BB issues new loan write-off policy

All banks in the country have to create a separate debt cancellation unit to recover loans that were written off to cleanse balance sheets while reducing tax burden.

The order came on Wednesday in a Bangladesh Bank notification on loan or investment write-off policy.

The latest instruction also bars banks to reschedule or restructure loans already written-off by the banks.

While loans are written off as an accounting practice, the claim on these loans is not scrapped and banks have to keep adequate provisions against the same amount.

Bangladesh Bank first issued loan write-off policy in 2003. Two revised instructions were also issued in 2004 and 2013 through official circulars.

With the latest circular coming into effect, all the previous instructions become null and void, according to the central bank's notification.

It also said that there would be no partial write-off and the bank management has to get prior approval for writing off any loan account.

Despite being written-off, loan account of any borrower has to be classified as default borrower unless he/she fully settles all his liabilities with banks and banks have to regularly submit report on the loan written-off to the Credit Information Bureau (CIB) of Bangladesh Bank.

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