Bangladesh Bank

Head Office
Motijheel, Dhaka-1000
Bangladesh
website: www.bb.org.bd
Banking Regulation and Policy Department
23 January 2025
BRPD Circular Letter No. 03 Date: -----------------------
09 Magh 1431

Managing Director/Chief Executives

All Scheduled Banks in Bangladesh

Dear Sir,

Implementation of ECL-based Loan Classification and Provisioning under IFRS 9

Please refer to BRPD Circular No. 15 dated 27 November 2024 on Loan Classification and
Provisioning.

2. According to the mentioned circular, Bangladesh Bank (BB) plans to implement Expected Credit
Loss (ECL) methodology-based provisioning system for banks in accordance with International
Financial Reporting Standard (IFRS 9) by 2027. Presently, we are following rule-based loan
classification and provisioning system. As a part of our ongoing efforts to enhance the risk
management capabilities of banks and increase the transparency of the financial reporting,
Bangladesh Bank has decided to adopt ECL-based loan classification and provisioning system for
banks under IFRS 9.

3. Traditionally, the incurred-loss model is the foundation for the accounting recognition and
measurement of credit losses, varying significantly across different jurisdictions. However, in
December 2015, the Basel Committee on Banking Supervision (BCBS) issued guidance on credit
risk and the accounting for expected credit losses, outlining supervisory expectations for banks
regarding sound credit risk practices related to the implementation and application of an ECL
accounting model. The International Financial Reporting Standard 9 (IFRS 9), which replaces IAS
39, mandates that impairment loss allowances be measured based on an ECL accounting model
instead of the incurred loss accounting model. Within the IFRS 9 framework, credit risk assessments
must include forward looking approach, which is primarily designed to mitigate procyclicality. When
evaluating ECL, it is essential to consider macroeconomic and financial factors, anticipated risks, and
associated dynamics.

4. To achieve the goal of implementing IFRS 9 for the banking sector by 2027, BB has outlined a
roadmap with the specified timelines. The details of which are provided in the following table:

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 Table: Roadmap of Implementation of IFRS 9

Timeline of
Phases Sl. Particulars Implementation Report
within Submission to
BRPD
(a) Formation of the ‘IFRS 9 Implementation
Team’ led by the Managing Director
(MD)/CEO.
Within 15
1. (b) Preparation of the ‘Time Bound Action Plan March 2025
April 2025.
to Implement ECL-based loan classification
and provisioning under IFRS 9’duly
approved by the Board of Directors (BODs)
Develop a database preserving required data
(e.g. sector wise, borrower wise and loan-nature
wise classification percentages, default
Within 15 July
2. percentages, loan loss recovery rates, various June 2025
2025.
PHASE-I

macroeconomic factors etc.) of borrowers on

monthly basis from January 2022 onwards to
calculate ECL.
Prepare a pre-assessment report on
implementation of ECL-based loan
classification and provisioning, and submit the
same to Banking Regulation and Policy Within 15
3. Department (BRPD). The report shall include
September 2025
October 2025.
detailed plan for transition from existing rule-
based model to ECL model, probable challenges
and required actions to implement IFRS 9.
Conducting training and capacity building
Within 15
4. programs on ECL-based loan classification and December 2025
January 2026.
provisioning for all the relevant employees.
BB will issue guidelines on ECL-based loan
January 2026
5. classification and provisioning model following
(by BB)
--
BCBS documents and IFRS 9.
Finalization of automated ECL-based loan
Within 15 July
6. classification and provisioning model by banks June 2026
2026.
following the BB guidelines.
PHASE-II

Implement IFRS 9 on a pilot basis in the

Within 15
7. branches that collectively cover at least 25% of September 2026
October 2026.
the total loan portfolio of the bank.
Implement IFRS 9 on a pilot basis in the
Within 15
8. branches that cover at least 50% of the total loan December 2026
January 2027
portfolio of the bank.
Parallel preparation of financial statements Within 15
December 2026
9. (provisional) on a half yearly basis under IFRS 9
and onwards
days of
and existing policy. reference date.
Implement IFRS 9 on a pilot basis in branches
Within 15 July
PHASE-III

10. which cover at least 75% of the total loan June 2027
2027.
portfolio of the bank.
Full Implementation of ECL-based loan
Within 15
11. classification and provisioning under IFRS 9 on December 2027
January 2028.
pilot basis.

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5. The readiness of the banking sector and early assessment of banks’ financial health in accordance
with IFRS 9 are essential to implement ECL-based classification and provisioning for banking sector.
In this regard, the following preparatory instructions are provided :
(a) Banks shall prepare themselves at the institutional level by reviewing internal systems and
procedures, accounting standards, technical aspects and capacity building of their officials.
(b) The ‘IFRS 9 Implementation Team’, led by the MD/CEO, will be responsible for
implementation of IFRS 9 of the concerned bank. They are assigned with the task of ensuring
regulatory compliance, overseeing the preservation, management, and analysis of historical
data used in the credit loss models, maintaining regular communication with BB, and
performing the necessary reporting.
(c) The ‘IFRS 9 Implementation Team’ shall include officials from relevant departments such as
Credit Risk Management, Financial Accounts, IT, ICC etc. However, Chief Risk Officer
(CRO) and Chief Financial Officer (CFO) must be included in the team. Additionally,
employees with relevant professional degree (e.g., CA, CFA, CMA, etc.) shall be included on a
preferential basis.
(d) Bank management shall submit quarterly reports to the BODs detailing the implementation
status of IFRS 9. With the approval of the BODs, bank shall submit a summary of the same to
the Banking Regulation and Policy Department within the following month.
(e) Bank shall ensure that all pertinent officials receive adequate training for the implementation of
IFRS 9. To achieve this, regular training and capacity-building programs shall be organized. As
a part of capacity building and business continuity the bank shall arrange training for trainers
(ToT) program for the faculty members of the training institute by the experts of IFRS 9.
(f) Bank shall ensure the appropriate automation, upgradation and enhancement of IT
infrastructure and system capacity as and when necessary.
(g) Bank may consider seeking technical assistance from external experts during the
implementation of IFRS 9.
6. This directive has been issued by Bangladesh Bank in exercise of its power conferred on it under
section 49(1)(cha) of the Bank Company Act, 1991.

Yours faithfully,

(Mohammad Shahriar Siddiqui)

Director (BRPD)
Phone: 9530252

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