FCRPD Circular No. 2: Loan/Lease/Investment Write-off Policy for Finance Companies

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Bangladesh Bank
(Central Bank of Bangladesh)
Head Office
Motijheel, Dhaka-1000
Bangladesh.
Ref No.: FCRPD Circular No.-02
To:
Managing Director / Chief Executive Officer
All Finance Companies operating in Bangladesh.

Dear Sir,
Loan/Lease/Investment Write-off Policy.

1. Reference is drawn to your attention to DFIM Circular No.-02, dated: 01 April 2019 and DFIM Circular Letter No.-08, dated: 7 June 2022.

2. As part of loan risk management, non-performing loan accounts must be classified according to existing regulations, and institutions must maintain reserves at the prescribed rate. However, displaying non-performing loan accounts on the balance sheet for a long time causes the balance sheet size to inflate unnecessarily. Consequently, such bad and loss-bearing classified loans are written off following a specified procedure, which is an internationally accepted practice. The aforementioned circular/circular letters have provided necessary guidelines for finance companies regarding the identification of such write-off eligible loan/lease/investment accounts, write-off procedures, written-off loan recovery programs, reporting methods, etc. Now, it has been observed that it is necessary to update the circular to align with international best practices. In this regard, finance companies are instructed to follow the following guidelines regarding the write-off of classified loans/leases/investments.

3. Identification of Write-off Eligible Loan/Lease/Investment Accounts:
   a) Loans/leases/investment accounts that are classified as bad and loss-bearing, where full provision (Provision) has been maintained against the classified loan, and there is no possibility of recovery in the near future; these three conditions must be met simultaneously for the loan/lease/investment account to be written off. Chronologically older bad and loss-bearing classified loans will be written off on a priority basis; and b) Finance companies may write off loan/lease/investment accounts taken in the name of a deceased person or in the name of an enterprise solely owned by them, subject to collecting appropriate legal evidence. In the case of a solely owned enterprise, it must be considered whether the deceased person has a financially capable successor.

31 Ashar 1433
Date:
15 July 2026
Finance Company Regulation and Policy Department

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b) For selected loan/lease/investment accounts for write-off, if prior legal action has not been initiated, a case must be filed in accordance with the Money Loan Court Act, 2003 before write-off. However, in the case of small amount loans or if filing a case under the Money Loan Court Act, 2003 is not essential, any amount of write-off eligible loan/lease/investment account up to 5,00,000/- (Five Lakh) Taka may be written off without filing a case in court, subject to compliance with the instructions of this circular. c) In the case of writing off loan/lease/investment accounts, after deducting the reserve amount for suspended interest (Suspended Interest) from the reserve amount of the principal loan balance, the remaining loan balance must be maintained as provision. The said provision must be maintained by charging the profit and loss account. That is, if there is no operational profit to manage the required provision, the said account-wise provision will not be considered in the present case. If necessary, for each identified loan/lease/investment account for write-off, if the reserved provision is insufficient, the remaining provision can be maintained by charging the current year's profit and loss account. d) The following guidelines must be followed in the case of partial write-off of loan/lease/investment accounts:
(1) Loans/leases/investment accounts classified as bad and loss-bearing with no near-term recovery possibility may be partially written off. In this regard, the eligible collateral (Eligible Collateral) mentioned in the circular regarding loan/lease/investment account classification and provision maintenance will be considered 'recoverable' for the portion of the loan covered by it. After deducting the 'recoverable' portion, the remaining part may be written off; (2) For loan accounts of 50 (Fifty) Lakh and below, the finance company itself, and for loan accounts above 50 Lakh, a professional collateral valuation agency must determine/re-determine the actual market value of the collateral against the loan account. Such property valuation agencies must necessarily be listed by Bangladesh Bank. If it is proven during any future inspection or audit that the value of collateral has been artificially reduced/increased for the purpose of write-off facility, the concerned officer and valuation agency must be informed to this department for permanent blacklisting, and punitive action must be taken against them according to FCRPD guidelines. Such information must be submitted to EGGS for maintenance according to Bangladesh Bank's instructions; (3) In the case of such partial write-off, the interest component imposed between the principal and interest components of the concerned loan account must be written off first; (4) In the case of partial loan write-off, the total unaccrued interest component at the time of write-off must also be separated proportionally and accounted for separately; (5) Recovered amounts from the borrower other than collateral must first be adjusted against the outstanding amount against the written-off loan account appearing outside the balance sheet. If the recovered amount exceeds the outstanding amount against the total written-off loan, the surplus amount must be adjusted against the outstanding loan balance appearing in the balance sheet of the concerned loan account. However, in determining the total outstanding amount receivable from the customer, the outstanding loan balance appearing in the balance sheet and the sum of unaccrued interest against it and the outstanding amount against non-performing written-off loans must be considered; and (6) The portion of the partially written-off loan adjusted in the subsequent balance sheet may be rescheduled or provided with an exit facility against the said loan account for the purpose of recovery.

e) In the case of taking a decision to write off any loan/lease/investment account, a report (WRO-LRR) on write-off justification must be prepared with the opinion of the Head of Internal Control and Compliance Department under the leadership of the Chief Executive Officer and submitted to the Board meeting and the concerned loan file must be preserved. The evaluation report must be prepared separately for each loan account and customer. The report must contain detailed explanations regarding the names of the officers involved in the loan approval and sanction process, board information, information regarding the conflict of interest of the loan account, steps taken for loan recovery, reasonable explanation for why the said steps failed, why there is no possibility of any type of loan recovery in the near future, etc. If the distributed loan is not used properly, fraud is committed, or loans are created through forgery/fraud or in the name of a non-existent entity, mention must be made of taking legal action and information regarding the resolution of taken legal action. Additionally, the report must contain a description of the overall situation along with evidence of notices given to the customer from time to time requesting loan repayment, re-notices, follow-up programs, legal notices, and other measures taken. The report must be attached with a personal declaration of integrity and responsibility by the HICC stating that no violation of existing rules and regulations occurred at any stage of the loan approval or write-off process.

f) After reviewing the report, the Board will take the final decision on loan write-off. No loan/lease/investment account may be written off without the approval of the Board. g) The borrower must be informed about the loan write-off and the continuation of the legal process for loan/lease/investment recovery by providing notice at least 10 (Ten) days in advance.

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5. Recovery and Monitoring of Written-off Loans:
   a) According to Section 32 of the Finance Company Act, 2023, the claim of the finance company over the concerned loan/lease/investment will remain valid even after write-off. Legal proceedings must be continued for the recovery of written-off loans/leases/investments. b) A separate unit named 'Written-off Loan Recovery Unit' (in the case of Islamic Shariah-based institutions, 'Written-off Investment Recovery Unit') must be formed at the Head Office under the direct supervision of the Managing Director or Chief Executive Officer of the finance company; c) An officer not below the rank of N-8 must be appointed as the head of the Written-off Loan Recovery Unit by the Managing Director or Chief Executive Officer; d) Experienced and skilled officers in loan sanction programs, loan documentation, and loan recovery must be posted in the said unit. Additionally, arrangements must be made to post at least 1 (One) officer with a degree in law in this unit. An appropriate officer from the branch/department where the written-off loan recovery program will be taken must be involved in the recovery program; e) The Managing Director or Chief Executive Officer must designate specific targets for written-off loan recovery in the JD of the said position during appointment/re-appointment, and this must necessarily be included in the scorecard; f) The performance/annual recovery target of the Managing Director or Chief Executive Officer of the finance company will be considered as one of the criteria for excellence in their re-appointment to the said position; g) Meetings must be held monthly by the Written-off Loan Recovery Unit under the chairmanship of the Managing Director or Chief Executive Officer of the finance company regarding the progress of written-off loan recovery. The decisions taken in the meeting must be recorded as minutes; h) Progress reports on written-off loan recovery must be presented to the Board meeting quarterly; i) To expedite the resolution of filed recovery cases, legal measures must be taken including hiring experienced and skilled lawyers for handling loan recovery cases; j) The Managing Director or Chief Executive Officer of the finance company will maintain close contact with the Legal Department officers and legal retainers for the purpose of written-off loan recovery; k) Cash incentives may be provided to officers who make special contributions to the written-off loan recovery program according to the finance company's own policy. Cash incentives will only be provided under policies drafted with the approval of the Board; and l) If an Asset Management Company operates in the future, written-off loans may be sold preserving the interests of the finance company. In that case, the proceeds received against the sale must be transferred to the finance company's profit and loss account.

6. Reporting Method for Written-off Loan/Lease/Investment Accounts:
   a) The accounts of written-off loans must be maintained in a separate ledger. The cumulative amount of written-off loans for the current year must be recorded separately in the finance company's daily report/balance sheet under the heading 'Written-off Loans'. b) Even if a willful defaulter's loan/lease/investment is written off, the concerned borrower will be identified as 'Willful' according to regulations until they fully repay their loan debt. Information on written-off loans/leases/investments must be reported regularly to the Credit Information Bureau (CIB) of Bangladesh Bank as 'WDR'. c) Information regarding loan/lease/investment write-off must be sent to Bangladesh Bank using the template 'Loan/Lease/Investment Write-off Information' via the UDB of Bangladesh Bank according to the instructions of DFIM Circular No.-09, dated: 29/11/2012 and DFIM Circular Letter No.-29, dated: 07/10/2024, quarterly. d) The progress report of written-off loan recovery (in the format converted in Appendix-'K') signed by the officer in charge of the Written-off Loan Recovery Unit and countersigned by the Chief Executive Officer or, in their absence, the officer currently holding the responsibility, must be submitted to this department by the 10th of the following month every quarter.

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7. Other Regulations:
   a) Written-off loan/lease/investment accounts cannot be rescheduled or restructured. Such loan/investment accounts can only determine their repayment schedule under the WDR. However, until the concerned borrower fully repays their loan debt, they will be reported as a willful defaulter in the CIB, and such loan/investment accounts will remain classified as bad and loss-bearing (WDR in CIB); b) If the need arises to write off loan/lease/investment accounts taken in the name of any current or former director of a finance company or in the name of persons/entities/close relatives with interest, the concerned finance company must inspect the account through its internal audit department and prepare a report clearly stating the actual reason for write-off. After reviewing the said report, approval must be obtained from the Board along with the opinion of the Head of Internal Control and Compliance (HICC). Thereafter, an application must be made to the Financial Institutions and Markets Department of Bangladesh Bank for prior approval regarding write-off along with all documents and minutes. The decision of Bangladesh Bank will be considered final in this regard; c) No loan account of any voluntary willful defaulter listed under the Finance Company Act, 2023 or the Bank Company Act, 1991 may be written off; d) No new year's or relatively newer non-performing loan may be written off by keeping relatively older bad and loss-bearing classified loan accounts on the balance sheet of any finance company. The write-off process must necessarily be completed chronologically (Chronological Write-off), unless there is any specific legal prohibition or court injunction regarding the old account; e) Each finance company must achieve a minimum recovery target of at least 5% annually from the total balance of written-off loans. If any finance company fails to achieve this minimum target for 2 (Two) consecutive years, the Management (Management) component of the CAMELS rating of the said finance company will be automatically downgraded (Downgrade) and restrictions will be imposed on dividend declaration; and f) In the case of writing off loan/lease/investment accounts defined as PEP or UBO by the BFU or their interested parties, after obtaining Board approval by complying with the regulations mentioned in this circular, an application must be made to this department for approval.

8. DFIM Circular No.-02, dated: 01 April 2019 and DFIM Circular Letter No.-08, dated: 7 June 2022 are hereby repealed.

9. These instructions are issued under the power conferred by Section 41(2) of the Finance Company Act, 2023, and will come into force immediately.

Yours faithfully,
(Abul Kalam Azad)
Director (FCRPD)
Phone: 9530178.

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Appendix-'K'
Progress Report on Written-off Loan Recovery
---------------- Based on Date
Name of Finance Company:

1. Information regarding Loan/Lease/Investment Account Write-off:
   Cumulative amount of written-off loans in the current quarter Total number of written-off loan accounts Number of ongoing cases Amount of written-off loans Number of written-off loan accounts Number of cases filed for recovery against written-off loans Number of resolved cases 1 2 3 4 5 6 7 8

2. Information regarding Partial Write-off of Loan/Lease/Investment Accounts:
   Cumulative amount of partially written-off loans in the current quarter Total number of partially written-off loan accounts Number of ongoing cases Loan Balance Amount of recoverable loans Amount of partially written-off loans Number of partially written-off loan accounts Number of cases filed for recovery against partially written-off loans Number of resolved cases 1 2 3 4 5 6 7 8 9 10

Officer in charge of Written-off Loan Recovery Unit:
Signature:
Name:
Designation:
Mobile:
E-mail:
Countersigned:
Managing Director/Chief Executive Officer (Name and Signature)