The top 10 banks in Bangladesh have collectively written off Tk 41,129 crore in bad loans by the end of December 2024, accounting for nearly half of the total written-off loans in the banking sector, according to Bangladesh Bank data.
Banks typically resort to loan write-offs when they determine that the chances of recovering the money lent are practically nil, banking experts said.
Written-off bad loans have increased due to a higher rate of non-performing loans and write-off policy relaxation by the central bank in February 2024, they said.
The top state-owned bank, Sonali Bank, alone wrote off Tk 8,568 crore, followed by Agrani Bank writing off Tk 5,627 crore, Janata Bank Tk 5,126 crore and Bangladesh Development Bank Limited Tk 2,968.89 crore.
Among the private sector banks, Southeast Bank wrote off Tk 3,664 crore, United Commercial Bank Tk 3,197 crore, Prime Bank Tk 3,184.76 crore, The City Bank Tk 3,164.79 crore, BRAC Bank Tk 2,962.5 crore, and Bank Asia Tk 2,664 crore.
As of December 31, 2024, the total volume of outstanding written-off loans in the banking sector stood at Tk 81,578 crore, marking a sharp increase from Tk 53,612 crore a year earlier.
Of the total amount written off by the end of 2024, state-run banks wrote off Tk 25,832 crore and private commercial banks Tk 52,780 crore.
Nine foreign banks operating in Bangladesh wrote off Tk 2,353 crore in total, with Standard Chartered Bank accounting for nearly half of that amount -- Tk 1,139 crore.
The practice of writing off loans allows banks to remove irrecoverable debts from their balance sheets, transferring them to off-balance sheet records, banking experts noted.
While this accounting maneuver presents a healthier financial picture on paper, the underlying liabilities remain unresolved, raising concerns about the long-term stability of the banking system, they observed.
The surge in write-off loans, however, raised critical questions about the banks鈥� loan approval processes, risk management practices, and political interference, they further observed.
The relaxed loan write-off policy came on February 19, 2024, when the Bangladesh Bank 鈥� under the influence of the previous Awami League-led government 鈥� eased the write-off guidelines.
According to the revised rules, banks can now write off loans classified as 鈥榖ad and loss鈥� after just two years of default, down from three years previously.
This followed a 2019 policy change, which had already reduced the timeframe from five years to three.
Additionally, banks no longer need to file a case with the Artha Rin Adalat (Money Loan Court) for writing off defaulted loans below Tk 5 lakh, raising the threshold from Tk 2 lakh.
By lowering the write-off barrier, the central bank essentially provided banks with a tool to mask their deteriorating asset quality rather than confront it.
Surprisingly, the policy still exists even after the political shift on August 5, experts said.
Mustafizur Rahman, Distinguished Fellow at the Centre for Policy Dialogue, said that the loan write-off policy needs tightening, especially considering the leniency that was introduced earlier in 2024.
He said that the Bangladesh Bank must undertake a comprehensive review of the policy to identify its flaws and enact necessary reforms to prevent the situation from worsening.
He also emphasised that banks must focus more seriously on recovery efforts if they are to regain public trust and stabilise their financial base.
The ever-increasing volume of written-off loans is a direct consequence of banks鈥� failure to pursue recovery effectively, BB officials said.
鈥極nce a loan is written off, most banks stop meaningful follow-up efforts to recover the dues. This has created a perverse incentive for willful defaulters, who now find it even easier to escape the consequences of defaulting,鈥� they said.
Non-performing loans surged dramatically in 2024, reaching Tk 3.45 lakh crore by year鈥檚 end 鈥� up from Tk 1.45 lakh crore in December 2023.
The NPLs grew rapidly each quarter in 2024: Tk 1,82,295 crore in March, Tk 2,11,391 crore in June, and Tk 2,84,977 crore in September.
Nearly 20 per cent of all loans in the banking sector 鈥攁mounting to Tk 17.11 lakh crore 鈥� were classified as non-performing by the end of the year, indicating for Bangladesh the highest NPL ratio in South Asia.
A draft white paper released on December 2, 2024 further revealed that the total distressed assets 鈥攊ncluding NPLs and rescheduled, restructured, written-off, and litigated loans 鈥� had exceeded Tk 6.75 lakh crore.
The situation has put tremendous pressure on banks鈥� profitability and liquidity.
聽As most of their income comes from interest on performing loans, the erosion of loan quality severely limits their revenue generation.
Banks are now forced to maintain higher provisions against defaulted loans.
According to Bangladesh Bank regulations, provisions range from 0.25 to 5 per cent for unclassified loans and rise sharply to 20 per cent for substandard, 50 per cent for doubtful, and 100 per cent for bad or loss category loans.
Besides the top 10 banks, Pubali Bank wrote off bad loans amounting to Tk 2,463 crore, Uttara Bank Tk 2,446 crore, AB Bank Tk 2,304.73 crore, National Bank Tk 2,154 crore, IFIC Bank Tk 2,144.86 crore, Dutch-Bangla Bank Tk 2,096.80 crore, One Bank Tk 2,072 crore, and Eastern Bank Tk 2,018.75 crore.