Cenbank raises single-borrower limit to boost credit flow

Highlights

• BB raises single-borrower loan limit to 25%
• Relaxed lending rules effective until 2028
• Banks get more room for large corporate loans
• LC exposure calculation cut from 50% to 25%
• Move expected to boost trade finance
• Importers may get easier access to financing
• Bankers warn of higher concentration risks

The Bangladesh Bank has relaxed its single-borrower exposure limits to enhance credit flow to large businesses currently grappling with financing pressures and economic volatility.

Under a circular issued today (14 May), the central bank said banks can now lend up to 25% of their capital to a single borrower or business group, up from the previous ceiling of 15%, with immediate effect. The earlier cap will remain suspended until 30 June 2028.

The move substantially increases borrowing capacity for large conglomerates, industrial groups and trading houses seeking financing from a single bank.

For instance, a bank with Tk1,000 crore in capital could previously lend up to Tk150 crore to a single borrower group. Under the revised rule, the limit rises to Tk250 crore.

In another regulatory relaxation, the central bank reduced the risk-weight treatment of non-funded exposures – such as letters of credit (LCs) and guarantees – in single-borrower calculations.

Until 30 June 2027, banks will count only 25% of the value of such facilities against their lending limits, down from the previous 50%.

The change effectively frees up substantial lending capacity for trade finance, making it easier for banks to open import and export LCs without breaching regulatory exposure limits.

For example, earlier, a Tk100 crore LC consumed Tk50 crore of a bank's single-borrower exposure limit. Now, only Tk25 crore will be counted, allowing banks to open twice as many LCs under the same limit structure.

In 2022, the central bank tightened single-borrower exposure rules to reduce excessive concentration of loans among large business groups.

A senior Bangladesh Bank official said that before the 2022 tightening of regulations, banks were allowed to lend up to 25% of their capital to a single borrower, comprising 15% funded exposure and 10% non-funded exposure.

Support for businesses

Speaking to TBS, bankers said the relaxation would provide immediate support to businesses struggling to secure large-scale financing, particularly importers facing higher working capital requirements amid foreign exchange volatility and elevated trade costs.

Mohammed Amirul Haque, president of the LPG Operators Association of Bangladesh and managing director of Seacom Group, said businesses had been facing difficulties for the past four to five years and required continued policy support until economic conditions improved.

He said many banks had previously been unable to extend credit to otherwise strong borrowers because of regulatory limits, adding that the new flexibility would ease financing constraints for good customers.

New restrictions linked to default loans

The central bank also introduced a revised framework linking large loan exposure limits to banks' non-performing loan ratios.

Under the new rules, banks with cleaner balance sheets will be allowed to allocate a larger share of their total loans to large borrowers. Banks with non-performing loan ratios below 10% can extend up to 50% of their total lending to large borrowers.

However, banks with non-performing loan ratios exceeding 30% will be restricted to allocating only 30% of their total loans to large borrowers.

The rule will remain effective until 31 December 2027, after which the original 2022 limits will be reinstated, according to the Bangladesh Bank circular.

Bankers cautioned that while the relaxation could support economic activity in the short term, it could also increase concentration risks within the banking system.

A senior executive of a private bank said the relaxation could create additional pressure on banks, particularly as the government seeks to revive factories that are currently non-operational.

He said banks would face growing pressure to lend, while misuse of the policy could ultimately deepen vulnerabilities in the banking sector.

The banker also noted that Bangladesh Bank had eased conditions for banks with non-performing loan ratios below 10%, compared with the previous threshold of 3%, enabling more institutions to qualify for expanded lending capacity.

Calls for prudent risk management

Md Touhidul Alam Khan, managing director and chief executive officer of NRBC Bank PLC, described the initiative as timely and important for supporting the country's business and industrial sectors amid the continued depreciation of the taka against the US dollar.

He said the reforms would particularly benefit smaller financial institutions by enabling them to support established and creditworthy clients that had previously faced funding constraints due to regulatory limitations.

However, he stressed the importance of maintaining prudent risk management practices, warning that banks must exercise heightened due diligence when increasing exposure to large corporate borrowers, given the sector's long-standing non-performing loan problem.

"The reforms ultimately create a strategic foundation for sustainable economic recovery, offering a carefully calibrated solution that serves banks seeking growth, borrowers requiring capital, and the broader economy's need for enhanced liquidity in trade and industrial financing," he added.