in the coming days. The banking sector is currently struggling hard with the non-performing loan (NPL) crisis and is often failing to maintain Basel norms due to provisioning constraints and capital shortfalls. In this context, it has become mandatory to shift towards a forward-looking approach for risk identification, categorisation and mitigation through intensified supervision. At present, supervisory measures are largely reactive and backward-looking. The RBS framework, however, is inherently preventive and has the potential to revitalise the banking sector.

Expected Credit Loss (ECL) is one of the most critical components of the RBS framework. Instead of creating provisions only after loans become classified under the existing rules, the ECL approach requires banks to maintain provisions based on the stage of credit risk. This enables banks to take precautionary measures well before a significant increase in credit risk occurs.

In Bangladesh, ECL is planned to be implemented from 2027. It will serve as a crucial tool for improving the asset quality of banks. By reflecting the risk stage of assets, ECL will support timely and prompt corrective actions, which can be triggered in a structured and disciplined manner.

To maintain international standards as per IFRS 9 (International Financial Reporting Standard), it is imperative to follow Risk-Based Supervision, since the current NPL level in Bangladesh has surged significantly as a proportion of total loans.

Kawsik Azad Pronoy

Unit Head, Dutch Bangla Bank

Corporate Business Division, Dhaka

kawsikdbbl@gmail.com