BRPD Circular No. 04: Policy on Loan/Investment Write off and Formation of Written off Loan Recovery Unit and its Functions

Bangladesh Bank Chief Executive Office Motijheel, Dhaka-1000 Bangladesh. Ref No: BRPD-HO-Regulation & Policy-04-2024 Banking Regulation and Policy Department 18 February 2024 BRPD Circular No. 04 Date: ------------------- 05 Falgun 1430 Managing Directors / Chief Executive Officers All Scheduled Banks operating in Bangladesh Dear Sir, Policy on Loan/Investment Write off (DOR) and Formation of Written off Loan Recovery Unit and its Functions for Strengthening Recovery Operations

As part of the bank's loan risk management, non-performing loan accounts must be classified as adverse according to existing regulations and provisions must be maintained at the prescribed rate against them. Since such non-performing loans over a long period are shown in the balance sheet, the size of the bank's balance sheet becomes unnecessarily inflated. In this context, those loans classified as bad and loss are written off following a specific method, which is an internationally recognized practice. Since it is necessary to maintain the required provision against the balance of write-off eligible loans, there will be no adverse impact on the bank's loan risk management. However, since the bank's rights remain intact over the written-off loans, the bank's Chief Executive Officer must be directly involved in the recovery operations.

In light of this, to implement the declared strategy (JDS) for the country's banking sector, following international best practices, and to give highest priority and take effective action for the write-off of non-performing loan accounts and recovery of written-off loans, the following guidelines shall be followed:

2. Identification of Write-off Eligible Loan Accounts: (1) Loan accounts that have been classified as bad and loss for 02 (two) consecutive years shall be written off; and (2) Regardless of the loan classification, any loan account taken in the name of a deceased person or in the name of an enterprise solely owned by him/her may be written off at the bank's discretion. However, in the case of a sole proprietorship, it must be considered whether the deceased person has a financially viable heir.

3. Loan Account Write-off Procedure: (1) If efforts are made to sell the mortgaged property (if any) in favor of the bank according to regulations, and if the bank is unable to recover the dues from the guarantor(s), such loans will fall under the write-off category; (2) For loan accounts selected for write-off, if legal action has not been initiated previously, a lawsuit must be filed in accordance with the Debt Recovery Court Act, 2003, prior to write-off. However, if the loan is not mandatorily actionable under the Debt Recovery Court Act, 2003, loans up to 5,00,000.00 (Five Lakh) Taka and any amount of loans taken in the name of a deceased person or in the name of an enterprise solely owned by him/her may be written off without filing a lawsuit; (3) Prior to write-off, after deducting only the suspended interest retained in the balance of the respective loan account, a provision equivalent to the remaining loan balance must be maintained. In this regard, if the provision maintained against each identified loan account for write-off is insufficient, the bank must ensure the maintenance of the remaining provision by adjusting the current year's income; (4) No loan account may be written off partially; and (5) No loan account may be written off without the approval of the Board of Directors (in the case of foreign banks operating in Bangladesh, the approval of the highest local authority in place of the Board of Directors).

4. Recovery and Monitoring of Written-off Loans: (1) The bank's claim on the respective loan shall remain valid even after write-off in accordance with Section 28(C) of the Companies Act, 1991. Legal proceedings for the recovery of such written-off loans must be continued after write-off; (2) A separate unit named 'Written Off Loan Recovery Unit' (in the case of Islamic Shariah-based banks, 'Written Off Investment Recovery Unit') must be established at the Chief Executive Office under the direct supervision of the bank's Managing Director or Chief Executive Officer; (3) One officer not below the rank of 2 (two) levels below the Managing Director or Chief Executive Officer must be appointed as the head of the Written Off Loan Recovery Unit; (4) Skilled and experienced officers in loan sanctioning operations, loan documentation, and loan recovery must be posted in the said unit. However, arrangements must be made to post at least 01 (one) officer with a degree in law in this unit. One suitable officer from the branch/department whose written-off loan recovery operations will be taken up must be attached to the recovery operations; (5) Upon appointment/re-appointment of the bank's Managing Director or Chief Executive Officer, the responsibilities related to the recovery of written-off loans must be included in the Job Description (JD) of the said post; (6) In the case of re-appointment of the bank's Managing Director or Chief Executive Officer, their capability/annual recovery target achievement will be considered as one of the criteria for performance; (7) Monthly meetings must be organized by the Written Off Loan Recovery Unit under the chairmanship of the Managing Director or Chief Executive Officer regarding the progress of written-off loan recovery. Decisions taken in the meetings must be recorded in minutes; (8) Progress reports on the recovery of written-off loans must be presented at the bank's Board of Directors meeting quarterly; (9) To ensure the speedy settlement of lawsuits filed for the recovery of the bank's dues, skilled lawyers experienced in handling non-performing loan recovery cases and other legal measures must be engaged; (10) The Managing Director or Chief Executive Officer shall maintain close coordination with the bank's legal department officers and legal retainers for the recovery of written-off loans; (11) The formation of the Written Off Loan Recovery Unit and notification to this office must be done within 15 days of the issuance of this circular. In addition, within 30 days of the unit's formation, the required number of officers must be posted in the said unit; (12) 5% of the amount recovered against written-off loans or incentives equivalent to that amount shall be distributed among the officers involved in the recovery of written-off loans. The maximum 10% of the distributable amount shall be receivable by the bank's Managing Director/Chief Executive Officer. The remaining amount shall be receivable by the head of the Written Off Loan Recovery Unit and other officers of the said unit. In addition, officers directly involved in the branch/department where the written-off loan recovery will be done will be entitled to incentives in a proportional rate similar to the unit's officers; and (13) If an Asset Management Company is established in the future, written-off loans may be sold while protecting the bank's interests. In that case, the amount received against the sale must be transferred to the bank's income account.

5. Reporting Procedure for Written-off Loan Accounts: (1) Accounts of written-off loans must be maintained in a separate ledger and reported in the bank's financial statements according to the 'Instructions for Preparation of Financial Statements' in the Schedule III of the Companies Act, 1991 (amended up to 2023); (2) Even if the loan is written off, the respective borrower will be identified as a non-performing borrower according to regulations until he/she does not pay off the loan liability. Information on written-off loan accounts must be reported as NPL to the Credit Information Bureau (CIB) of Bangladesh Bank as usual; (3) Information regarding loan write-off must be submitted to Bangladesh Bank through the 'BRPD-HO-Regulation & Policy-04-2012' template using the designated format of the Banking Regulation and Policy Department of Bangladesh Bank on a monthly basis according to the instructions of BRPD Circular No. 04 dated 25 January 2012; and (4) The progress report on written-off loan recovery (according to the format mentioned in Appendix-'A') must be submitted to the Banking Regulation and Policy Department within 10 days of the following month on a monthly basis, countersigned by the authorized officer of the Written Off Loan Recovery Unit and the bank's Chief Executive Officer or, in the absence of the Chief Executive Officer, the officer currently in charge;

6. Other Regulations: (1) Written-off loan accounts cannot be rescheduled or restructured. However, a repayment schedule can be determined only under the 'Restructuring of Non-Performing Loans' guidelines. However, the respective borrower will be reported as a non-performing borrower in the CIB according to regulations until the loan liability is fully paid off, and such loan/investment accounts will remain classified as bad and loss (NPL in CIB); and (2) Loans taken in the name of a bank director or an enterprise with interest to him/her during his/her tenure as a director generally cannot be written off. However, if there is a need to write off any loan account due to the death of such a customer or other reasons, the bank's Internal Audit Department must submit a report clearly stating the actual reason for the write-off after auditing. After review of the said report, along with the opinion of the Head of Internal Control and Compliance (HICC), approval must be obtained from the bank's Board of Directors. In addition, for each such loan account, an application must be made to the Banking Regulation and Policy Department of Bangladesh Bank for prior approval along with all documents and minutes in favor of the decision to write off the loan. In this regard, the decision of Bangladesh Bank will be considered final.

7. BRPD Circular No. 01 dated 06 February 2019 and BRPD Circular Letter No. 01 dated 05 January 2023 are hereby repealed. However, despite the said repeal, actions taken/undertaken previously under the repealed circular and circular letter shall be deemed valid.

8. Islamic Shariah-based banks may write off their investment accounts following the above-mentioned guidelines.

9. These instructions are issued under the power conferred by Section 45 of the Companies Act, 1991.

10. These instructions shall come into force immediately.

Yours faithfully, (Mohammad Shahriyar Siddiqui) Director (BRPD) Phone: 9530252

Appendix-'A' Progress Report on Written-off Loan Recovery ---------------- Date Basis Bank Name:

Current Month Cumulative Amount of Written-off Loans	Total Number of Written-off Loan Accounts	Current Number of Cases	Amount of Written-off Loans	Number of Written-off Loan Accounts	Recovery Against Written-off Loans	Number of Cases Filed	Number of Cases Settled
1	2	3	4	5	6	7	8

Authorized Officer of Written Off Loan Recovery Unit: Signature: Name: Designation: Mobile: E-mail: Countersigned: Managing Director/Chief Executive/Country Head: (Name and Signature)