Banks can now lend keeping treasury bonds as collateral
Commercial banks are now allowed to lend to their customers, taking treasury bonds as collateral.
Bangladesh Bank issued a circular on Wednesday instructing banks to lend up to 75 per cent of the face value of treasury bonds held by customers.
However, the loan outstanding, including interest, cannot exceed the face value of treasury bonds, said the circular with immediate effect.
This instruction was given by the Banking Regulation and Policy Division-1 (BRPD) of the central bank.
The circular has been sent to the managing directors and chief executive officers of all scheduled banks in the country.
The circular states that government bonds have been included as eligible collateral in light of the circular on loan classification and provisioning issued on November 27, 2024.
In view of this, detailed instructions have been issued in this regard as various banks have expressed interest in giving loans to customers by pledging treasury bonds.
According to the new instructions, before providing overdraft or term loan against treasury bonds, the concerned bank will have to register the customer’s bond as a lien in the Financial Market Infrastructure (FMI) system.
In addition, loans can be given up to a maximum of 75% of the face value of the bond.
However, the total loan amount including interest cannot exceed the face value of the bond under any circumstances.
The circular also states that the loan tenure cannot be longer than the tenure of the relevant treasury bond. In addition, no bank can give loans for the purpose of purchasing bonds.
The central bank said that this directive has been issued under the powers granted under Section 45 of the Banking Companies Act 1991 and it will come into effect immediately.
Those involved in the banking sector believe that as a result of this directive, government bond holders will be able to easily get loan facilities. At the same time, it will also create an opportunity for banks to disburse loans on the basis of safe collateral.
