Bangladesh’s banking sector is set to embrace a major regulatory overhaul, with banks required to adopt a forward-looking model for estimating potential credit losses. The move, grounded in IFRS 9 standards, is intended to modernise the sector, enhance financial resilience, and align domestic practices with global reporting frameworks.
Bangladesh Bank (BB) has issued detailed guidance for implementing the Expected Credit Loss (ECL) framework. The rules will apply to all scheduled banks from 1 January 2028 for both funded and non-funded credit facilities, while other financial instruments will be included from 1 January 2029.
Under the current framework—BRPD Circular No. 15 of 2024—banks follow an incurred-loss approach, creating provisions only after loans show clear signs of deterioration. The new ECL model, by contrast, requires banks to make proactive estimates of credit losses, factoring in macroeconomic variables such as GDP growth, inflation, and interest rate trends.
“The shift to a forward-looking approach represents a fundamental change in risk management,” said a senior Bangladesh Bank official on condition of anonymity. “Banks will now anticipate potential losses before they materialise, ensuring more prudent provisioning.”
The IFRS 9 framework categorises credit exposures into three stages:
| Stage | Loan Status | Provision Calculation |
|---|---|---|
| Stage 1 | Performing loans | 12-month expected credit loss |
| Stage 2 | Loans with increased credit risk | Lifetime expected credit loss |
| Stage 3 | Credit-impaired loans | Lifetime expected credit loss |
The framework also expands coverage to off-balance-sheet items, including loan commitments, guarantees, and unused credit lines. Furthermore, interest income recognition will now reflect the stage classification of credit exposures, offering a more precise view of bank earnings and asset quality.
Dr. Md. Touhidul Alam Khan, Managing Director and CEO of NRBC Bank PLC, hailed the adoption of IFRS 9 as a transformative moment. “This is more than compliance. By strengthening risk management and institutional capacity, banks will reinforce financial stability, enhance transparency, and foster investor confidence,” he said.
He emphasised that successful implementation will require upgraded data infrastructure, advanced risk modelling systems, and comprehensive staff training. According to Dr. Khan, the reform positions Bangladesh as a more globally competitive, transparent, and resilient banking market.
While the transition presents operational challenges, experts believe the long-term benefits—improved credit risk assessment, enhanced stability, and deeper trust among stakeholders—will outweigh the initial costs, ushering in a new era of prudence and resilience for the nation’s financial sector.