Bangladesh Bank has told scheduled banks to move from rule-based loan provisioning to an expected credit loss (ECL) model under IFRS 9. For finance, risk and audit teams, IFRS 9 Bangladesh implementation is now a regulatory programme with milestones that cannot be left for later. This article covers what changes under the new model and what the regulator has asked banks to do, then suggests how to prepare. It reflects the position at the time of writing.

The main instrument is BRPD Circular Letter No. 03, dated 23 January 2025. It sets out a phased roadmap and follows BRPD Circular No. 15 of 27 November 2024. That earlier circular is the master circular on loan classification and provisioning.

What changes from rule-based provisioning

Under the current approach, banks classify loans mainly by how long they are overdue and then apply prescribed provisioning percentages. Press reports on the November 2024 master circular say that a loan overdue by more than three months is classified, with substandard, doubtful and bad categories, and that the new rules applied from April 2025.

IFRS 9 works differently. The impairment allowance is measured on expected losses, not on losses that have already been incurred. Bangladesh Bank's circular letter says the credit risk assessment must be forward looking and must take account of macroeconomic and financial factors and anticipated risks. A provision therefore reflects judgement about the future. That judgement has to be documented and defensible.

Four things shift in practice. The trigger moves from days overdue and fixed percentages to credit deterioration and expected loss. Today a loan is provisioned once it falls into an overdue category, while under IFRS 9 even performing loans carry a 12-month expected loss allowance. Inputs change too: payment status and collateral rules today, and probability of default, loss given default, exposure at default and forward-looking scenarios under IFRS 9. The evidence base moves from a rulebook to model documentation, validation and management judgement.

Staging under IFRS 9

IFRS 9 sorts exposures into three stages. Stage 1 holds exposures with no significant increase in credit risk since initial recognition and carries a 12-month expected loss. Stage 2 is for exposures where credit risk has increased significantly since initial recognition. Credit-impaired exposures fall in Stage 3. Stages 2 and 3 carry lifetime expected loss.

The standard includes a rebuttable presumption that credit risk has increased significantly when contractual payments are more than 30 days past due. That presumption is a backstop. Where reasonable and supportable forward-looking information is available without undue cost or effort, a bank cannot rely on past due status alone. Banks will need to map these stages to Bangladesh Bank's overdue-based classes so that both views can be produced during the transition.

Data and model requirements

The circular letter is specific about data. Banks are to build a database, kept monthly from January 2022 onwards, covering sector-wise, borrower-wise and loan-nature-wise classification percentages, default percentages, loan loss recovery rates and macroeconomic factors, for use in calculating ECL. Banks are also to finalise an automated ECL-based classification and provisioning model, following guidelines that Bangladesh Bank said it would issue on the basis of Basel Committee and IFRS 9 documents.

Beyond that, a working ECL model usually needs the following components. The regulator has not prescribed this list of common modelling elements.

• Probability of default estimates by segment, built from the historical default data above.
• Loss given default, informed by recovery experience and collateral values.
• Exposure at default, including undrawn commitments.
• Forward-looking scenarios, with a documented link between macroeconomic variables and credit losses.
• A reconciliation between model output, the general ledger and regulatory returns.

Data gaps are a likely constraint. A bank without monthly borrower-level history since January 2022 should establish early what exists, what can be rebuilt and where proxies will be needed, because that decides the modelling approach.

Governance and oversight

Bangladesh Bank has placed responsibility with management. Each bank is to form an IFRS 9 Implementation Team led by the managing director or chief executive. The team must include the Chief Risk Officer and the Chief Financial Officer, with officials from credit risk management, financial accounts, IT and internal control and compliance. The board approves a time-bound action plan. Management reports to the board quarterly, and a summary goes to the Banking Regulation and Policy Department in the following month.

The circular letter also allows banks to seek technical assistance from external experts. Whatever the support model, the Basel Committee's December 2015 guidance on credit risk and ECL accounting is a useful reference for the board. It sets out 11 principles, including responsibility of the board and senior management for credit risk practices and policies to validate internal credit risk assessment models. Independent model validation, change control over assumptions and clear audit committee oversight should be planned from the start.

Timeline for IFRS 9 in Bangladesh and open questions

The roadmap runs in phases. It starts with the implementation team and the board-approved action plan, moves through the data build and a pre-assessment report to Bangladesh Bank, and then covers training, model finalisation and pilot implementation. The pilot steps are tied to the share of the loan portfolio covered, at 25, 50 and 75 per cent. Half-yearly provisional financial statements are prepared in parallel under IFRS 9 and the existing policy.

The circular letter states a goal of implementation by 2027. The IFRS Foundation's jurisdiction profile for Bangladesh, last updated on 31 July 2026, says banks are preparing to implement the ECL model from January 2028. We could not confirm at the time of writing whether Bangladesh Bank has issued the detailed ECL guidelines that the roadmap lists as its own deliverable, so banks should check the latest circulars before fixing their plan.

The same profile notes that no guidance has been issued for non-bank financial institutions. Finance companies should watch for a circular from their regulator. Preparing data and governance now is unlikely to be wasted because the credit risk information is useful in any case.

How to prepare

• Run a gap assessment of loan-level data against the monthly history from January 2022 that the circular letter describes.
• Agree stage definitions and map them to current classifications and to overdue status.
• Decide the modelling approach by portfolio, keeping simpler methods where data is thin and documenting why.
• Plan a parallel run so that finance, risk and the board see IFRS 9 and current-policy results side by side.
• Set up validation, assumption governance and reporting lines before the first run.
• Agree early with your external auditor how judgements and model outputs will be evidenced.

Boards that want an independent view of readiness can look at RRH's Risk Consulting, Internal Control & Compliance Review and Financial Statement Audits services. Which service is appropriate depends on the independence position of the bank's own auditor.

This article gives general information. It does not constitute legal, regulatory or tax advice. Rules and timelines change, so readers should confirm current requirements with an adviser before acting.