The Bangladesh Bank has unveiled a comprehensive roadmap to enhance the banking sector’s resilience by transitioning to the International Financial Reporting Standard 9 (IFRS 9) for loan provisioning by 2027.
The move is expected to bolster transparency, align with global financial norms, and strengthen banks’ ability to absorb shocks.
In a circular issued on 23 January, the central bank announced that banks would shift from the current rule-based loan classification and provisioning framework to an Expected Credit Loss (ECL) methodology.
With this, Bangladesh joins a list of countries, including India, Pakistan, and Sri Lanka, which have partially adopted IFRS 9.
Nations such as the UK, US, Canada, and members of the European Union have fully implemented the standard.
Currently, banks are mandated to maintain a 1% provision for standard loans, 5% for Special Mention Accounts (SMA), 20% for sub-standard loans, 50% for doubtful loans, and 100% for bad loans.
The transition to IFRS 9 is expected to render this system more flexible and forward-looking, fostering greater resilience within the sector.
The central bank’s initiative marks a significant stride in aligning the nation’s banking sector with international best practices, ensuring robust financial health and fostering confidence among stakeholders.
This dynamic approach will enable banks to anticipate potential defaults and make provisions accordingly, moving away from the reactive methods currently in place.
Explaining the transition, a central bank spokesperson stated, “Under the existing system, provisioning ranges from 1% for regular loans to 100% for those classified as bad or in default. The new ECL-based model will evaluate the probability of loan defaults in advance, thereby reducing sudden pressures on bank capital.”
The revised framework also aligns Bangladesh with global financial reporting practices under Basel III.
From April 2025, loans overdue for more than three months will be classified as non-performing, a reduction from the current six-month threshold.
The roadmap includes capacity-building measures for banks and regulatory guidelines.
“By March, bank boards must familiarise themselves with the framework. We will conduct trial and parallel runs before fully replacing the existing system,” the central bank official added.
Bankers have lauded the initiative, citing its potential to improve financial reporting and confidence in the banking sector.
However, some expressed concerns about increased provisioning requirements and their potential impact amid current liquidity constraints.
