BB relaxes single borrower, large loan exposure limits to boost trade finance

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 circular issued by the central bank on Thursday under the new rules, effective immediately, banks can now lend up to 25 per cent of their capital to a single borrower or business group, up from the previous 15 per cent ceiling. The earlier cap will remain suspended until 30 June 2028.

The notification said that the previous 15 per cent limit will be suspended until June 30, 2028. That is, banks will have the opportunity to lend to large industrial groups and corporate groups at an increased rate for the next four years.

According to the new decision, if a bank’s capital is Tk1,000 crore, then earlier that bank could give a maximum loan of Tk150 crore to a single group. Now, the same bank can give loans up to Tk250 crore.
In addition, the central bank has also given major concessions in the field of trade finance. The risk of ‘unfunded’ loans-such as LCs and bank guarantees-has been reduced in calculating the single borrower limit.

According to the new guidelines, only 25per cent of the total value of such facilities will be counted in the single credit limit calculation till June 30, 2027. Earlier, this rate was 50per cent.

As a result, banks will now be able to open twice the amount of LCs within the same limit as before. For example, earlier, if an LC of Tk100 crore was opened, it was considered that Tk50 crore of the bank’s single credit limit was used. Now, it will be counted as Tk25 crore.

According to bankers, this decision will provide immediate relief to traders who are under pressure from the volatility of the foreign exchange market, rising import costs and excess working capital. Especially large importers and industrial groups will now easily get the necessary financing.

However, some bankers in the sector have warned that increasing the single borrower limit may lead to the concentration of banks’ credit risk among large corporate groups.

If a large industrial group defaults, it may have an impact on the financial stability of the entire banking sector.

The central bank tightened the single borrower limit policy in 2022 to reduce excessive concentration of credit among large industrial groups.