Home Borrower Central bank tightens exposure limit to single borrower

Central bank tightens exposure limit to single borrower

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Bangladesh Bank has reduced the limit on loans made by a bank to a single person or organization to 25% of its total regulatory capital – a reduction from the previous 35%.

From now on, no bank will be allowed to extend more than 15% funded loans and more than 10% unfunded loans to any person or organization, according to a circular from the bank’s Banking Regulation and Policy Department. central published on Sunday.

Funded loans are given in cash while unfunded loans are in the form of letter of credit (LC) and collateral.

Under the previous rules, banks could lend up to 35% of their total liabilities to a single person or entity. Of this amount, 15% were funded loans and 20% unfunded loans.

However, in the case of the electricity sector, banks will be allowed to provide funded and unfunded loans worth 50% of total capital.

The circular further indicates that banks that have loans in default of less than 3% will be able to grant large loans up to a maximum of 50% of the total capital. Those with less than 5% loans in default will be able to provide up to 46% large loans, those with less than 10% will be able to provide 42% and those with less than 15% loans in default will be able to provide 38% large loans.

In addition, banks with less than 20% of loans in default will be able to grant large loans representing 34% of the capital, and banks with 20% or more of loans in default will be able to grant 30%.

The central bank issued the circular with a view to strengthening banks’ credit risk management by limiting concentrated exposures and thereby further improving the stability of the banking sector.

In this regard, an official of the BB indicated that according to the law on banking companies, in the case of a single borrower, it was indicated that it should not be higher than 25%. Following this, the central bank has now issued this instruction.