BB extends time for adjustment for banks by one more year

The central bank has extended the time-limit by one more year for adjustment of 'single-borrower exposure limit' by the commercial banks for financing the operations of their subsidiaries, brokerage houses and merchant banks.

Under the amended provisions, the banks will have to adjust the excess amount of their loans over the single-borrower exposure limits for their respective subsidiaries by December 31, 2014, instead of December 31 this year.

"We've extended the time-frame considering the country's overall socio-economic situation," a senior official at Bangladesh Bank (BB) told the FE.

He also said it would help bring stability to the stock market.

The BB issued a circular in this connection Monday and asked the chief executives of all scheduled banks to follow the latest instructions for adjustment of their excess loans over their single-borrower exposure limits concerning their subsidiaries.

"However, the existing credit level cannot be increased during the extended adjustment time," the BB warned in its directive.

As per the previous deadline set by the central bank, the single-borrower exposure limit was supposed to be adjusted by December 31, 2013, instead of the earlier-set period December 31, 2012.

Talking to the FE, another BB official said most of the commercial banks have already complied with their single-borrower exposure limits for financing their subsidiaries.

He also said at least seven banks were yet to adjust their excess amount of loans over their single-borrower exposure limit.

Currently, 30 commercial banks, out of a total of 56, are running 33 brokerage houses and merchant banks as their subsidiary companies.

The central bank earlier asked the commercial banks to finance their subsidiaries, considering them as belonging to the same group, to minimise credit risk.

Under the existing provisions, the total financing facilities by any bank to any single person or enterprise or organisation of a group are not to exceed 35 per cent of the bank's total capital at any point of time, subject to the condition that the maximum fund-based financing facilities (funded facilities) do not exceed 15 per cent of its total capital base.

However, the single-borrower exposure limit should remain unchanged in the export sector at the existing 50 per cent of a bank's total capital. But funded facilities, in case of export credit, are not also to exceed 15 per cent of a bank's total capital.

The single-borrower exposure limit is not applicable to the case of financing power generation, distribution and transmission.

"It will help the banks keep the market stable in both short and long run," Helal Ahmed Chowdhury, managing director and chief executive officer of Pubali Bank Limited, told the FE, while explaining the main impacts of BB's latest directive.