Bangladesh is set to introduce a landmark shift in banking regulation with the adoption of a forward-looking model for credit loss provisioning. The initiative, based on IFRS 9, requires banks to estimate potential losses on loans and other exposures in advance, enhancing risk management and aligning domestic practices with international standards.
Bangladesh Bank (BB) has issued guidance for implementing the Expected Credit Loss (ECL) framework. Scheduled banks are required to apply the framework to funded and non-funded credit facilities from 1 January 2028, with an extension to other financial instruments from 1 January 2029.
Currently, banks follow the incurred-loss approach under BRPD Circular No. 15 of 2024, which mandates provisions only after a loan shows evidence of deterioration. Under the ECL model, provisions are calculated proactively, using forward-looking estimates that incorporate macroeconomic factors such as GDP growth, inflation, and interest rate trends.
“This is a significant departure from the existing system,” said a senior Bangladesh Bank official, speaking anonymously. “By anticipating credit losses before they materialise, banks can maintain stronger capital buffers and mitigate potential shocks.”
The IFRS 9 framework classifies credit exposures into three stages:
| Stage | Loan Type | Provision Basis |
|---|---|---|
| Stage 1 | Performing | 12-month expected credit loss |
| Stage 2 | Significant increase in credit risk | Lifetime expected credit loss |
| Stage 3 | Credit-impaired | Lifetime expected credit loss |
The new model also encompasses off-balance-sheet exposures such as loan commitments, guarantees, and unused credit lines. Additionally, interest income recognition will be linked to the stage classification, offering a more accurate reflection of both asset quality and earnings.
Dr. Md. Touhidul Alam Khan, Managing Director and CEO of NRBC Bank PLC, described the reform as a transformative milestone. “IFRS 9 adoption is not merely a compliance exercise. It strengthens institutional resilience, improves transparency, and boosts investor confidence,” he said.
He highlighted that successful implementation will require upgraded IT systems, advanced risk models, and staff training. “This transition represents a paradigm shift for Bangladesh’s banking sector, positioning it as a more resilient, transparent, and globally competitive market,” Dr. Khan added.
While challenges in operational execution are expected, experts say the long-term benefits—including improved risk management, greater financial stability, and enhanced stakeholder trust—will make the reform a critical step in modernising the country’s financial system.
