No loan renewal unless repayment of excess borrowing: BB

The Bangladesh Bank has instructed all scheduled banks to refrain from renewing existing loans unless borrowers first repay any amount drawn beyond their approved credit limits.

The central bank issued the instruction yesterday (25 June) through a circular, aimed at curbing the practice of rolling over loans without actual repayment. The directive takes immediate effect and applies to all banks operating in the country.

According to the circular, several banks have routinely renewed continuous loans even when borrowers exceeded their sanctioned limits.

In some cases, banks created separate loans to accommodate the excess amount, allowing clients to maintain a regular repayment status without settling any part of the original loan.

A senior Bangladesh Bank official, speaking on condition of anonymity, said, "The practice has fostered a culture where borrowers avoid repayments yet stay off the defaulters' list. Ideally, clients should borrow within the approved limit and repay accordingly. At the end of the term, they should clear the outstanding amount or adjust within the sanctioned limit."

He explained that instead of doing so, many borrowers are getting fresh loans approved or converting the excess borrowing into new loan accounts. "This bypasses repayment obligations and distorts the true health of a bank's loan portfolio," he added.

The new directive prohibits this practice. Banks must ensure that loans are renewed within their current tenure and only after full repayment of any overdrawn amounts. 

The excess portion cannot be restructured into a new loan, transferred to another account, or accommodated through any other financial mechanism.