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

Page No. 1 Bangladesh Bank (Central Bank of Bangladesh) Head Office Motijheel, Dhaka-1000 Bangladesh. Website: www.bb.org.bd FCRPD Circular No. 02 Managing Director/Chief Executive Officer All Finance Companies operating in Bangladesh. Dear Sir, Loan/Lease/Investment Write-off Policy. Your attention is drawn to DFIM Circular No. 02, dated: 01 April 2019 and DFIM Circular Letter No. 08, dated: 7 June 2022 on the above subject. 2. As part of loan risk management, overdue loan accounts must be classified as adverse according to existing rules and provisions must be maintained against them at the prescribed rate. However, displaying overdue loan accounts on the balance sheet for a long time unnecessarily inflates the balance sheet. Consequently, such bad and loss-classified loans are written off following a specific procedure, which is an internationally recognized method. The aforementioned circular/circular letter contains necessary instructions for finance companies regarding the identification of such write-off eligible loan/lease/investment accounts, write-off procedures, recovery activities for written-off loans, reporting procedures, etc. Currently, the need to update the circular in line with international best practices has been observed. In this regard, finance companies are instructed to follow the following policy for writing off classified loan/lease/investment accounts. 3. Identification of Write-off Eligible Loan/Lease/Investment Accounts: A) Loan/lease/investment accounts that are classified as bad and loss, for which full provision has been maintained against the classified loan, and for which there is no possibility of recovery in the near future; subject to the simultaneous fulfillment of these 3 conditions, loan/lease/investment accounts can be written off. Older bad and loss-classified loans can be written off on a priority basis chronologically; and B) A finance company may write off loan/lease/investment accounts taken in the name of a deceased person or in the name of an establishment solely owned by them, irrespective of the loan classification, subject to collecting appropriate legal evidence. In the case of a solely owned establishment, it must be considered whether the deceased person has earning successors. 4. Loan/Lease/Investment Account Write-off Procedure: A) In the case of write-off eligible loans, efforts must be made to sell mortgaged property (if any) in favor of the finance company in a regular manner. If the sale effort fails and the amount due cannot be recovered from the guarantor(s), then the said loan/lease/investment account will fall under the scope of write-off. Date: 31 Ashar 1433 15 July 2026 Finance Company Regulations and Policy Department

Page No. 2 B) For selected loan/lease/investment accounts for write-off, if legal action has not been initiated previously, a lawsuit must be filed under the Artha Rin Adalat Ain, 2003 (Money Loan Court Act, 2003) before write-off. However, for small loans, if not essentially litigable under the Artha Rin Adalat Ain, 2003, any write-off eligible loan/lease/investment account up to BDT 5,00,000 (Five Lac) can be written off without filing a lawsuit in court, subject to compliance with the instructions of this circular. C) For writing off loan/lease/investment accounts, after deducting the amount reserved for interest suspense from the loan balance, an equivalent amount of provision must be maintained for the remaining loan balance. This provision must be maintained by debiting the income account of the profit and loss statement. That is, if there is insufficient pre-provision operating profit to maintain the required provision, the said accounted provision will not be considered in the present case. If necessary, if the provision maintained against each identified loan/lease/investment account for write-off is insufficient, the remaining provision can be maintained by debiting the current year's income account. D) The following instructions shall be followed for partial write-off of loan/lease/investment accounts- (1) Loan/lease/investment accounts classified as bad and loss, and for which there is no possibility of recovery in the near future, can be partially written off. In this case, the portion of the loan covered by eligible collateral as mentioned in the circular related to loan/lease/investment account classification and provision maintenance will be considered 'recoverable'. After deducting the 'recoverable' portion, the remaining portion can be written off; (2) For loan accounts of BDT 50 (fifty) lac and below, the finance company itself, and for loan accounts above BDT 50 lac, a professional collateral valuation firm must determine/re-determine the actual market value of the mortgaged collateral against the loan account. Such property valuation firms must be listed by Bangladesh Bank. If it is proven in any subsequent inspection or audit that the value of the mortgaged property has been artificially decreased/increased for the purpose of write-off benefit, then this department must be informed for permanently blacklisting the concerned officer and valuation firm, and punitive measures must be taken against the concerned parties according to the criminal procedure code. Information related to this must be submitted for preservation in CMMS as per Bangladesh Bank instructions; (3) In the case of such partial write-off, the accrued interest portion of the principal and interest of the concerned loan account must be written off first; (4) In the case of partial loan write-off, the total unaccrued interest portion at the time of write-off must also be separated proportionally and accounted for separately; (5) Funds recovered from the borrower without collateral must first be used to adjust the outstanding amount against the written-off loan outside the balance sheet. If the recovered amount exceeds the total outstanding amount against the written-off loan, the surplus portion must be used to adjust the outstanding loan balance shown on the balance sheet of the concerned loan account. However, when determining the total outstanding amount due from the customer, the outstanding loan balance shown on the balance sheet and its unaccrued interest, and the outstanding amount against the unrecovered written-off loan must be considered; and (6) After adjusting the partially written-off portion of the loan, rescheduling or exit plan facilities may be provided for the said loan account to recover the portion shown on the balance sheet. E) For taking a decision to write off any loan/lease/investment account, a write-off justification report must be prepared under the leadership of the Chief Executive with the opinion of the Head of Internal Control and Compliance Department, submitted to the Board meeting, and preserved in the relevant loan file. The evaluation report must be prepared separately for each loan account and customer. The report must include the names of officers involved in the loan approval and sanction process, board-related information, information related to the conflict of interest of the loan account, steps taken for loan recovery,

Page No. 3 and a reasonable explanation for the failure of those steps, along with why there is no possibility of loan recovery in the near future, etc., must be included in detail. If funds were diverted instead of being properly utilized, or if loans were created through fraud or deception, or in the name of non-existent entities, then information regarding the initiation of legal action and the resolution of such legal action must be mentioned. Additionally, the report must include a description of the overall situation with proof of notices, reminders, follow-up activities, legal notices, and other measures taken to request loan repayment from the customer from time to time. The Head of ICC must attach a personal declaration of integrity and accountability in the report stating that existing rules and ethics were not violated at any stage of the loan approval or write-off process for the said loan. F) After reviewing the report, the Board of Directors will take the final decision regarding loan write-off. No loan/lease/investment account can be written off without the approval of the Board of Directors. G) The borrower must be informed about the loan write-off and the continuation of legal proceedings for loan/lease/investment recovery by providing notice at least 10 (ten) working days in advance. 5. Recovery and Monitoring of Written-off Loans: A) As per Section 32 of the Finance Company Act, 2023, the finance company's claim on the relevant loan/lease/investment will remain valid even after write-off. Legal proceedings must be continued for the recovery of written-off loan/lease/investment. B) A separate unit named 'Written-off Loan Recovery Unit' (for 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 2 ranks from the Managing Director or Chief Executive Officer must be appointed as the head of the Written-off Loan Recovery Unit; D) Skilled and experienced officers