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BB cuts single borrower exposure limit to 25pc

  • Staff Correspondent
  • 18 January, 2022 12:00 AM
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BB cuts single borrower exposure limit to 25pc

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Bangladesh Bank (BB) has cut the single borrower exposure limit to 25 percent of the bank’s total capital from the previous 35 percent for further stabilising the banking sector.

The directive, however, excluded credit facilities to the government or guarantees with government and AAA-rated multilateral development banks, according to a BB circular.

The banks will also be allowed to provide funded and non-funded loans worth 50 percent of total capital to the power sector.

“The lending from state-owned organisations and power sector are kept out of the regulation. The credit ceiling for power sector is kept at 50 percent as per the government’s priority. The central bank will give priority to other sectors based on the needs of the national economy,” Serajul Islam, executive director at Bangladesh Bank, told the Daily Sun on Monday.

The move came after a few international agencies raised question about mismatch between regulation and credit ceiling.

Regarding the new directive, Policy Research Institute (PRI) executive director Ahsan H Mansur said this is a positive move; however, the widening credit coverage depends on the mindset of the lender and capacity of the borrowers as well.

“The single person credit limit must be below 25 percent. The central bank took the good decision after a long time. However, the recovery process of the existing bad loans to large portfolio is absent in the circular. It might be incorporated for clearing the concept,” Ahsan H Mansur, chairman at the BRAC Bank told the Daily Sun.

In a recent meeting, Federation of Bangladesh Chambers of Commerce and Industries (FBCCI) President Jashim Uddin claimed that the banks are confined to a small group of borrower which should be addressed to promote financial inclusion.   “Large loans run the risk of becoming default. However, the small businesses pay the credit regularly. To ensure repayment guarantee, banks can partner with the trade bodies to ease the loan process,” Jashim, also chairman at Bengal Commercial Bank, said.

The central bank also withdrew the extra non-funded borrowing limit for exporters. Earlier, banks were allowed to extend credit up to 50 per cent of their capital to the exporters but, the facility was withdrawn in the latest circular.

BB also framed the capacity of banks to issue large loan following non-performing loans (NPL) rate. Banks with less than 3 percent non-performing loan can issue 50 percent loanable fund in large credit. Banks with above 10 percent NPL can manage 38 percent large loan while the figure will 30 percent fund for 20 percent NPL.