The Bangladesh Bank has reduced the limit of loan provided by any bank to a single person or organisation to 25 percent of its total regulatory capital from the previous 35 percent as part of its measures to contain the concentration of loans among a small group of people.

From now on, no bank will be allowed to provide more than 15 percent funded and more than 10 percent non-funded loans to a person or an organisation, as per a circular of the central bank's Banking Regulation and Policy Department published on Sunday.

Funded loans are given in cash while non-funded loans come in the form of letter of credit (LC) and guarantee.

‘The aggregate principal amount of funded and non-funded exposure to a single person or counterparty or a group shall not exceed 25 per cent of the capital at any point of time,’ said the BB circular.

Under the previous rules, banks could lend up to 35 percent of their total liabilities to a single person or entity. Of this, 15 percent was funded and 20 percent non-funded loans.

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

Besides, 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Earlier, banks were allowed to extend credit up to 50 per cent of their capital to the exporters but, the facility was withdrawn in the latest BB circular.

As a result, the exporters, like other bank borrowers, would get loans up to 25 per cent of a bank’s capital — 15 per cent funded and 10 per cent non-funded.
An official of the central bank said that the new limit would reduce the risks of the banks and create scope for widening the number of loan beneficiaries.

The latest circular on single borrower exposure limit also squeezed the large loan issuance scope for the banks.

The circular further said that the banks which have defaulted loans below 3 percent will be able to provide large loans up to a maximum of 50 percent of total capital. Those with less than 5 percent defaulted loans will be able to provide up to 46 percent large loans, those with less than 10 percent will be able to provide 42 percent, and those with less than 15 percent defaulted loans will be able to provide 38 percent large loans.

In addition, banks with less than 20 percent defaulted loans will be able to provide large loans worth 34 percent of the capital, and banks with 20 percent or more defaulted loans will be able to provide 30 percent.

BDST: 1303 HRS, JAN 17, 2022
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