SUMMARY 

The Bangladesh Bank (BB) eased conditions on single borrowers and large loan exposure limits. Restrictions will not apply in case of credit facilities provided to the government or against government guarantees. The circular will come into force immediately, according to a circular issued by the central bank.

CONTENT

To extend support in Industrial expansion and guarantee competitive financing, the Bangladesh Bank (BB) on 11th October 2022 relaxed the restrictions on large loan exposure limits and single borrowers.

According to a statement made by Bangladesh Bank on 11th October 2022, Businesses that have their exports of goods guaranteed by reputable export credit agencies (ECAs) would be allowed to get loans to meet their needs, even if they exceed the single borrower exposure limit.

The circular will become effective right away. In accordance with its authority granted under sections 26(Kha) and 45 of the Bank Company Act of 1991, as amended, BB issued this order. However, the prior circular, which was released on January 16, 2022, contained all other instructions, which would not alter.

When contacted Syed Mahbubur Rahman, who is managing director and Chief Executive Officer of Mutual Trust Bank appreciated the move, saying that in the recent notice, the central bank lifted the ban on secured loans.

In any case, exporters who supply goods guaranteed by ECAs that are AAA appraised by all-inclusive acknowledged credit rating offices can presently profit of advances past the single-borrower introduction limit. ECAs offer back and other administrations to encourage worldwide exchange.

As such, there are many countries that have ECAs that provides loan, credit ensures, and protections however, these loan guarantees and insurance helps to dispose of the instability involved in exporting and importing with other countries. Moreover, the reason for an ECA is to sustain the domestic economy and employment by helping companies to find foreign markets for their goods or products.  An official of Bangladesh Bank said there is less threat in exporting products when the shipment is ensured by a presumed ECA.

He also added ECA will pay exporters for their goods if the foreign buyer is not able to pay. Therefore, for this reason, loans given by banks to exporters will not be a sort of risk or threat. Fazlul Hoque, previous president of the Bangladesh Knitwear Manufacturers and Exporters Association, said and welcome this initiative because it will offer assistance to exporters supervising their required funds. However, he pointed out that, there may be little complexity as exporters, which is because normally exporters make shipments to various buyers at the same time.

On the other than, there’s a plausibility that a few importers who import products from the domestic market will be able to manage to ensure from the ECAs, whereas others may fall flat to do so. Mr. Hoque also said under such a circumstance, banks may have to face some kind of uncertainty in disbursing advances to exporters, including that the BB ought to clarify the issue through another notice. 

However, in understanding with the past circular, issued on January 16, 2022, with respect to the matter, the central bank lessened the single borrower exposure limit to 25% of a bank’s capital from 35% — as the portion of its measures to contain the concentration of loans among a small crowd of people.

In spite of the fact that the total limit, funded and non-funded ones, was decreased to 25%, the supported funded loan portion was kept unaltered at 15% of a bank’s capital. The central bank moreover pulled back the additional non-funded borrowing restrain for exporters, concurring with the past circular.

Moreover, borrowers that have got guarantees from Multilateral Development banks are moreover allowed to appreciate loans more than the limit. The central bank moreover pulled back the additional non-funded borrowing restrain for exporters, concurring with the past circular.

Picture and Article Source: Dhaka Tribune, Financial Express