Banks and non-bank financial institutions (NBFIs) in Bangladesh have not fully adhered to International Financial Reporting Standards (IFRS), unlike other companies, which obscures the true state of the financial sector. The Bangladesh Bank has allowed these institutions to deviate from IFRS, enabling them to appear healthier than they are. This deviation, particularly in loan-loss provisioning, has led banks to report higher profits and distribute dividends, further weakening their financial health.
Under IFRS, provisions for loan losses are calculated based on expected credit loss over a lifetime, but the central bank allows significantly lower provisions. As a result, banks’ required loan-loss provisioning would increase by 10 to 13 times if IFRS were fully applied. In the second quarter of FY24, banks collectively set aside Tk 79,679 crore for bad debts, compared to a requirement of Tk 98,941 crore.
Financial experts, including former leaders of the Institute of Chartered Accountants of Bangladesh (ICAB), recommend a gradual adoption of IFRS to improve transparency without causing a sudden negative impact on credit ratings or financial stability. A phased approach would allow banks to adjust without facing significant losses or business disruptions. The Financial Reporting Council has urged for such reforms to improve the sector’s reporting standards.
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