Dhaka, Bangladesh (BBN)- 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 minimize 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 said.
Under the existing provisions, the total outstanding financing facilities by a bank to any single person or enterprise or organization 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.
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.
BBN/SSR/SI-02Nov10-11:19 pm (BST)