Interest on written-off loans can be waived

The Bangladesh Bank has offered an opportunity to waive the interest on written-off loans.

The central bank had earlier told banks that the original loans could not be waived.

The central bank on Tuesday issued a circular in a bid to remove any confusion on whether the policy on interest waiver would also be applicable to interest waiver on the written off loans.

However, the waiver will not be applicable for intentionally defaulted loans and loans are taken by fraud.

The waiver of interest on written off loans must be approved by the board of the respective bank.

However, the managing authorities of a bank can take decisions on interest waivers of up to Tk10 lakh on an original loan. Besides, in case of interest waiver, it is necessary to ensure recovery of bank fund expenditure.

Writing off bad loans is an exercise conducted by banks to clean up their balance sheets for tax benefits and capital optimisation.

The central bank said it would have to review the impact of the interest waiver on the bank's own financial condition. For this, banks have to take into consideration the adequacy of their own capital, profit and other financial indicators.

However, prior approval of the Bangladesh Bank is required in case of waiver of interest on the loans taken by the director of a bank or financial institution and his family members.

It can be relaxed in some cases of bank fund expenditure. These include projects that have been closed for three years, loan collateral, project assets and if it is not possible to recover funds from the sale of personal assets of project entrepreneurs.