The landscape of financial reporting in Bangladesh is undergoing a seismic shift. As mandated by the Bangladesh Bank (BB), scheduled banks are now transitioning from the traditional “Incurred Loss” model to the more proactive International Financial Reporting Standard 9 (IFRS 9). This move, a key condition of the IMF’s support program, aims to align Bangladesh with global financial standards and enhance the resilience of its banking sector.
1. What is the biggest change with IFRS 9?
The most significant change is the move from the Incurred Loss Model (IAS 39) to the Expected Credit Loss (ECL) Model.
Old Way:
Banks recognized losses only when a default event actually occurred (e.g., a payment was missed).
New Way (ECL):
Banks must now look into the future. They are required to estimate potential losses from the moment a loan is granted, incorporating historical data, current conditions, and forward-looking macroeconomic forecasts (like GDP growth or inflation).
2. Understanding the “Three-Stage” Model
IFRS 9 classifies financial assets into three stages based on their credit risk:
Stage 1 (Performing):
Loans with no significant increase in credit risk. Banks must provide for 12-month ECL.
Stage 2 (Under-performing):
Loans where credit risk has increased significantly since inception. Banks must provide for Lifetime ECL.
Stage 3 (Non-performing):
Loans that are credit-impaired (defaulted). Banks provide for Lifetime ECL.
3. What is the implementation timeline?
According to BRPD Circular Letter No. 03 (January 23, 2025), the roadmap is as follows:
March 2025:
Banks must begin the implementation process.
By June 2025:
Banks are expected to develop databases capturing historical default and recovery data (dating back to January 2022).
January 2026:
Bangladesh Bank is scheduled to issue the final detailed guidelines for ECL modeling.
December 2027:
Full implementation and transition to ECL-based provisioning must be completed.
4. Key Challenges for Bangladeshi Banks
The transition is not without hurdles. Banks are currently navigating several complexities:
Data Scarcity:
Many banks lack the granular historical data (PD, LGD, EAD) needed to build accurate statistical models.
Macro-Forecasting:
Predicting how Bangladesh’s economy will impact loan defaults requires sophisticated econometric modeling that is still maturing in the local market.
Capital Impact:
Since IFRS 9 often leads to “earlier” and higher provisioning, many banks may see a temporary dip in their Capital Adequacy Ratio (CAR).
5. Frequently Asked Questions (FAQs)
Q: Will IFRS 9 replace the current Bangladesh Bank provisioning rules immediately? A: Not immediately. There is a “parallel run” period. However, by 2027, the ECL model is intended to replace the existing rule-based system for loan classification and provisioning.
Q: How does this affect a bank’s profitability? A: In the short term, profitability might decrease due to higher initial provisions (the “Day 1 impact”). Over time, however, it leads to more stable earnings by preventing “loss shocks.”
Q: What is the “Higher Of” Rule? A: During the transition, regulators often require banks to maintain provisions that are the higher of the current regulatory requirements or the IFRS 9 ECL calculations to ensure safety.
Conclusion
The adoption of IFRS 9 is more than just a change in accounting—it is a transformation in risk culture. For Bangladeshi banks, the focus must now shift from simply “collecting payments” to “predicting risks.” While the transition requires heavy investment in technology and data, the result will be a more transparent, stable, and globally competitive banking system.
If your bank is navigating data challenges, model validation concerns, or capital impact assessments, Fineit provides specialized IFRS 9 consulting services tailored to the Bangladesh regulatory environment.
From roadmap planning to full-scale ECL model deployment, we help institutions transition with confidence.
Contact us to discuss how we can support your IFRS 9 journey.
Muzammal Rahim Khan is the CEO and Co-Founder of FineIT, bringing over 15 years of expertise in software development, implementation, and technical consulting across global markets including the U.S., U.K., Europe, Africa, and Asia. He has led the design and delivery of enterprise-grade solutions that modernize compliance, risk management, and financial reporting for banks and financial institutions. Under his leadership, FineIT has built flagship platforms such as Estimator9 (IFRS 9) and ContractHive (IFRS 16), empowering clients with automation, accuracy, and audit-ready confidence. Muzammal combines deep technical knowledge with strategic vision, driving innovation that bridges regulatory requirements with practical, scalable technology. His focus remains on building resilient, future-ready solutions that strengthen trust and efficiency in financial services.