The Bangladesh Bank has reduced the limit of loan provided by any bank to a single person or organisation to 25% of its total regulatory capital – reduced from the previous 35%.
From now on, no bank will be allowed to provide more than 15% funded and more than 10% 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.
Under the previous rules, 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.
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.
The circular further said that 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%.
The central bank issued the circular with a view to strengthening credit risk management of banks by limiting concentrated exposures and thereby further improving the stability of the banking sector.
In this regard, a BB official said that according to the banking company law, in the case of a single borrower, it was instructed that it should not be more than 25%. Following that, the central bank has now given this instruction.