Does a written-off loan still have to be repaid?

Yes, unless the lender has released the debt or the claim has otherwise ended, for instance through a completed liquidation, a bankruptcy discharge or the expiry of a limitation period. A write-off records the lender's view that it will not collect. It does not cancel the contract, so the lender or a buyer of the debt may keep pursuing the borrower and any guarantor.

When does a bank write off a loan?

When it has no reasonable expectation of recovering some or all of the balance. Often that is after the security has been sold and the proceeds applied, but the accounting standard sets no period, and a bank may write off part of a loan earlier if it can see what the security will bring and expects nothing beyond it. Each bank's policy sets its own triggers and approvals.

What happens if a bank recovers money after a write-off?

The money is taken to income, because the loan it relates to has left the balance sheet. Banks commonly credit it to the impairment line, where it lowers the year's credit charge. It might come from a late liquidation dividend, a guarantor, a debt buyer or a borrower who recovers and chooses to pay. The total loss on the loan falls by the amount received.

Is a write-off the same as a charge-off?

In substance, yes. Charge-off is the usual term in the United States and write-off in New Zealand, Australia and the UK. Both describe the removal of an amount from a lender's gross loans once it is judged uncollectable, set against the allowance already held. The accounting frameworks and timing rules differ between jurisdictions, so a charge-off rate from one market may not compare directly with a write-off rate from another.

// WORKED EXAMPLETHE ARITHMETIC A DECISION RESTS ON

Loan Write-Off: a Worked Example

The loss was booked long ago. Today it leaves the books.

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-09 · 6 MIN READ

// THE SHORT ANSWER

If a bank has written off a loan, the debt is not gone. A write-off is an entry in the bank's own accounts, made when it has stopped reasonably expecting to collect some or all of the balance. It cuts the gross loan and uses up the allowance already built against it, so profit usually does not move on the day. The borrower still owes the money unless the debt has been released or has otherwise ended, and a guarantor can still be pursued. For a reader of bank results, a write-off shrinks the non-performing figure; the loss itself arrived earlier.

BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

// MAKE THE CALL

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PART OF When Your Loan Goes to the Workout Team

// 01 — WHAT THE ENTRY DOES, AND WHO IT BINDS

A lender reporting under IFRS 9 (NZ IFRS 9 in New Zealand, AASB 9 in Australia, UK-adopted IFRS for UK banks on international standards) must reduce the gross carrying amount of a loan once it has no reasonable expectation of recovering all or part of it. The test concerns the bank's expectation. It says nothing about the borrower's obligation, and the bank signs no document with anyone to make the entry.

The standard sets no timetable, and a write-off can be partial: where a bank will enforce security, expects it to return only part of the balance and sees no prospect of anything beyond that, the rest can go at once. Timing is therefore a matter of each bank's policy, and regulators take an interest in it. APRA, for example, requires authorised deposit-taking institutions to have sound policies so that provisions and write-offs are timely, and does not let a partial write-off return a non-performing exposure to performing status.

// 02 — HOW THE ENTRIES WORK

Provision: Dr impairment charge (profit) Cr loss allowance

Write-off: Dr loss allowance Cr gross loan

Shortfall: Dr impairment charge (profit) Cr gross loan

Recovery: Dr cash Cr impairment charge (profit)

The first line is where the loss reaches profit, often a year or more before the last. The second is the write-off proper, and it touches only the balance sheet: the gross loan and the allowance fall together, and the net figure stays where it was. The third line applies when the allowance turns out to be too small. The fourth is what happens to money that comes in afterwards. Banks commonly credit it to the impairment line, where it reduces the year's charge, and usually state the amount in their credit risk notes.

// 03 — THE EXAMPLE

An importer of office chairs, constructed for this page like every figure in it, owes US$4.0m, secured on its stock and debtors and guaranteed by its director. A receiver is appointed. The bank has built an allowance of US$2.2m. The receiver's sale brings US$1.5m after costs. The bank then judges that nothing beyond the guarantee can be collected, and estimates the guarantee at US$0.3m. Interest and discounting are left out.

US$m Gross Allowance Net Effect on profit

Before the sale 4.00 2.20 1.80

Security sold, 1.50 in 2.50 2.20 0.30 nil

Write off 2.20 0.30 0.00 0.30 nil

Guarantor settles at 0.20,

shortfall of 0.10 goes 0.00 0.00 0.00 −0.10

Later dividend from the

liquidation, 0.05 0.00 0.00 0.00 +0.05

Final loss: 4.00 − 1.50 − 0.20 − 0.05 = 2.25

Through profit: 2.20 + 0.10 − 0.05 = 2.25

The write-off of US$2.2m costs nothing on the day because the US$2.2m was charged earlier. The only later movements through profit are the guarantor's shortfall and the liquidator's dividend. Now put the same entry into a whole loan book, this one with US$500m of loans, US$10m non-performing and US$6m of allowances against them:

Before After writing off 2.2

Gross loans 500.0 497.8

Non-performing 10.0 7.8

Allowances 6.0 3.8

Net loans 494.0 494.0

Non-performing ratio 2.00% 7.8 ÷ 497.8 = 1.57%

Provision coverage 60% 3.8 ÷ 7.8 = 49%

Net loans and profit have not moved, yet the non-performing ratio has improved and provision coverage has fallen. Nothing about the book's credit quality changed that day. Because the written-off amount was fully provided, the entry removes the same dollars from the top and bottom of a ratio below 100%, which pulls it down. A bank's write-off policy therefore shapes both ratios, and the levels are the example's own.

// 04 — HOW IT DIFFERS FROM A RELEASE OR A SALE

A write-off is unilateral and internal. A release or compromise is a legal act, in which the lender agrees that all or part of the debt is no longer owed, and it discharges the debt where a write-off does not. The two can happen in the same month, but neither causes the other. The difference shows on the borrower's side: under the same standard, a liability stays in a borrower's accounts until it has been discharged, cancelled or has expired, so one debt can be out of the bank's books and still in the borrower's. A write-off is also different from a sale, where another party buys the claim and the debt continues in its hands.

A loan loss provision is the earlier step in the sequence, and the recovery waterfall decides how much is left for the bank by the time this entry is made. The US term charge-off describes the same accounting event.

DEFINED IN ONE PARAGRAPH → · ONE LOAN, PROVISION TO WRITE-OFF → · THE RECOVERY WATERFALL →

// 05 — WHERE IT DECIDES A FILE

On the desk, the write-off comes late. The decisions that mattered came earlier: the lending, the security, the point at which the workout began. What the write-off settles is the recovery team's remaining effort and the record of the loss. Banks commonly require approval under a delegated authority, and the paper states what was recovered, what is still being pursued and why no more is expected. Enforcement can continue after the entry. Under the disclosure standard for financial instruments, a bank reports the contractual amount it wrote off in the period and is still pursuing.

For a borrower or guarantor, the practical point is that the entry changes nothing in their position. A guarantor who hears the loan has been written off has not been released, and limitation periods and any settlement terms govern how long the claim can be enforced. Anyone negotiating with a lender in workout does better to ask for a written release than to rely on what the bank's accounts may show.

PROBLEM LOANS AND WORKOUT → · PROVISION COVERAGE, WORKED →

// SOURCES

The documents the statements on this page rest on. Each was opened and checked when cited.

Australian Accounting Standards Board, AASB 9 Financial Instruments (compiled, applicable from 1 January 2026), the Australian text of IFRS 9 — paragraphs 3.3.1, 5.4.4 and B5.4.9 — Requires the gross carrying amount to be reduced when there is no reasonable expectation of recovery, allows a partial write-off, and keeps a liability on the borrower's books until it is extinguished — sections 01 and 04.
Australian Accounting Standards Board, AASB 7 Financial Instruments: Disclosures (compiled) — paragraph 35L — Requires disclosure of the contractual amount outstanding on assets written off in the period that remain subject to enforcement — section 05.
Australian Prudential Regulation Authority, Prudential Standard APS 220 Credit Risk Management — Requires policies that make provisions and write-offs timely, and bars reclassification as performing after a partial write-off of a non-performing exposure — section 01.

// QUESTIONS PEOPLE ASK

Does a written-off loan still have to be repaid?: Yes, unless the lender has released the debt or the claim has otherwise ended, for instance through a completed liquidation, a bankruptcy discharge or the expiry of a limitation period. A write-off records the lender's view that it will not collect. It does not cancel the contract, so the lender or a buyer of the debt may keep pursuing the borrower and any guarantor.
When does a bank write off a loan?: When it has no reasonable expectation of recovering some or all of the balance. Often that is after the security has been sold and the proceeds applied, but the accounting standard sets no period, and a bank may write off part of a loan earlier if it can see what the security will bring and expects nothing beyond it. Each bank's policy sets its own triggers and approvals.
What happens if a bank recovers money after a write-off?: The money is taken to income, because the loan it relates to has left the balance sheet. Banks commonly credit it to the impairment line, where it lowers the year's credit charge. It might come from a late liquidation dividend, a guarantor, a debt buyer or a borrower who recovers and chooses to pay. The total loss on the loan falls by the amount received.
Is a write-off the same as a charge-off?: In substance, yes. Charge-off is the usual term in the United States and write-off in New Zealand, Australia and the UK. Both describe the removal of an amount from a lender's gross loans once it is judged uncollectable, set against the allowance already held. The accounting frameworks and timing rules differ between jurisdictions, so a charge-off rate from one market may not compare directly with a write-off rate from another.

// NEXT TO IT

// ON WHOSE DESK

The seats that read this term in an ordinary week. Each page says what the seat is for, who arrives in it, and the shape of the round it runs.

Credit risk analystSets and monitors the standard the lending line works to — policy, appetite, ratings and the models underneath them.
Portfolio managerOwns the credit on a book after the money is out — reviews, covenants, ratings and early warning.
Model validatorIndependently checks that the bank's models do what they claim, before anyone relies on them.

THE IN-TRAY · ONE MINUTE

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THE READING ROOMIN ONE PARAGRAPHWrite-off What is a loan write-off, and how is it different from a provision?