BB to tighten exposure to sole proprietor of large loans

| Update:
January 18, 2022 1:07:13 p.m.

The Bangladesh Bank (BB) has set a limit of 25% of its capital for single borrowers and large risk loans, reports UNB.

The central bank issued the policy to strengthen banks’ credit risk management by limiting concentrated exposures and further improving stability in the banking sector.

This means that no bank can lend more than 25% of its capital to a company or group, which will apply to both funded and unfunded loans.

In this case, a funded or direct loan will be 15%. In the case of unfunded loans, in the case of the export sector, the loan of Tk 100 would be counted as Tk 50 and in the case of the electricity sector; the loan of 100 Tk would be counted as 25 Tk.

The BB has formulated this new policy in accordance with the Law on Banking Companies approved in 2013.

Previously, a client or group obtains both funded and unfunded loan facility up to 35% equity from a bank. Now these customers will get 25%. 35 percent would be calculated with interest. But now, only the total debt of the group will be taken into account.

Along with this change, BB has issued a notification for single customer and large loan limits, which will come into effect from April 1, 2022. Prior to this, banks must bring loans and credit facilities back within the mentioned limits. .

The central bank made the change following objections from a number of development partners, including the International Monetary Fund (IMF), officials said.

According to the new notification, the bank will not be able to lend more than 15% of its (funded) capital to a group, which will be identified as a large loan. Previously, the loan amount with interest was 15%. As a result, the bank will be able to lend more to a group than before.

The BB has also specified the amount of loans that can be granted by any other type of bank. Under the new policy, banks with less than 3% default will be able to lend up to 50% of their total debt.

In addition, the definition of group has also been clarified. If a group owns 20-50% of a person’s ownership or voting power, it will be identified as a group of that person.

If a person sits on a group’s board of directors or has decision-making power in the company, it will be identified as that person’s group.

Apart from that, BB also clarified that the two groups or institutions will be identified as one group. Guaranteeing or bearing 50% of the cost of another group’s loan or using or repaying another group’s loan will be marked as a group or organization.

Bank officials say large groups are now setting up businesses and groups outside the family to borrow more from the bank. For this reason, a new decision has been made to determine the ownership of the group taking into account the question of ownership as well as commercial dependence.

Banks would lend to these considerations in the interest of their own security, otherwise the entire industry would suffer from lending by multiple groups of the same owner.