BB asks banks to comply with single borrower exposure limit
Wednesday, 3 November 2010
Siddique Islam
The central bank has asked commercial banks to finance their subsidiaries - brokerage houses and merchant banks - considering them to be of the same group to minimise credit risk.
Bangladesh Bank (BB) has taken the move against the backdrop of violation of the existing single borrower exposure limit provisions by some of the banks through financing their subsidiaries, considering them separate entities.
"We've taken the measure to improve credit risk management of the banks through complying with the single borrower exposure limit provisions properly," a BB senior official told the FE.
Under the existing provisions, the total outstanding financing facilities by a bank to any single person or enterprise or organisation of a group will not at any point exceed 35 per cent of the bank's total capital subject to the condition that the maximum outstanding against fund based financing facilities (funded facilities) do not exceed 15 per cent of the total capital.
However, in case of the export sector the single borrower exposure limit should remain unchanged at the existing 50 per cent of the bank's total capital. But funded facilities in case of export credit will also not exceed 15 per cent of the total capital.
On June 14 this year, the central bank took measures to boost financing in the power sector through withdrawing single borrower exposure limit only from the thrust sector.
Under the provisions, the single borrower exposure limit will not be applicable in case of financing in power generation, distribution and transmission.
The central bank has so far given permissions to 32 commercial banks out of 47 to establish their brokerage houses and merchant banks as subsidiary companies.
"At least 11 banks have taken permissions to set up both brokerage houses and merchant banks," another BB official said, adding that most of the banks would be able to establish their subsidiaries by November 30 this year.
The central bank is now monitoring the overall financing in capital market closely to minimise banks' risk, the central bank official said.
"We've already taken some measures in this connection and some initiatives would be taken in the near future," the BB official said without elaborating.
On October 27 last, the central bank increased the rate of general provisioning requirement for unclassified loans extended against shares.
The banks will have to maintain a 2.0 per cent general provision, instead of the previous rate of 1.0 per cent, for unclassified loans to brokerage houses, merchant banks, stock dealers and individuals against shares.
The central bank has asked commercial banks to finance their subsidiaries - brokerage houses and merchant banks - considering them to be of the same group to minimise credit risk.
Bangladesh Bank (BB) has taken the move against the backdrop of violation of the existing single borrower exposure limit provisions by some of the banks through financing their subsidiaries, considering them separate entities.
"We've taken the measure to improve credit risk management of the banks through complying with the single borrower exposure limit provisions properly," a BB senior official told the FE.
Under the existing provisions, the total outstanding financing facilities by a bank to any single person or enterprise or organisation of a group will not at any point exceed 35 per cent of the bank's total capital subject to the condition that the maximum outstanding against fund based financing facilities (funded facilities) do not exceed 15 per cent of the total capital.
However, in case of the export sector the single borrower exposure limit should remain unchanged at the existing 50 per cent of the bank's total capital. But funded facilities in case of export credit will also not exceed 15 per cent of the total capital.
On June 14 this year, the central bank took measures to boost financing in the power sector through withdrawing single borrower exposure limit only from the thrust sector.
Under the provisions, the single borrower exposure limit will not be applicable in case of financing in power generation, distribution and transmission.
The central bank has so far given permissions to 32 commercial banks out of 47 to establish their brokerage houses and merchant banks as subsidiary companies.
"At least 11 banks have taken permissions to set up both brokerage houses and merchant banks," another BB official said, adding that most of the banks would be able to establish their subsidiaries by November 30 this year.
The central bank is now monitoring the overall financing in capital market closely to minimise banks' risk, the central bank official said.
"We've already taken some measures in this connection and some initiatives would be taken in the near future," the BB official said without elaborating.
On October 27 last, the central bank increased the rate of general provisioning requirement for unclassified loans extended against shares.
The banks will have to maintain a 2.0 per cent general provision, instead of the previous rate of 1.0 per cent, for unclassified loans to brokerage houses, merchant banks, stock dealers and individuals against shares.