Guidance for Banks Implementing IFRS 9 Financial Instruments

Bangladesh Bank
Head Office
Motijheel, Dhaka-1000
Bangladesh website: www.bb.org.bd Banking Regulation and Policy Department-1 08 March 2026 BRPD-1 Circular No. 06 Date: ----------------------- 23 Falgun 1432 Managing Director/Chief Executives All Scheduled Banks in Bangladesh Dear Sir, Guidance for banks in implementing IFRS 9 Financial Instruments Please refer to BRPD Circular Letter No. 03 dated 23 January 2025 on Implementation of ECL based Classification and Provisioning under IFRS 9.
2. Bangladesh Bank (BB) devises a roadmap for the banks and provided preparatory instructions in
implementing IFRS 9 Financial Instruments by 2027 through the mentioned circular. The roadmap was segregated in three phases and according to the road map, Bangladesh Bank is needed to issue guidance for banks in implementing IFRS 9 at the beginning of the Phase II. As per roadmap, Bangladesh Bank has prepared “Guidance for banks in implementing IFRS 9 Financial Instruments” and decided to issue it herewith.
3. According to the Bank Company Act, 1991 section 38, as a “Public Interest Entity” defined by
Financial Reporting Council (FRC), all the banks are needed to follow financial reporting standards as per Financial Reporting Act, 2015. Moreover, according to the gazette published by FRC in 02 November 2020, all the Public Interest Entity (PIE) must comply with the conceptual framework for financial Reporting as well as International Financial Reporting Standards (IFRS) as per section 44 of Financial Reporting Act, 2015.
4. The objective of this guidance is to ensure banks take steps to comply with the financial
reporting requirements outlined in IFRS 9. However, this Implementation Guidance is not intended to cover all areas of IFRS 9. Instead, it focuses on critical areas of the accounting standard. Thus, this guidance is considered to be the minimum requirements for implementing IFRS 9 for banks. On the other hand, The Basel Committee on Banking Supervision issued Guidance on credit risk and accounting for expected credit losses in December 2015. It is recommended to the banks, to which this Implementation Guidance applies, to adopt the principles contained therein.
5. This Implementation Guidance shall be applied to the funded and non-funded credit facilities by
January 2028. The application of this Guidance to all other financial instruments under IFRS 9, such as investment securities, shall be adopted by January 2029. Bangladesh Bank will issue directives (e.g. on CIB reporting, additional reporting template etc.) time to time as deemed necessary.

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6. Bangladesh Bank will provide guidance and clarification to banks during the implementation of
their IFRS 9 frameworks in accordance with this Implementation Guidance. Banks should correspond exclusively from a dedicated official email.
7. This directive has been issued by Bangladesh Bank in exercise of its power conferred on it under
section 49(1)(cha) of the Bank Company Act, 1991.
Annex: as described.
Yours faithfully,
(Gazi Md. Mahfuzul Islam)
Director (BRPD-1)
Phone: 9530252

Guidance For Banks in Implementing IFRS 9 Financial Instruments GUIDANCE FOR BANKS IN IMPLEMENTING IFRS 9 FINANCIAL INSTRUMENTS Banking Regulation and Policy Department-1 Bangladesh Bank March, 2026

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Guidance For Banks in Implementing IFRS 9 Financial Instruments GUIDANCE FOR BANKS IN IMPLEMENTING IFRS 9 FINANCIAL INSTRUMENTS Banking Regulation and Policy Department-1 Bangladesh Bank

Guidance For Banks in Implementing IFRS 9 Financial Instruments Message from the Deputy Governor Bangladesh Bank Bangladesh‟s economy is currently navigating a phase of macroeconomic stabilization supported by policy reform, structural reform and legal reform in the financial sector with a view to bringing more discipline, ensuring good governance and fostering financial stability of the country. Adoption of international best practices and risk-based supervisory framework in banking sector has become an integral part of these initiatives. In this context, Bangladesh Bank (BB) has planned to implement an Expected Credit Loss (ECL)-based provisioning system for banks in accordance with the International Financial Reporting Standard (IFRS 9). At present, banks follow a rule-based loan classification and provisioning system. As part of our ongoing efforts to strengthen the risk management capabilities of banks and enhance the transparency of financial reporting, Bangladesh Bank has decided to adopt an ECL-based loan classification and provisioning framework under IFRS 9. The ECL framework enables earlier risk identification, stronger provisioning discipline, improved asset quality assessment, and greater credibility of bank balance sheets. These outcomes extend beyond accounting improvements; they support stronger capital planning, improved risk pricing, better credit allocation, and enhanced depositor and investor confidence. At the institutional level, IFRS 9 will strengthen internal governance, reinforce risk culture, and integrate credit risk assessment more effectively into business and management decisions. At the system level, it will improve transparency, comparability, and supervisory effectiveness. At the market level, it will contribute to strengthening confidence, improving financial intermediation, and reinforcing financial stability. I would like to recognize the extensive work of the IFRS 9 Implementation Team and the subject-matter specialists who contributed to the development of this Guidance. Their sustained engagement, technical rigor, and cross-institutional coordination have ensured that the framework is both operationally practical and aligned with supervisory objectives. Bangladesh Bank will continue to support banks throughout this transition through regulatory guidance, supervisory engagement, and coordinated implementation efforts. The successful adoption of IFRS 9 will represent not only regulatory compliance but also a meaningful advancement in the quality, resilience, and credibility of Bangladesh‟s banking system. (Dr. Md. Kabir Ahmed) Deputy Governor Bangladesh Bank

Guidance For Banks in Implementing IFRS 9 Financial Instruments Preamble International Financial Reporting Standard 9 (IFRS 9) was introduced as part of the global post￾crisis reform agenda to address structural weaknesses in financial reporting arising from delayed recognition of credit losses and insufficient forward-looking risk assessment. The standard replaces the incurred loss model with a forward-looking Expected Credit Loss (ECL) framework, requiring earlier recognition of credit risk and more prudent provisioning practices. As Public Interest Entities (PIEs) under the Financial Reporting Act, 2015, banks in Bangladesh are required to comply with International Financial Reporting Standards (IFRS) in accordance with the directives issued by the Financial Reporting Council (FRC). The implementation of IFRS 9 therefore constitutes both a statutory obligation and a regulatory requirement for the banking sector. Bangladesh Bank has adopted a phased implementation roadmap for IFRS 9 to ensure institutional readiness, operational stability, and system-wide consistency. This Implementation Guidance has been issued as part of that roadmap to provide regulatory direction, supervisory structure, and implementation benchmarks for banks in applying the requirements of IFRS 9, with particular focus on the Expected Credit Loss (ECL) framework. Bangladesh Bank acknowledges the valuable contributions of the members of the IFRS 9 Implementation Team, whose analytical work, professional judgment, and sustained engagement formed the foundation of this Guidance. The Bank also recognizes the contributions of former committee members, Mr. Mohammad Shahriar Siddiqui, Director (FSD), and Mr. Shakhawat Hossain, Joint Director, Bangladesh Bank, whose early engagement and technical inputs supported the development of this framework. Bangladesh Bank further acknowledges the International Finance Corporation (IFC) for its technical assistance in the development of this Guidance. The Bank also appreciates the constructive contributions of Financial Reporting Council (FRC) and the representatives of the Institute of Chartered Accountants of Bangladesh (ICAB)—Mr. Mohammad Abdul Ohab Miah, FCA, and Mr. Sk. Ashik Iqbal, FCA, whose professional insights and consultative support helped strengthen the accounting integrity and practical applicability of the framework. This Guidance is intended to support consistent, proportionate, and credible implementation across the banking sector. It focuses on critical areas necessary for effective adoption, while allowing banks to exercise professional judgment and apply sound risk management practices in line with international standards and supervisory expectations.

Guidance For Banks in Implementing IFRS 9 Financial Instruments GUIDANCE FOR BANKS IN IMPLEMENTING IFRS 9 FINANCIAL INSTRUMENTS Advisor:
Md. Ashraful Alam, Executive Director, Bangladesh Bank Implementation Team:
Chairperson:
Md. Bayazid Sarkar
Director (BRPD-1), Banking Regulation and Policy Department-1, Bangladesh Bank Focal Point:
Mohammad Salauddin Tapadar
Additional Director, BRPD-1, Bangladesh Bank
Member Secretary:
Kazi Mahmudur Reza
Joint Director, BRPD-1, Bangladesh Bank
Members:

1. Mohammad Abdullah Al Masum Additional Director, BSD-9, Bangladesh Bank
2. Golam Mostafa Additional Director, BRPD-2, Bangladesh Bank
3. Mohammad Hasib Ur Rahman Additional Director, BRPD-1, Bangladesh Bank
4. Nazia Haque, CFA Joint Director, BRPD-1, Bangladesh Bank
5. Md. Majedul Islam Joint Director, SPCD, Bangladesh Bank
6. Muhammad Hasan Tareq Joint Director, BRPD-1, Bangladesh Bank
7. Rony Nath Deputy Director, BRPD-1, Bangladesh Bank
8. Md. Abdul Auwal Deputy Director, BRPD-1, Bangladesh Bank
9. Ahmed Rashid Joy AMD & CRO, Brac Bank PLC
10. Mohammad Monowar Hossain FCA Financial Controller, Standard Chartered Bank
11. Anik Kumar Mallick Standard Setting Officer, Financial Reporting Council

Guidance For Banks in Implementing IFRS 9 Financial Instruments GUIDANCE FOR BANKS IN IMPLEMENTING IFRS 9 FINANCIAL INSTRUMENTS
Table of Contents

1. Introduction................................................................................................................................... 1
2. Objectives of the Implementation Guidance:............................................................................. 2
3. IFRS 9 Implementation Governance .......................................................................................... 2
4. ECL Framework ........................................................................................................................... 6
5. ECL Measurement Framework................................................................................................. 12
6. ECL Model Validation Framework .......................................................................................... 15
7. Interest Recognition.................................................................................................................... 17
8. Disclosure Requirements............................................................................................................ 17
9. Temporary Treatment of Differences between ECL Allowance and Regulatory Provision 17
10. Transitional Arrangements........................................................................................................ 18
    Annexes.............................................................................................................................................. 20

Guidance For Banks in Implementing IFRS 9 Financial Instruments Page 1 of 29

1. Introduction
   1.1 According to the section 38 of Bank Company Act, 1991 and section 44 of Financial
   Reporting Act, 2015, as a “Public Interest Entity”, all the scheduled banks must comply with the conceptual framework for financial reporting as well as International Financial Reporting Standards (IFRS).
   1.2 This guidance is the minimum requirements for implementing IFRS 9 Financial
   Instruments for scheduled banks. This Implementation Guidance is not intended to cover all areas of IFRS 9. Instead, it focuses on critical areas of the accounting standard that are fundamental tobanks‟effective credit risk management, model development and model risk management, and compliance risk management. This implementation Guidance is not intended to replace IFRS 9 but is intended to complement it.
   1.3 This Implementation Guidance shall be applied to the funded and non-funded credit
   facilities by January 2028. The application of this Guidance to all other financial instruments under IFRS 9, such as investment securities, shall be adopted by January 2029.
   1.4 IFRS 9 became effective for accounting periods beginning on or after January 1, 2018.
   The standard outlines the recognition, measurement, and financial reporting requirements for financial instruments, namely, financial instruments measured at amortized cost (e.g. loans and investment securities) or fair value through other comprehensive income (e.g. investment securities), accounts receivable, and off￾balance sheet credit exposures (e.g. undrawn loan commitments and unused lines of credit) to which the standard apply.
   1.5 IFRS 9 uses an expected credit loss (ECL) approach in estimating allowances for credit
   losses for financial instruments. Expected credit losses are the results of financial models driven by data and experienced credit judgment both of which are integrated with forward-looking analysis. As prerequisites, banks are required to have access to appropriate, relevant, and timely data; experienced credit judgement; and integrable and justifiable forward-looking analysis.
   1.6 The appropriateness of banks‟ credit risk management infrastructure will influence the
   adequacy of their ECL estimates. As such, the frameworks for implementing IFRS 9 must be preceded by strong credit risk management infrastructures. Such infrastructures should comprise equally effective credit risk assessment, identification, and rating methodologies, credit risk classification and monitoring systems, timely identifiable and executable delinquency management and write off directives, and meaningful collateral valuation and recovery solutions.
   1.7 The Basel Committee on Banking Supervision issued Guidance on Credit Risk and
   Accounting for Expected Credit Losses in December 2015. The Guidance provides sound principles for banks to adopt in establishing a comprehensive and effective

Guidance For Banks in Implementing IFRS 9 Financial Instruments Page 2 of 29 framework for appropriately accounting for their credit exposures and estimating ECL. Accordingly, the Supervisor recommends banks, to which this Implementation Guidance applies, to adopt the principles contained therein (https://www.bis.org/bcbs/publ/ d350.pdf provides access to this Guidance).
1.8 The Supervisor recognizes that there are differences in the nature, size, and complexity
of credit exposures and credit risk across banks. As such, the Supervisor recognizes proportionality and anticipates that the methodologies adopted by banks in implementing the requirements of IFRS 9 are commensurate and consistent with the nature, size, and complexity of their credit risk exposures.
1.9 In case of foreign banks operating in Bangladesh, the ECL framework, including
governance, followed by Head Office/Group may continue to apply at Branch level. However, the application of the framework at the Branch must be performed in the Bangladesh context and a local team headed by a key management retains local ownership of the framework and will be held accountable for the minimum standards established in this Implementation Guidance by Bangladesh Bank.
2. Objectives of the Implementation Guidance:
The objectives of this Implementation Guidance are to:
a) Ensure banks take steps to comply with the financial reporting requirements outlined in IFRS 9. b) Promote transparency, consistency, uniformity, and comparability when reporting financial instruments and estimating their expected credit losses for financial reporting purposes. c) Direct banks to the areas of their credit risk management frameworks that likely require enhancements in identifying, measuring, monitoring, controlling, and reporting credit risk exposures. d) Equip banks with minimum tools necessary to ensure that they develop and implement effective model management frameworks for estimating expected credit losses (ECLs). e) Complement IFRS 9 by providing supervisory guidance on areas of the accounting standards that are otherwise unspecified, undefined or require management to utilize significant discretion or judgment.
3. IFRS 9 Implementation Governance
3.1 Every bank must have a documented ECL framework that is approved by the board of
directors, and subject to periodic review and updates. Reviews and updates to the framework must be conducted at least annually or more frequently when the need arises.
3.2 The documented framework should detail the bank‟s approach to implementing the
requirements of IFRS 9 and the Implementation Guidance. The minimum requirements

Guidance For Banks in Implementing IFRS 9 Financial Instruments Page 3 of 29 of the documented ECL framework are covered specifically in Section 4 of this Implementation Guidance but are also indicated in other areas.
3.3 There are multiple stakeholders who must play their roles in developing and
maintaining effective implementation of the requirements of IFRS 9. These stakeholders are components of banks‟ governance frameworks. The board of directors and senior management hold ultimate responsibility for ensuring that the institution‟s ECL framework is sound, forward-looking, and compliant with regulatory and accounting standards. The objective is to ensure that ECL estimates are prudent, unbiased, and based on high quality credit risk data and practices consistent with regulatory expectations.
3.4 Each bank shall maintain a comprehensive credit risk governance structure that
supports robust and consistent ECL estimation, including clear segregation of duties, defined escalation lines, and independent model oversight. The governance structure must be described in the documented ECL framework to facilitate their accountability and should include the following, at a minimum. The roles described herein for governance stakeholders are not intended to be exhaustive. Banks are expected to establish additional responsibilities, when required.
3.4.1 Board of Directors
Board of directors is responsible for:
(a) Overall oversight of the credit risk and ECL governance frameworks. (b) Periodically reviewing and approving and recommended enhancements to credit risk management policies to ensure consistency with approved risk appetite, IFRS 9, and regulatory expectations especially in the areas of credit risk underwriting, assessment, classification and rating, forbearance, ECL methodologies, write offs and recoveries, and collateral valuation. (c) Periodically reviewing and approving a dynamic ECL methodology for estimating ECL, consistent with IFRS 9 and this Implementation Guidance. (d) Reviewing and interrogating ECL estimates. (e) Interrogating and approving, where required, management overlays used in estimating ECL. (f) Ensuring clear segregation of duties among risk management, finance, and internal audit, and require independence of model development, validation, and control functions. (g) Reviewing the results of model performance and validation assessments and pursuing effective and timely resolutions of identified weaknesses, including weaknesses identified by internal and external audit, and Bangladesh Bank. (h) Ensuring that the bank maintains sufficient human expertise, information systems, and data infrastructure to support reliable ECL estimation and governance.

Guidance For Banks in Implementing IFRS 9 Financial Instruments Page 4 of 29
3.4.2 Senior Management
Senior Management is responsible for:
(a) Recommending and implementing board approved enhancements to credit risk management policies to ensure consistency with approved risk appetite, IFRS 9, and regulatory expectations especially in the areas of credit risk underwriting, assessment, classification and rating, forbearance, ECL methodologies, write offs and recoveries, and collateral valuation etc. (b) Developing, documenting, recommending, and implementing the board approved ECL methodology for estimating ECL, consistent with IFRS 9 and this Implementation Guidance, and translating it into detailed policies, procedures, and control structures. (c) Developing and implementing a sound control environment with adequate systems and procedures, to ensure that ECL estimates aretimely, unbiased, reasonable, and appropriate. (d) Timely reporting of ECL estimates and other aspects of the bank‟s ECL framework to the board of directors and assessing and applying overlays based on experienced credit judgment, where required. (e) Taking steps to ensure that the performance of ECL models are periodically tested and validated, and models are recalibrated periodically or when required. (f) Timely and effectively resolving weaknesses identified from model performance tests, validation, internal and external audit, and Bangladesh Bank relating to the ECL framework. (g) Ensuring that organizational resources used in estimating ECL are adequate and appropriate including ensuring that ECL estimates are conducted by well-trained and competent personnel whether the estimates are performed internally or outsourced, and technology and data infrastructure are robust. (h) Ensuring that data governance policies clearly define data ownership, access and usage, quality controls and reconciliation procedures. (i) Promoting close coordination among risk management, finance, business, and internal-audit functions to ensure consistency of assumptions and data used in ECL estimation while preserving independence of model development and validation team. (j) Providing/organizing training for relevant members of staff who will be involved in the ECL model framework and taking steps to ensure that relevant staff involved in credit and credit risk management are informed of changes in credit risk management policies and practices resulting from implementing IFRS 9 and this Implementation Guidance.
3.4.3 Risk Management
Risk Management functions (for example, enterprise-wide risk management, credit risk management, and/or support functions such as finance, compliance, etc.) should ensure that the ECL framework accurately reflects the bank‟s creditrisk profile and operates in accordance with sound risk-management

Guidance For Banks in Implementing IFRS 9 Financial Instruments Page 5 of 29 principles. It should provide independent oversight, challenge, and assurance over all components of the ECL process and is responsible for:
(a) Interrogating the robustness of the ECL methodology and practices, and adequacy of the ECL estimate. Risk management, as a control function, is expected to be independent in the performance of its role. Therefore, risk management should be involved in the interrogation of ECL methodologies and practices. However, if it was involved in the development of the framework, as this would impair its independent assessment, then the interrogation function must be delegated to another control function that was not involved in the development of the ECL framework.The control function with this responsibility should have sufficient stature, authority, and resources to challenge decisions that could materially affect the bank‟s risk profile or the prudence of its ECL estimates. The risk function should have direct and unfettered access to all relevant data, models, systems, and staff necessary to carry out these responsibilities. (b) Recommending enhancements to credit risk management policies to ensure consistency with IFRS 9 and supervisory expectations especially in the areas of credit risk underwriting, assessment, classification and rating, forbearance, ECL methodologies, write offs, and collateral valuation. (c) Reviewing and pursuing the results of model performance tests and model validation exercises, internal and external audits, and Bangladesh Bank‟s supervisory reviews, especially when these results materially impact the risk of the bank. (d) Establishing processes for monitoring creditrisk trends, portfolio quality, and drivers of changes in ECL. It should prepare independent risk reports to senior management and the board of directors highlighting credit exposures, concentrations, deteriorating sectors, and deviations from board-approved risk appetite of the Bank. These reports should include commentary on forward-looking information and stress-testing results relevant to ECL sensitivity. (e) Maintaining adequate risk modeling capacity including expertise and analytical capabilities to fulfill its responsibilities. Personnel engaged in ECL oversight should possess skills in creditrisk modeling, portfolio analytics, stress testing, and regulatory interpretation. Training programs should be conducted regularly to sustain technical competence.
3.4.4 Internal Auditors
Internal auditors are responsible for:
(a) Reviewing the reasonableness, appropriateness, and compliance of the documented ECL methodology, practices, and estimates with IFRS 9 and this Implementation Guidance considering the robustness of the control environment and the ECL framework. (b) Identifying, measuring, monitoring, testing and reporting on control weaknesses in credit risk management processes relating to credit risk

Guidance For Banks in Implementing IFRS 9 Financial Instruments Page 6 of 29 identification, assessment, measurement and rating, classification, provisioning, recovery, collateral enforcement, and write offs. (c) Reviewing the results ofmodel performance tests, model validation exercise, andpursuing and evaluating the timely resolution of identified weaknesses including weaknesses identified by external audit and Bangladesh Bank. (d) Reporting to the board of directors (or its delegated committee) on the findings of internal audit of ECL framework highlighting material weaknesses and recommended corrective actions. (e) Maintaining competent organizational resources (e.g., human and informational technology capacity) to effectively execute its oversight responsibilities.
3.4.5 External Auditors
External auditors are responsible for continuing to comply with the requirements of Section 39 of the Bank-Company Act, 1991, and Rules for External Audit of Bank Companies, 2024 and other applicable directives issued by Bangladesh Bank.
4. ECL Framework
4.1 Banks should develop, document, and implement a board approved ECL framework.
The framework can be documented separately or can be incorporated into the existing credit risk management policies. Where the framework is documented separately, it must be referenced in the entity‟s credit risk management policies.
4.2 An initial copy of the board approved ECL framework must be submitted to the
Bangladesh Bank no later than July 15, 2026.
4.3 The ECL framework must be reviewed and updated periodically (at least annually and
more frequently where required).
4.4 Periodic Board-approved updates to the ECL framework must be submitted to the
Bangladesh Bank within 60 days of the period-end. Besides, any updates made in between the period have to be submitted within 30 days of the updates.
4.5 The following, at a minimum, should be clearly articulated in the documented ECL
framework:
4.5.1 Definition of Default
Definition of Default should consider both quantitative and qualitative criteria. Declassification of exposures by order of any competent authority does not affect the credit risk classification of exposures under IFRS 9. The definition of default is critical to staging and upgrading exposures. This definition is applicable solely for credit risk classification purposes under IFRS 9.

Guidance For Banks in Implementing IFRS 9 Financial Instruments Page 7 of 29 (a) Quantitative Criteria
i. Credit exposures that are 90 days or more past due or credit impaired.
ii. In case of the continuous loans, when repayments are inadequate to cover
interest capitalized for 90 days or more, they have exceeded their approved limitsfor 90 days or more, or their limits have expired for 90 days or more. (b) Subjective Criteria Credit exposures for which credit assessments of their likelihood of full repayment are doubtful. Indicators of such likelihood of full repayment based on the bank‟s credit experience and experienced credit judgement should be documented in the ECL framework. Annex A specifies indicators of unlikeliness to pay which are useful to banks in identifying default. Such documented indicators are not intended to be exhaustive.
4.5.2 Criteria for Staging and Upgrading Credit Exposures
Criteria for staging and upgrading credit exposures determine how exposures are classified for estimating ECL. Staging exposures is critical in determining whether to establish 12-month ECL (Stage 1 exposures) or Lifetime ECL (Stages 2 and 3 exposures). (a) Staging Credit Exposures IFRS 9 requires credit exposures to be classified into 3 stages. Criteria of staging are as follows:
i. Stage 1 comprises credit exposures which do not exhibit significant
increase in credit risk since initial recognition. Banks may elect to utilize the high-quality assets practical expedient provided in the accounting standard. This election however can only apply to assets that satisfy the eligibility requirements specified in the standard.
ii. Stage 2 comprises credit exposures which exhibit significant increase in
credit risk since initial recognition.Credit exposures on which the bank is unable to evaluate whether there is significant increase in credit risk should be classified in Stage 2 unless they qualify as high-quality assets under IFRS 9. Banks must document the justification that these assets are high quality assets as defined in the standards. This assessment must be available for supervisory review.
iii. Stage 3 comprises credit exposures which are in default based on the
definition in Section 4.5.1 or are credit impaired.

Guidance For Banks in Implementing IFRS 9 Financial Instruments Page 8 of 29
iv. The documented ECL framework should specify the criteria for
classifying exposures into each of the 3 stages and should also show a clear and direct alignment between the accounting staging requirements and the bank‟s internal credit risk ratings or external credit ratings. This alignment will allow banks to plot the migration of exposures in their credit rating systems with the migration of exposures in stages. It is therefore important for banks to document, define, and periodically review (at least annually or more frequently when required) their internal credit risk rating methodology to ensure consistency with changes in borrower and environmental credit risk characteristics.
v. Multiple exposures to the same borrower should be staged on an account￾by-account basis unless there are borrower specific factors that
demonstrate that all exposures should be categorized in the same stage. For example, a borrower with multiple exposures of which one or more exposures exhibit significant increase in credit risk or default would suggest that there is likely a contagion effect on the remaining exposures. The materiality of the exposure with significant increase in credit risk or default, in relating to the group of exposures, will impact its contagion on the remaining exposures. Therefore, banks should assess the likelihood of such contagion effect and separate staging only when there is demonstrative evidence that contagion is highly unlikely. For example, an exposure may have a separate repayment source for which repayment is likely or the exposure with significant increase in credit risk or default is immaterial based on the total exposure to the borrower. The same principle applies when the borrower has multiple exposures across several banks of which one or more exposures exhibit significant increase in credit risk or default. The bank should access the likelihood of such contagion effect on its own exposure if it has information that the borrower has one or more exposures in other banks that exhibit significant increase in credit risk or default. Such information may be revealed in the ongoing monitoring of an exposure through credit reference, bank reference, or other means of credit reporting. Significant increase in credit risk or default in one or more exposures in other banks may indicate a worsening financial condition or financial distress of the borrower to justify the bank to treat its exposure as having significant increase in credit risk even if the exposure is performing. If the significant increase in credit risk or default in one or more exposures in other banks are material and indicate an unlikeliness that the borrower will pay the bank‟s existing exposure then the bank should evaluate its exposure for credit impairment. (b) Upgrading Credit Exposures
i. It is not unusual for credit exposures to recover from adverse credit
conditions or experience improvements in their credit risk characteristics. This recovery or improvement can result in an upgrade in staging classification. Upgrading of credit facilities shall be in accordance with a

Guidance For Banks in Implementing IFRS 9 Financial Instruments Page 9 of 29 policy approved by the Board of Directors. Such upgradation shall be carried out by a department that is independent from the credit facility review mechanism.
ii. Credit exposures that were previously credit impaired and classified as
Stage 3,and at the time of ECL estimationare no longer assessed as impaired, may be upgraded to Stage 2, and credit exposures that were previously classified as Stage 2 may be upgraded to Stage 1, if all the following apply:
− All past due amounts have been repaid in full, and the exposure is no longer past due (not because of concessions granted); − The factors that initially contributed to deterioration in credit risk no longer exists; and − The exposure has been performing satisfactorily in accordance with the terms and conditions of the underlying agreement for a continuous period of90 days up to the time of the ECL estimation.
iii. The assessments supporting upgrading credit exposures must be
documented, justifiable, and available for Supervisory review.
iv. Multiple credit exposures to a single counterparty should be upgraded
when all credit exposures satisfy the requirements for upgrade.Banks may upgrade parts of the total exposure only where there is justifiable evidence to support upgrading those parts. This exception should be used only in limited circumstances.
4.5.3 Criteria for Significant Increase in Credit Risk (SICR)
(a) Criteria for SICR determine the migration of credit exposures from Stage 1 to Stage 2. The bank‟s criteria for determining SICR must be documented in the ECL framework. Annex B outlines the minimum triggers for significant increase in credit risk. Banks are expected to include their bank￾specific experiences. (b) The criteria should be reviewed and updated periodically (at least annually or more frequently when required). (c) Additionally, banks should implement processes and controls to ensure timely recognition and action at each reporting date, when SICR have occurred. This determination makes a difference between evaluating 12- month ECL (Stage 1) or Lifetime ECL (Stage 2) on credit exposures. (d) The documented criteria for SICR should be based on the bank‟s credit experience and experienced credit judgment and comprise both quantitative and qualitative criteria. The qualifying criteria should be like those utilized by the bank to identify credit exposures that require heightened credit risk monitoring or “watch list”. Banks should adjust the capacity of their credit

Guidance For Banks in Implementing IFRS 9 Financial Instruments Page 10 of 29 risk monitoring systems to timely identify exposures that meet the criteria for SICR. Such credit risk monitoring systems should have the capacity to identify whether the presence of SICR in one exposure is indicative of SICR in the related exposures. (e) IFRS 9 provides a rebuttable presumption that SICR occurs when payments are 30 days or more past due. If a bank selects a quantitative criterion greater than this backstop then the selection must be justified with relevant, appropriate, and documented evidence to support the selection. This exception should be used only in limited circumstances. (f) The criteria for SICR must be determined by the risk of default and not based on the risk of loss. Therefore, the presence of credit risk mitigants such as collateral does not mitigate the risk of default and should not be taken into consideration when evaluating SICR unless the exposure is collateral dependent.
4.5.4 Criteria for Credit Impairment
(a) Criteria for Credit Impairment determine whether exposures are categorized in Stage 3. The ECL framework should clearly define credit impairment, outline the methodology for estimating credit impairment, and identify triggers to cause the bank to test exposures for impairment. Such triggers are like those described in Annex C – Objective Evidence of Impairment. However, banks must develop their own criteria based on the nature and complexity of their credit risk exposures and credit environment, credit experience, and experienced credit judgement. (b) Credit impairment triggers must be reviewed and updated periodically (at least annually or more frequently when required). (c) The presence of a trigger does not indicate the presence of credit impairment. However, the presence of a trigger should lead to tests for credit impairment. Results of such tests should be maintained for supervisory review.
4.5.5 Definition and Treatment of Credit Forbearance
(a) Definition and treatment of credit forbearance influence the credit risk rating and classification or staging of forborne exposures. Credit forbearance occurs when a bank changes the terms and conditions of an existing credit agreement or substitutes an existing credit agreement with a new credit agreement, because of the financial difficulty of the borrower. The act of forbearance would not have been applied under normal conditions and as such was implemented to ease the financial difficulty of the affected borrower. The documented ECL framework should clearly define credit forbearance and evidence of borrowers‟ financial difficulty

Guidance For Banks in Implementing IFRS 9 Financial Instruments Page 11 of 29 that would cause the bank to extend forbearance. Changes in the terms and conditions of an existing credit agreement or substitution of an existing credit agreement with a new credit agreement for reasons other than the financial difficulty of the borrower or deterioration in the borrower‟s credit quality are not considered credit forbearance for the purposes of this Implementation Guidance. Annex D outlines an indicative and non￾exhaustive definition of credit forbearance. (b) Stage 1 credit exposures which have been forborne should migrate to Stage 2, as the act of forbearance would be the result of SICR. (c) Stage 2 credit exposures which have been forborne should be evaluated for impairment as if the forbearance did not occur. If the evaluations reveal that these exposures would have been impaired, then they should migrate to Stage 3. However, granting credit concessions to an entire class of financial instruments, for reasons including economic shock, may not automatically qualify as SICR or credit impairment to warrant staging migration. Such circumstances would be determined based on the bank‟s experienced credit judgement or tests for credit impairment. (d) Forborne exposures that were previously credit impaired and classified as Stage 3, and at the time of ECL estimation are no longer assessed as impaired under the revised terms and conditions, may be upgraded to Stage 2, and credit exposures that were previously classified as Stage 2 may be upgraded to Stage 1, if all the following apply:
− All past due amounts have been repaid in full, and the exposure is no longer past due, if it was previously past due; − The factors that initially contributed to forbearance no longer exists; and − The exposure has been performing satisfactorily (without any additional forbearance) in accordance with the revised terms and conditions for continuous 12 months up to the time of the ECL estimation and this period begins after any grace period extended as
part of the forbearance has expired.
(e) Banks should limit the number of credit forbearance that can be applied to any exposure within a specified period as per Bangladesh Bank‟s directives. This limitation must be documented in the ECL framework.
4.5.6 Criteria for Debt Write Off and Recovery
Criteria for Debt Write Off and Recovery should be explicitly documented in the ECL framework or otherwise in a separate Debt Write Off and Recovery policy embedded in the credit risk management policies following Bangladesh Banks directives. The Debt Write Off and Recovery policy, if separate, must be referenced in the documented ECL framework. Bank‟s debt write-off criteria should be based on their credit experience and experienced credit judgment.

Guidance For Banks in Implementing IFRS 9 Financial Instruments Page 12 of 29 A bank should write off financial instruments when it has no reasonable expectations of recovering the contractual cash flows in entirety or portions thereof. For example, a bank should write off 70% of an exposure to a financial instrument if it intends to enforce the related collateral and expects to recover no more than 30% and has no reasonable expectation to recover the remaining 70%.
4.5.7 ECL Measurement Framework
ECL Measurement Framework holistically describes the methodology for measuring ECL. The measurement framework should adequately describe the data and data requirements, model assumptions (and scenarios, if any), model inputs including forward looking information, model design, ECL computational framework, model output, model performance tests, model validation requirements, and ECL reporting mechanisms. An effective internal control environment must permeate the framework. Section 5 of this Implementation Guidance provides more details on the minimum requirements for an effective ECL measurement framework.
5. ECL Measurement Framework
5.1 Banks must adopt, document, and implement an appropriate ECL measurement
methodology that adequately reflects the nature, size, and risk complexity of their credit portfolios. Accordingly, banks should engage a robust ECL model framework that will produce adequate ECL estimates that appropriately reflect the expected credit losses of their credit portfolios.
5.2 ECL estimates are the results of financial models adopted to estimate ECL on credit
portfolios. These models range from simple to more complex. However, the degree of model complexity must be consistent and appropriate with the measurement framework documented and proportionate to the size and complexity of the bank. The appropriateness of a model should be considered as more important model characteristic than complexity.
5.3 Financial models utilized to estimate ECL are extremely data sensitive. Therefore,
banks should evaluate their data collection, management, and storage capacity to ensure that model data is accurate, adequate, and complete. Historical credit data should be multi-year and multi-credit cycle to ensure it adequately captures likely credit risk patterns, trends, and drivers. Banks shall use no less than 5 years of historical credit risk data. Absent data can be substituted with appropriate and relevant proxies. Justification for the choice of proxies must be well documented and available for supervisory review. The use of proxies must be temporary until the bank collects the actual data. Credit risk data must be updated and reviewed at least quarterly or when ECL estimation occurs more frequently.
5.4 Banks may elect to internally develop, externally procure, or acquire from their
overseas parent company or Head Office, a financial model to estimate ECL. Irrespective of the model design, consideration should be given to the extent to which

Guidance For Banks in Implementing IFRS 9 Financial Instruments Page 13 of 29 the model can be integrated with bank‟s core banking systems especially for ease of data extraction. If models are expected to be maintained separately, then consideration must be given to the medium and controls for effective data extraction and transfer to the financial models. Also, further consideration should be given to the flexibility of the model and capacity to adapt to future changes in credit risk complexities and strategies.
5.4.1 Banks that elect to develop their financial models internally should ensure that
they possess the requisite competencies and expertise to develop such models. If the expertise is outsourced to consultants, bank management shall remain accountable to understanding and articulating the model methodology.
5.4.2 Banks that elect to externally procure financial models should ensure that such
models are customized based on the nature, complexity, and unique characteristics of their credit risk data, credit portfolios, and credit environments, and credit experience, and are therefore fit for purpose. These banks should also ensure that they possess the requisite competencies and expertise to facilitate effective model implementation. These minimum requirements ensure that model estimates reflect the uniqueness of banks‟ credit risk portfolios and credit experience. However, bank management shall be able to understand and articulate the model methodology for procured financial models.
5.4.3 Banks that adopt their financial models from their overseas parent company or
Head Office should ensure that such models are customized based on the nature, complexity, and unique characteristics of the local Branches credit risk data, credit portfolios, credit environments, and credit experience. These banks should also ensure that they possess the requisite competencies, expertise, and authority to interrogate model estimates and model frameworks. Nevertheless, bank management shall be able to understand and articulate the model methodology and be aware of model limitations.
5.5 There is no one-type fits all financial model for estimating ECL for all banks.
Therefore, the bank must select appropriate and relevant model inputs (for example probability of default, loss given default, exposure at default, historical loss rates) that must be clearly defined in its ECL framework. Additionally, the measurement methodology for each input should also be clearly documented in the framework.
5.6 Model inputs may be subject to management overlays based on the bank‟s experienced
credit judgment. Management overlays, when utilized, must be reasonable, relevant, and appropriate, and the justification supporting the use of overlays must be documented for supervisory review. Overlays should be approved by the board of directors. The definition of materiality and the criteria for overlays to be referred for board approval should be documented in the ECL framework. The reasons for management overlays should be integrated in future model inputs to minimize future use and frequency of overlays.

Guidance For Banks in Implementing IFRS 9 Financial Instruments Page 14 of 29
5.7 It is highly likely that ECL models will be driven by key assumptions which will be
integrated into model inputs. Model assumptions must be relevant, reasonable, appropriate, and reflect the bank‟s experienced credit judgment. Model assumptions should be unbiased and not overly optimistic or pessimistic. Model assumptions must be documented in the ECL framework and subject to periodic review and update (at least annually or more frequently when required).
5.8 Forward Looking Information (FLI)
5.8.1 Model inputs must reflect historical, current, and Forward-Looking Information
(FLI). Banks should utilize no less than 5 years of historical data.
5.8.2 FLIs should incorporate macroeconomic variables that are appropriate and
relevant in determining ECL of banks‟ credit portfolios. Banks should identify and document FLIs that are incorporated in their ECL estimates. This information can be derived internally or externally sourced.
5.8.3 Banks should document the methodology and provide evidence to support their
derivation of internally generated FLIs or externally sourced FLIs from credible sources that are known to produce expert estimates.
5.8.4 Banks should avoid biased selection of sources from which the use of their FLIs
is for the sole purpose of underreporting their ECL estimates. As a result, any change in information sources from one reporting period to the next must be justified and documented for supervisory review.
5.8.5 Banks that internally derive their FLIs must have the competencies and
expertise to do so.
5.8.6 The relevance of selected FLIs should be assessed periodically (at least
quarterly or more frequently when required) to determine whether they remain consistent influencers or credit risk drivers.
5.9 Banks using a probability weighted approach in determining their ECL estimates
should consider at least 3 scenarios (for example, worst case, normal, and best case). Probability assessments and measurements must be well documented and subject to supervisory review.
5.10 Banks may estimate ECL on groups of credit exposures. For such purposes, groups
must be formed based on common/shared credit risk characteristics. Such characteristics must permeate the respective groups that are created such that changes in those characteristics should affect the ECL estimate of the group. Such characteristics may include collateral type, product type, customer type, market segment, borrower characteristics, etc. Common/shared credit risk characteristics of groups of credit exposures must be reviewed periodically (at least annually or more frequently when required) to determine whether their presence remain as a common

Guidance For Banks in Implementing IFRS 9 Financial Instruments Page 15 of 29 credit risk driver and the group remains relevant. Otherwise, the group of credit exposures must be adjusted.
5.11 Banks are required to estimate ECL on a quarterly basis or more frequently when they
have the capacity to do so. ECL estimates may be subject to management overlays based on its experienced credit judgment. Management overlays, when utilized, must be reasonable, relevant, and appropriate, and their justifications must be documented for supervisory review.
5.12 Model Performance Test
5.12.1 Banks should periodically evaluate the performance of their ECL models. Model
performance tests must be conducted at least annually or more frequently when required.
5.12.2 The documented ECL frameworks should clearly describe the types of model
performance tests to be conducted and specify minimum benchmarks or standards for test results.
5.12.3 The results of model performance tests should be shared with the board of
directors and timely actioned to ensure improved model performance. Model results should be documented to facilitate tracking. The results of model performance tests should also be available for supervisory review.
5.12.4 Banks may elect to adopt any model testing technique if this technique is
determined to be robust and consistent with the characteristics and complexity of their ECL measurement frameworks.
5.12.5 There is no requirement for personnel performing model performance tests to be
independent of the model development, implementation, and estimation processes.
5.12.6 The frequency, methodology, and reporting results of model performance tests
must be documented in the ECL framework.
6. ECL Model Validation Framework
6.1 Banks are required to validate their model frameworks at least annually or more
frequently when required. However, Banks must validate their model after initial model development within 2027.
6.2 Model validation involves an independent review of the bank‟s entire model framework
to determine its robustness, comprehensiveness, and appropriateness to produce adequate ECL estimates considering the nature, size, and complexity of its credit risk exposures and credit risk experience.

Guidance For Banks in Implementing IFRS 9 Financial Instruments Page 16 of 29
6.3 The validation process not only verifies that the model framework is fit for purpose, but
also that it is performing as intended, and is consistent with IFRS 9 and this Implementation Guidance.
6.4 The scope for the validation process encompasses the breadth of the model framework
including the model data, assumptions, inputs, design, computation, output, performance, governance, and controls.
6.5 The model validation process and methodology must be documented and updated
periodically (at least annually or more frequently when required).
6.6 Model validators must be competent and possess relevant professional experience and
expertise to perform the validation exercise.
6.7 Any engagement with model validators should clearly specify contractually that they
are also accountable to Bangladesh Bank in their validation function.
6.8 Model validators must not be involved in the development of the model.
6.9 Banks must notify Bangladesh Bank prior to the engagement of model validators to
determine whether Bangladesh Bank objects to the appointment. The notification must be accompanied by evidence of the validator‟s competence and professional experience.
6.10 The results of model validation exercises should be shared with the board of directors
and recommendations for improvements should be timely actioned to ensure the adequacy of ECL estimates.
6.11 The results of the model validation exercise should also be submitted to Bangladesh
Bank by the model validators no later than 30 days after completing the exercise.
6.12 Banks will have an additional 30 days to submit an action plan to Bangladesh Bank to
remediate deficiencies identified or adopt the recommendations made by the model validator.
6.13 Banks shall submit periodic progress reports which track its progress to satisfy the
agreed upon resolution deadline. The frequency or deadline for submission of progress reports will be determined by Bangladesh Bank on a case-to-case basis depending on the severity of the deficiencies.
6.14 The frequency and reporting of results of model validation exercises must be
documented in the ECL framework.

Guidance For Banks in Implementing IFRS 9 Financial Instruments Page 17 of 29
7. Interest Recognition
Banks shall recognize interest on Stage 1 and Stage 2 exposures based on the interest revenue calculated on the gross carrying amount (i.e. without deducting expected credit losses) on Stage 1 and Stage 2 exposures. While, interest income on Stage 3 exposures shall be calculated on the net carrying amount (i.e. after deducting expected credit losses on Stage 3 exposures.
8. Disclosure Requirements
8.1 Banks will be required to comply with disclosure requirements under IFRS 7 –
Financial Instruments: Disclosures.
8.2 Banks must submit a statement of changes of their opening and closing ECL allowance
balances at the end of each quarter, to Bangladesh Bank no later than 30 days after each quarter.
8.3 The statement of changes must clearly illustrate the deterioration and up gradation of
credit exposures between stages, write off of uncollectible exposures, recovery of written off uncollectible exposures, model adjustments, or any other factor that contributed to the change in ECL allowance during the quarter. Reporting templates are provided in Annex E.
8.4 Banks must submit a reconciliation of their ECL Allowance to their regulatory
provisions to clearly identify additional regulatory provisions. Additional regulatory provisions must be calculated based on Section 9 of this Implementation Guidance. Reporting templates are provided in Annex F.
8.5 Bangladesh Bank may specify other disclosure requirements from time to time.
9. Temporary Treatment of Differences between ECL Allowance and Regulatory
Provision
9.1 Banks should maintain the higher of IFRS 9 ECL allowance and regulatory provision
(estimated under BRPD Circular No. 15 Master Circular: Loan Classification and Provisioning and its subsequent modifications) for loans and off-balance sheet credit losses as follows, until advised otherwise by Bangladesh Bank:
i. If IFRS 9 ECL allowance is greater than regulatory provisions, then banks should
maintain their ECL allowance in accordance with IFRS 9.
ii. If IFRS 9 ECL allowance is less than regulatory provisions, then banks should
maintain their ECL allowance in accordance with IFRS 9 and the additional provisions needed to meet regulatory requirement should be included in a Loan Loss Reserve account that is treated as a component of shareholders' equity.

Guidance For Banks in Implementing IFRS 9 Financial Instruments Page 18 of 29
9.2 The Loan Loss Reserve is an equity account that is funded through the appropriation of
retained earnings. It should not be treated as an expense in the income statement. The Loan Loss Reserve account should be maintained as a non-distributable reserve and as such is not available for distribution as dividends to shareholders. Any reduction in the Loan Loss Reserve account caused by a reduction in regulatory provisions should be transferred to retained earnings and should not be reflected in the income statement.
9.3 Annex G provides an illustrative example of this treatment.
10. Transitional Arrangements
10.1 Calculation of Regulatory Capital
10.1.1 Banks may elect to use the following transitional arrangements to minimize the
Day 1 impact of adopting IFRS 9 ECL provisions on retained earnings and ultimately Common Equity Tier 1 (CET1) Capital.
10.1.2 Banks are permitted to adopt a static approach when adjusting the impact of
any unamortized DAY 1 IFRS 9 ECL provision on CET1 Capital due to the impact on retained earnings. Banks shall amortize this impact of DAY 1 IFRS 9 ECL provisions on CET1 Capital over 5 years from the initial date of adopting IFRS 9. As such, banks will add back any unamortized DAY 1 IFRS 9 ECL provisions annually to their CET1 Capital based on the following:
Year % of Impact to add back to
CET1 Capital
1 95%
2 85%
3 70%
4 50%
5 25%
6 & Onwards 0%
10.1.3 Annex H provides an illustrative example.
10.1.4 Bank that elects to opt out of the transitional arrangements at the time of
adopting IFRS 9 will not be permitted to adopt such arrangements at a later date.
10.2 Calculation of Credit Risk-weighted Assets
Since IFRS 9 does not distinguish between specific and general provisions, ECL provisions on Stages 1 and 2 exposures should be treated as general provisions, and ECL provisions on Stage 3 exposures should be treated as specific provisions, for regulatory capital purposes. A bank‟s computation of credit risk weighted assets will remain unchanged i.e., specific provisions netted against the exposure when determining credit risk weighted assets and general provisions are in included in Tier 2 capital.

Guidance For Banks in Implementing IFRS 9 Financial Instruments Page 19 of 29
10.3 Disclosure Requirements related to Regulatory Capital
10.3.1 Banks should disclose their regulatory capital components without the
transitional arrangements, and after the transitional adjustments. This permits a comparison between regulatory capital components to demonstrate the effect of the transitional arrangements.
10.3.2 Similarly, Banks should also calculate their capital adequacy metrics such as
CET1, Tier 1, Tier 1 Leverage, and Total Regulatory Capital ratios, based their CET1 capital after the transitional adjustments. All related regulatory capital decisions should be based CET1 capital after the transitional adjustments until the transitional arrangements expire.

Guidance For Banks in Implementing IFRS 9 Financial Instruments Page 20 of 29 ANNEXES
ANNEX A – INDICATORS OF UNLIKELINESS TO PAY
Paragraph 36.69 of the Basel Framework states that (any one of) the elements to be taken as indications of unlikeliness to pay include:

1. The bank puts the credit obligation on non-accrued status.
2. The bank makes a charge-off or account-specific provision resulting from a significant
   perceived decline in credit quality subsequent to the bank taking on the exposure.
3. The bank sells the credit obligation at a material credit-related economic loss.
4. The bank consents to a distressed restructuring of the credit obligation where this is likely to
   result in a diminished financial obligation caused by the material forgiveness, or postponement, of principal, interest or (where relevant) fees.
5. The bank has filed for the obligor‟s bankruptcy or a similar order in respect of the obligor‟s
   credit obligation to the banking group.
6. The obligor has sought or has been placed in bankruptcy or similar protection where this
   would avoid or delay repayment of the credit obligation to the banking group.

Guidance For Banks in Implementing IFRS 9 Financial Instruments Page 21 of 29
ANNEX B – MINIMUM INDICATORS OF SIGNIFICANT INCREASE IN CREDIT RISK

1. Significant changes in internal price indicators of credit risk as a result of a change in
   credit risk since inception.
2. Other changes in the rates or terms of an existing financial instrument that would be
   significantly different if the instrument was newly originated or issued at the reporting date (such as more stringent covenants, increased amounts of collateral or guarantees, or higher income coverage) because of changes in the credit risk of the financial instrument since initial recognition.
3. Significant changes in external market indicators of credit risk for a particular financial
   instrument or similar financial instruments with the same expected life.
4. An actual or expected significant change in the financial instrument‟s external credit
   rating.
5. An actual or expected internal credit rating downgrade for the borrower or decrease in
   behavioural scoring used to assess credit risk internally. Internal credit ratings and internal behavioural scoring are more reliable when they are mapped to external ratings or supported by default studies.
6. Existing or forecast adverse changes in business, financial or economic conditions that
   are expected to cause a significant change in the borrower‟s ability to meet its debt obligations, such as an actual or expected increase in interest rates or an actual or expected significant increase in unemployment rates.
7. An actual or expected significant change in the operating results of the borrower.
   Examples include actual or expected declining revenues or margins, increasing operating risks, working capital deficiencies, decreasing asset quality, increased balance sheet leverage, liquidity, management problems or changes in the scope of business or organizational structure (such as the discontinuance of a segment of the business) that results in a significant change in the borrower‟s ability to meet its debt obligations.
8. Significant increases in credit risk on other financial instruments of the same borrower.
9. An actual or expected significant adverse change in the regulatory, economic, or
   technological environment of the borrower that results in a significant change in the borrower‟s ability to meet its debt obligations, such as a decline in the demand for the borrower‟s sales product because of a shift in technology.
10. Significant changes in the value of the collateral supporting the obligation or in the
    quality of third-party guarantees or credit enhancements, which are expected to reduce the borrower‟s economic incentive to make scheduled contractual payments or to otherwise have an effect on the probability of a default occurring.

Guidance For Banks in Implementing IFRS 9 Financial Instruments Page 22 of 29
11. A significant change in the quality of the guarantee provided by a shareholder (or an
individual‟s parents) if the shareholder (or parents) have an incentive and financial ability to prevent default by capital or cash infusion.
12. Significant changes, such as reductions in financial support from a parent entity or other
affiliate or an actual or expected significant change in the quality of credit enhancement, that are expected to reduce the borrower‟s economic incentive to make scheduled contractual payments.
13. Expected changes in the loan documentation including an expected breach of contract
that may lead to covenant waivers or amendments, interest payment holidays, interest rate step-ups, requiring additional collateral or guarantees, or other changes to the contractual framework of the instrument.
14. Significant changes in the expected performance and behaviour of the borrower,
including changes in the payment status of borrowers in the group (for example, an increase in the expected number or extent of delayed contractual payments or significant increases in the expected number of credit card borrowers who are expected to approach or exceed their credit limit or who are expected to be paying the minimum monthly amount).
15. Changes in the entity‟s credit management approach in relation to the financial
instrument; i.e. based on emerging indicators of changes in the credit risk of the financial instrument, the entity‟s credit risk management practice is expected to become more active or to be focused on managing the instrument, including the instrument becoming more closely monitored or controlled, or the entity specifically intervening with the borrower.
16. Past Due information including the rebuttable presumption.
17. A significant change in the geographical locations or natural catastrophes that directly
impact the performance of a customer/group of customers or an instrument.
18. The borrower is subject to litigation that significantly affects the performance of the
credit facility.
19. The borrower is deceased.
20. Bank is unable to contact or find the borrower.
21. Unavailable/inadequate financial information/financial statements.
22. If the credit facilities are not utilized properly.
23. Fund diversion.

Guidance For Banks in Implementing IFRS 9 Financial Instruments Page 23 of 29
ANNEX C – OBJECTIVE EVIDENCE OF IMPAIRMENT
According to IAS 39 Financial Instruments: Recognition and Measurement objective evidence of impairment refers to „observable data‟ regarding the impact of the occurrence of one or more loss events on the estimated future cash flows of a financial instrument or group of financial instruments. The impact on estimated future cash flows can be “reliably estimated”. Banks may use their experienced credit judgement when estimating the impact of loss events on future cash flows. This judgment does not minimize the reliability of the estimate if it is justifiable. Loss events must occur after initial recognition of the financial instrument and should not include future loss events despite their likelihood of occurrence. Loss events may include:

1. Significant financial difficulty of the borrower. A credit rating downgrade of a borrower
   may not be considered evidence of impairment unless aggregated with other information;
2. A breach of contract, such as a default or delinquency in interest or principal payments;
3. Granting concession to the borrower due to its financial difficulty;
4. It becoming probable that the borrower will enter bankruptcy or other financial
   reorganization; or
5. Observable data indicating that there is a measurable decrease in the estimated future
   cash flows from a group of financial instruments since the initial recognition of those instruments, although the decrease cannot yet be identified with the individual financial instruments in the group, including:
   i. Adverse changes in the payment status of borrowers in the group (for example, an
   increased number of delayed payments or an increased number of credit card borrowers who have reached their credit limit and are paying the minimum monthly amount); or
   ii. National or local economic conditions that correlate with defaults on the financial
   instruments in the group (for example, an increase in the unemployment rate in the geographical area of the borrowers, a decrease in property prices for mortgages in the relevant area, a decrease in oil prices for loan assets to oil producers, or adverse changes in industry conditions that affect the borrowers in the group).

Guidance For Banks in Implementing IFRS 9 Financial Instruments Page 24 of 29
ANNEX D – DEFINITION OF CREDIT FORBEARANCE
According to the Basel Committing on Banking Supervision, credit forbearance occurs when:
a) A borrower is experiencing financial difficulty at the time the forbearance is to be granted; and b) A bank grants a concession that it would not otherwise consider. A concession refers to any change in the conditions of an existing credit agreement by giving more favorable terms to a borrower; granting a supplementary agreement or new contract to refinance the current exposure; or allowing the borrower to exercise a contractual right to change any term or condition of the existing agreement, obtain additional loans, or off-balance sheet credits because of their financial difficulty. Indicators of financial difficulty The Basel Committee on Banking Supervision cites the following as examples of indicators of financial difficulty:

1. A borrower is currently past due on any of its material exposures.
2. A borrower is not currently past due, but it is probable that the borrower will be past due
   on any of its material exposures in the foreseeable future without the concession, for instance, when there has been a pattern of delinquency in payments on its material exposures.
3. A borrower‟s outstanding securities have been delisted, are in the process of being
   delisted, or are under threat of being delisted from an exchange due to non-compliance with the listing requirements or for financial reasons.
4. If, based on actual performance and estimated and projections of the borrower‟s current
   capabilities, the bank forecasts that all the borrower‟s committed/available cash flows will be insufficient to service all its loans or debt securities (both interest and principal) in accordance with the contractual terms of the existing agreement for the foreseeable future.
5. A borrower‟s existing exposures are categorized as exposures that have already
   evidenced difficulty repaying in accordance with regulatory credit risk classification criteria in force or the bank‟s internal credit rating system.
6. A borrower is in non-performing status or would be categorized as non-performing
   without concessions.
7. The borrower cannot obtain funds from sources other than the existing bank at an
   effective interest rate equal to the current market interest rate for similar loans or debt securities for a non-troubled counterparty. This list is not intended to be exhaustive.

Guidance For Banks in Implementing IFRS 9 Financial Instruments Page 25 of 29 Examples of concessions The Basel Committee on Banking Supervision cites the following as examples of concessions that could be granted to a borrower experiencing financial difficulty:

1. Extending the loan term;
2. Rescheduling the dates of principal or interest payments;
3. Granting new or additional periods of non-payment (grace period);
4. Reducing the interest rate, resulting in an effective interest rate below the current interest
   rate that counterparties with similar risk characteristics could obtain from the same or other institutions in the market;
5. Capitalizing arrears;
6. Forgiving, deferring or postponing interest or relevant fees;
7. Changing an amortizing loan to an interest payment only;
8. Releasing collateral or accepting lower levels of collateralization;
9. Allowing the conversion of debt to equity of the counterparty;
10. Deferring recovery/collection actions for extended periods of time; and
11. Easing of covenants.
    This list is not intended to be exhaustive.

Guidance For Banks in Implementing IFRS 9 Financial Instruments Page 26 of 29
ANNEX E – STATEMENT OF CHANGES OF ECL ALLOWANCE ON CREDIT FACILITIES
STAGE 1 Provisions STAGE 2 Provisions STAGE 3 Provisions Total ECL Provisions 12-month ECL Lifetime ECL Lifetime ECL ECL Allowance as of 1 January 20-XX Transfers:
From Stage 1 to Stage 2
From Stage 1 to Stage 3
From Stage 2 to Stage 3
From Stage 3 to Stage 2
From Stage 3 to Stage 1
From Stage 2 to Stage 1
Newly originated or purchased Loans,
Increase in exposure
Loan repayments
Loans derecognized
Changes in model parameters
Changes due to management overlays
Changes in foreign exchange rate
(FX related exposures)
ECL Allowance as of 31 March 20-XX

Guidance For Banks in Implementing IFRS 9 Financial Instruments Page 27 of 29
ANNEX F – RECONCILIATION OF ECL ALLOWANCE AND REGULATORY PROVISION
ON CREDIT FACILITIES
TOTAL
Regulatory Provisions as of 1 January 20-XX
Specific Provisions:
Substandard
Doubtful
Bad/Loss
Total Specific Provisions
General Provisions:
Standard
Non-funded facilities
Total General Provisions
Total Regulatory Provisions (A)
ECL Allowance as of 1 January 20-XX
Stage 1 ECL Allowance
Stage 2 ECL Allowance
Stage 3 ECL Allowance
Total ECL Allowance (B)
Loan Loss Reserve [Max (A – B; 0)]

Guidance For Banks in Implementing IFRS 9 Financial Instruments Page 28 of 29
ANNEX G – ILLUSTRATIVE EXAMPLE OF TEMPORARY TREATMENT OF DIFFERENCES
BETWEEN ECL ALLOWANCE AND REGULATORY PROVISION Scenario 1: When IFRS 9 ECL Allowance is greater than Regulatory Provision for Credit Losses On January 1, 20-XX, Bank A had IFRS 9 ECL Allowance of BDT 63 billion on funded facilities and BDT 2 billion on non-funded facilities. Bank A also had regulatory provision of BDT 61 billion (aggregate of funded and non-funded facilities). On March 31, 20-XX, Bank A estimated IFRS 9 ECL Allowance of BDT 65 billion on funded facilities and BDT 2.5 billion on non-funded facilities. Bank A also estimated regulatory provision of BDT 64 billion (aggregate of funded and non-funded facilities). Accounting Treatment on March 31, 20-XX: Bank A should maintain the higher of the two provision standards which is IFRS 9 ECL Allowance of BDT 67.5 billion. No Loan Loss Reserve is required since IFRS 9 ECL Allowance exceeds regulatory requirement. BDT billion BDT billion ECL Provision expense 2.5 ECL Allowance – Loans and Advances 2.0 ECL Allowance – Other Liabilities (non-funded facilities) 0.5 [To comply with IFRS 9 requirement] Scenario 2: When IFRS 9 ECL Allowance is less than Regulatory Provision for Credit Losses On January 1, 20-XX, Bank A had IFRS 9 ECL Allowance of BDT 63 billion on funded facilities and BDT 2 billion on non-funded facilities. Bank A also had regulatory provisions of BDT 61 billion (aggregate of funded and non-funded facilities). On March 31, 20-XX, Bank A estimated IFRS 9 ECL Allowance of BDT 65 billion on funded facilities and BDT 2.5 billion on non-funded facilities. Bank A also estimated regulatory provisions of BDT 69 billion (aggregate of funded and non-funded facilities). Accounting Treatment on March 31, 20-XX: Bank A should maintain the higher of the 2 provision standards which is regulatory provision of BDT 69 billion. Bank A must continue to comply with IFRS 9 but must also account for the regulatory provision shortfall (Loan Loss Reserve). The regulatory provision shortfall arises from regulatory provision exceeding IFRS 9 ECL Allowance. BDT billion BDT billion ECL Provision expense 2.5 ECL Allowance – Loans and Advances 2.0 ECL Allowance – Other Liabilities (non-funded facilities) 0.5 [To comply with IFRS 9 requirement] Retained Earnings 1.5 Loan Loss Reserve (i.e., BDT 69 billion – BDT 67.5 billion) 1.5 [To comply with regulatory provision requirement shortfall]

Guidance For Banks in Implementing IFRS 9 Financial Instruments Page 29 of 29
ANNEX H – ILLUSTRATIVE EXAMPLE OF TRANSITIONAL ARRANGEMENTS
Bank A has CET1 capital of 70,000 and credit loss provisions of 1,200 as of December 31, 20-X0, prior to adopting IFRS 9. Bank A requires IFRS 9 expected credit loss provisions at the point of transition on January 1, 20X1, of 1,500. Thereafter ECL provisions increases to 1,800, 2,050, 2,250, 2,400, and 2,425 over the next 5 years. Suppose that, Bank A‟s tax rate is 25%. The bank is permitted to transition the impact of DAY 1 IFRS 9 provisions for regulatory capital adequacy purposes over the next 5 years.

1. Fully Loaded impact on CET1 Capital at the point of transition:
   CET1
   Capital
   Description
   CET1 capital as of 31 December 20X0 70,000
   Impact on retained earnings from adopting
   IFRS 9 (1,500 - 1,200)
   (300) Reduction in retained earnings
   Deferred tax asset resulting from the impact on retained earnings (300 * 0.25) 75 Resulting from a temporary difference between expected (IFRS 9) and incurred loss (tax) provisions (225) IFRS 9 DAY 1 Impact on regulatory Capital resulting from the impact on retained earnings CET1 capital as of 1 January 20X1 69,775* Fully loaded CET1 Capital

• Since this is an illustration, deferred tax adjustments have not been considered for simplicity. Bank should follow BB directives on
  deferred tax adjustments while calculating CET1 capital.

2. Transitional impact on CET1 Capital over regulatory-specified period:
   IFRS 9 Provision at Reporting date
   (A)
   Fully loaded CET1 Capital
   [B=Bt-1– (A – At-1) * 0.75]
   Transition relief over 5 years
   (C)
   Transition adjustment added back to CET1 capital (D = 225 * C) CET1 Capital after transition adjustment (E = B + D) January 1, 20X1 1,500 69,775.00 95% 213.75 69,988.75 January 1, 20X2 1,800 69,550.00 85% 191.25 69,741.25 January 1, 20X3 2,050 69,362.50 70% 157.50 69,520.00 January 1, 20X4 2,250 69,212.50 50% 112.50 69,325.00 January 1, 20X5 2,400 69,100.00 25% 56.25 69,156.25 January 1, 20X6 2,425 69,081.25 0% 0 69,081.25