—Md Kafi Khan—

In the world of modern banking, numbers do not merely quantify profit or loss, they narrate the intimate story of risk, resilience, and institutional truth-telling. Among the many financial tools that shape this narrative, few are as misunderstood in public discourse as “write-off” and “partial write-off.”

To many, the words evoke notions of systemic weakness or corporate irresponsibility. Yet globally from Singapore to the United Kingdom, from India to the United States write-offs remain one of the most essential governance instruments available to banks. They are not signals of decay, but mechanisms of transparency, accuracy, and financial integrity.

At their core, write-offs ensure that banks tell the truth about the economic reality of assets. They protect depositors, reassure regulators, and build confidence in the financial system.

Understanding this dynamic is not merely an accounting exercise; it is a lesson in governance maturity.

WHAT EXACTLY IS A WRITE-OFF ?

A write-off is not the forgiveness of a loan. It is not a concession to borrowers. It is not a disappearance of value.

Instead, it is an accounting reclassification where a bank acknowledges that the probability of collecting a loan or a portion of it within a predictable timeframe is low.

The borrower still owes the money. The bank still maintains its legal right to recovery. Recovery units continue pursuing the dues, sometimes successfully many years later.

What changes is the presentation of the asset in financial statements. Under IFRS 9, banks must reflect assets at their realistic recoverable values, not their theoretical or historical ones. Write-offs allow this alignment to occur, protecting the credibility of the balance sheet.

PARTIAL WRITE-OFF: PRECISION IN RISK RECOGNITION:

A partial write-off goes a step further by dividing the asset into:

• An expected recoverable portion, and
• A likely non-recoverable portion

This prevents overstatement of assets and ensures that only the realistically collectable amount remains on the books. Such granularity is supported by regulators in the EU, UK, Singapore, Malaysia, and many South Asian jurisdictions.

Partial write-offs bring financial statements closer to economic truth something essential in a world where risk evolves rapidly and unpredictably.

WHY WRITE-OFFS STRENGTHEN, NOT WEAKEN, FINANCIAL STABILITY:

Strong governance is rooted in early recognition of risk. Transparency stabilises markets, while delay magnifies vulnerabilities. A bank that recognises losses at an early stage demonstrates:

• Honest accounting
• Strong internal controls
• Mature governance culture
• Responsible risk management

Contrary to popular belief, write-offs do not weaken a bank’s capital base in a disorderly way. They enable management to take corrective actions, reinforce internal vigilance, and protect the institution from future shocks.

GLOBAL CASE STUDIES: REAL LESSONS FROM REAL SYSTEMS:

Below are internationally recognised case studies that demonstrate how write-offs, when executed responsibly, strengthen governance and the financial ecosystem.

Case Study 1: India’s Banking Sector and the Rise of Realistic Asset Recognition (2015–2020)

In 2015, the Reserve Bank of India initiated the Asset Quality Review (AQR), scrutinising the true status of non-performing loans in multiple banks. Many assets previously classified as standard were reclassified as non-performing, triggering large write-offs and provisioning requirements.

OUTCOME AND IMPACT:

• Over ₹10 trillion (approx.) in stressed assets were identified.
• Banks strengthened their capital buffers.
• Recovery under the Insolvency and Bankruptcy Code (IBC) increased.
• Public confidence in transparency improved.

Most importantly, India’s experience proved that delayed recognition is far more harmful than early and honest write-offs. Once risks were acknowledged, banks began a cycle of recovery, recapitalisation, and revitalisation.

This became a reference model for risk recognition in Asia.

Case Study 2: The United States: Managing Crisis Through Write-Offs (2008–2012):

The global financial crisis of 2008 tested the resilience of every banking system. American banks undertook massive write-offs guided by regulatory oversight and transparency requirements:

• Citigroup wrote off over USD 18 billion in 2008.
• Bank of America recorded write-offs related to mortgage portfolios.
• JPMorgan Chase recognised significant losses early on toxic assets.

OUTCOME AND IMPACT:

• Rapid recapitalisation through the Troubled Asset Relief Program (TARP).
• Restoration of market trust due to transparent disclosures.
• Acceleration of economic recovery through clean balance sheets.

The US experience reinforced a global principle: the faster losses are recognised, the faster confidence returns.

Case Study 3: Japanese Banking and the “Lost Decade” (1990s–2000s):

Japan’s economic stagnation in the 1990s became an important global lesson in delayed write-offs. Many banks held non-performing assets on their balance sheets for years without acknowledging their impaired value.

OUTCOME OF DELAYED WRITE-OFFS:

• Extended recessionary pressure
• Weak credit growth for businesses
• Slow economic recovery
• Erosion of public confidence

Eventually, Japan shifted toward a more assertive write-off and recapitalisation strategy proving that postponement magnifies risk, whereas early write-offs correct course.

Case Study 4: Malaysia’s Prudent Write-Off Culture (After the Asian Financial Crisis):

Malaysia developed a disciplined regulatory culture following the 1997–98 Asian Financial Crisis.

Write-offs were encouraged under clear guidelines, combined with strong collateral management and recovery units under Danaharta, the national asset management company.

OUTCOME AND IMPACT:

• Improved asset quality
• Higher capital adequacy
• Faster stability restoration
• A global model for crisis recovery in emerging markets

Malaysia’s approach demonstrates how write-offs, when properly supervised, can accelerate resilience.

Case Study 5: The European Union (2010–2018): Strengthening IFRS and Basel Compliance:

Following the European sovereign debt crisis, EU regulators intensified expectations under IFRS 9, pushing for:

• Timely impairment recognition
• Realistic expected-loss calculations
• Write-offs for long-defaulted exposures

Outcome and Impact:

• Harmonised accounting practices across 28 countries
• Reduced market uncertainty
• Strengthened supervision by the European Banking Authority (EBA)

Europe’s experience illustrates that write-offs are not just accounting entries, they are governance signals.

Why Banks Use Write-Offs: Governance Logic and Strategic Value:

Write-offs serve important strategic purposes in well-governed institutions.

1. Enhancing Transparency

Clear financial reporting helps:

• Boards make informed decisions
• Regulators maintain oversight
• Markets understand risk exposure

Transparency prevents sudden shocks.

2. Protecting Depositors and Investors

When asset values are realistic, stakeholders can assess the true health of the bank.

3. Strengthening Capital Planning

ACCURATE ASSET CLASSIFICATION HELPS DETERMINE:

• Capital adequacy
• Provisioning needs
• Recovery planning
• Risk mitigation strategies

4. Supporting Sustainable Recovery Efforts

Write-offs do not end recovery. Instead, they allow recovery units to focus on realistic timelines without distorting financial statements. Global banks consistently report significant yearly recoveries from previously written-off assets.

5. Aligning with International Standards

IFRS 9, Basel III, and country-specific prudential guidelines all emphasise:

• Timely loss recognition
• Realistic valuation
• Transparent reporting

Write-offs fulfil these expectations.

Common Misconceptions vs. Reality

▪️Myth: Write-offs benefit borrowers.

Truth: Borrowers remain liable. Legal recovery continues.

▪️ Myth: Write-offs are a sign of poor performance.

Truth: They are often a sign of prudent governance and transparency.

▪️ Myth: Write-offs weaken a bank.

Truth: Unrealistic balance sheets weaken banks. Write-offs restore stability.

▪️ Myth: Write-offs are uncommon.

Truth: They are used globally in every mature banking system.

Why Public Understanding Matters:

Public perception plays a vital role in the health of the financial system. Misinterpretations can fuel unnecessary fear. A well-informed public strengthens trust in institutions and helps create a more resilient financial sector. Banks do not write off loans to hide the truth, they do so to reveal it. A mature financial ecosystem requires aligning accounting practices with economic reality.

CHOOSING TRUTH OVER ILLUSION:

Write-offs are not the burial of value; they are the liberation of truth. They represent a commitment to transparency, risk realism, and forward-looking governance. As banks navigate the complexities of the 21st century, technological disruptions, global inflationary cycles, and shifting economic conditions, their responsibility is not merely to calculate numbers, but to reveal the truth those numbers carry. When used judiciously, write-offs allow banks to reset, recover, and rebuild. And in that quiet moment of financial honesty lies the foundation for long-term resilience.

“A write-off is not the burial of value, but the liberation of truth. It is the moment when a bank chooses clarity over comfort, governance over illusion, and resilience over denial.”

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The writer is Corporate Governance Professional