The 7 measures BB charts to tackle bad loans

Bangladesh Bank (BB) has outlined a long-term roadmap to tackle non-performing loans. The plan centres on stronger supervision, better governance and quicker recovery of distressed assets.

"The level of non-performing loans (NPLs) remains a key focus area for the banking sector, affecting bank profitability, capital adequacy ratios, liquidity distribution, and the transmission efficiency of monetary policy," the central bank said in its latest Monetary Policy Statement (MPS) for H1FY27 published yesterday (30 June).

At the end of March this year, total NPLs in the banking sector stood at Tk5,88,704 crore, accounting for 32.26% of the total Tk18,24,668 crore in disbursed loans.

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Announcing the MPS, BB Governor Mostaqur Rahman said, "The central bank has taken an initiative to reduce non-performing loans within the next 18 months. As part of this, special opportunities are being provided for repaying bad loans under the Exit Policy, which has been effective in countries like Ukraine and Türkiye."

The MPS report sets out a seven-point long-term roadmap for NPL management based on structural reforms:

• First, the central bank will strengthen Risk-Based Supervision (RBS) and execute bank-specific Asset Quality Reviews (AQRs), with a primary focus on institutions showing specific governance or concentration risks.
• Second, capital restoration and provisioning plans will be linked directly to asset recovery metrics, dividend restrictions, and supervisory actions.
• Third, loan restructuring frameworks will be reserved for viable enterprises, while non-compliant borrowers will face appropriate legal and regulatory measures.
• Fourth, asset recovery for large exposures will be accelerated by establishing specialized internal recovery units, strengthening institutional legal departments, fast-tracking Artha Rin Adalat (Money Loan Court) proceedings, and optimising collateral enforcement frameworks.
• Fifth, the central bank is operationalising a structured Emergency Liquidity Assistance (ELA) framework to ensure liquidity support is distinct from capital restructuring.
• Sixth, the implementation of the Bank Resolution Act 2026 and the Deposit Protection Act 2026 will provide tools to manage weak institutions, protect retail depositors, and mitigate moral hazard.
• Finally, BB will support the operationalisation of the ECL framework by enhancing data infrastructure and credit risk modeling capabilities to identify changes in credit quality early.

Meanwhile, the MPS statement added that during FY26, the central bank introduced updates to its regulatory and supervisory frameworks to manage asset quality.

Regulatory guidelines were updated to allow the write-off of bad debts with limited recovery prospects to improve balance sheet clarity.

Stressed borrower frameworks were adjusted to permit the restructuring of classified portfolios for up to 10 years, including a grace period of up to two years, with specific support facilities extended through June this year.

In December 2025, updated loan classification and provisioning directives were issued to strengthen credit discipline.

To support credit flow to employment-intensive sectors, BB permitted lower provisioning ratios on standard and Special Mention Accounts within agriculture and CMSMEs through December 2026.

The report also underscored the central bank's medium-term strategy to replace the existing rules-based provisioning methodology with the Expected Credit Loss (ECL) framework under International Financial Reporting Standard (IFRS) 9, with full implementation expected in 2027.