Bangladesh Bank relaxes single borrower, large loan exposure limits to boost trade finance
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Bangladesh Bank (BB) has relaxed the limits for single borrower and large loan exposures to facilitate international trade finance for businesses and industries.
According to a recent circular issued by the central bank, the previous restriction limiting aggregate principal exposure (funded and non-funded) to a single person, counterparty, or group at 15 percent of a bank’s capital has been postponed until June 30, 2028. Until that date, the exposure limit has been increased to 25 percent of the bank's capital, UNB reports.
The central bank has also introduced a reduced conversion factor for non-funded exposure. A conversion factor of 0.25 (25 percent) will now be applied to non-funded exposure, down from the previous 0.50 (50 percent). This reduced factor will also be used to determine a bank's Large Loan Portfolio Ceiling.
The relaxation on the conversion factor will remain in effect until June 30, 2027. Following this period, banks are required to gradually increase the factor as follows:
To 0.30 (30 percent) by December 31, 2027.
To 0.40 (40 percent) by December 31, 2028.
To 0.50 (50 percent) by December 31, 2029.
From January 1, 2030, the original regulations will be fully reinstated.
Furthermore, the central bank has revised the Large Loan Portfolio Ceiling based on a bank's percentage of classified loans. Under the new guidelines, banks with a classified loan ratio of 10 percent or less can maintain a large loan portfolio up to 50 percent of their total loans and advances. For banks where classified loans exceed 30 percent, this ceiling is restricted to 30 percent.
However, the directive maintains that a bank's aggregate large loan exposure must not exceed 600 percent of its capital at any given time. These replacement clauses regarding portfolio ceilings will remain effective until December 31, 2027.
The BB stated that these directives, issued under the Bank Company Act, 1991, come into force with immediate effect, while other instructions from the original 2022 circular remain unchanged.