Cenbank refuses to raise single borrower exposure limit

The Bangladesh Bank rejected the demand made by businessmen, who borrowed money from banks, to raise the single borrower exposure limit in a circular issued today (15 May).

The central bank stated in the circular sent to managing directors of all scheduled banks that the credit limit for any single person or group will remain as per the existing circular.

According to the existing rules of the central bank, the aggregate principal amount of funded and non-funded exposure to a single person or counterparty or a group shall not exceed 25% of the regulatory capital at any point of time.

The aggregate principal amount of funded exposure to a single person or counterparty or a group shall not exceed 15% of the capital at any point of time.

The central bank circular said the applications submitted by some banks to relax the upper limit are contrary to the instructions of the central bank. Therefore, there is no opportunity to increase the limit to mitigate the bank's high credit risk, uphold corporate governance, ensure good practices in loan disbursement, and maintain stability in the banking sector.

Before 1 April 2022, banks could lend up to 35% of their total liabilities to a single person or entity. Of this, 15% was funded and 20% non-funded loans.

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

A senior official of the central bank, speaking on condition of anonymity, said that although banks have set limits for lending to large customers, many customers have been granted more loans in violation of the rules. Banks have been instructed to adjust their loan limits, but some banks are not complying in many cases.

Furthermore, he said some banks have exceeded this limit for many customers. Customers of these banks persuaded the central bank to relax this condition on a case-by-case basis.

According to the existing rules of the central bank, the banks which have defaulted loans below 3% will be able to provide large loans up to a maximum of 50% of total capital. Those with less than 5% defaulted loans 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% defaulted loans will be able to provide 38% large loans.

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