BB issues circular on conversion factor

No conversion factor would be used against 100 per cent funded and non-funded exposure while calculating single borrower and large loan limit, according to a Bangladesh Bank (BB) circular - issued on Thursday.

However, conversion method would be used while calculating large loan limit in bank portfolio - 25 per cent for power sector and 50 per cent for other sectors, it added.

The central bank issued the circular, clarifying the previous circular - issued on January 16 this year, as the banks were inquiring whether to use conversion factor or not in their calculation.

In the previous circular, the BB reduced the single borrower exposure limit to 25 per cent of a bank's capital, from 35 per cent - as part of its measures to contain concentration of loans among a small group of people.

Although the total limit, including funded and non-funded ones, was reduced to 25 per cent, the funded loan portion was kept unchanged at 15 per cent of a bank's capital.

Besides, the central bank also withdrew the extra non-funded borrowing limit for exporters.

Earlier, the banks were allowed to extend credit up to 50 per cent of their capital to the exporters. But, the facility was withdrawn in the latest BB circular.

As a result, the exporters, like other bank borrowers, would get loans up to 25 per cent of a bank's capital - 15 per cent funded and 10 per cent non-funded.

Earlier, the highest limit was 56 per cent for the banks having NPL of up to 5.0 per cent.

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