Dhaka, Bangladesh (BBN) – The central bank of Bangladesh has extended the time-frame by one year more 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 commercial banks will have to adjust the excess amount of their loans over the single borrower exposure limits for their respective subsidiaries by December 31 next year, instead of December 31 this year.
“We’ve extended the time-frame considering the overall situation in the country’s stock market,” an executive director of the Bangladesh Bank (BB) told the BBN, adding that it is a supportive step that would help to bring stability in the stock market.
The central bank issued a circular in this connection on 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, existing credit level cannot be increased during the extended adjustment time,” the central bank said in its circular, signed by Sultan Ahmed, General Manager of the Department of Off-Site Supervision of the BB.
The Bangladesh Merchant Bankers Association (BMBA) has welcomed the BB’s latest move, saying that it will help to bring stability in the country’s share market.
“The inflow fresh fund will be increased in the market gradually following the BB’s latest move. It will also bring a positive impact on the market in the long run,” a BMBA senior member said.
The BB has taken the measure against the backdrop of falling trend of institutional investment in the market as merchant banks and brokerages houses were under a pressure to comply with single borrower exposure limit.
As per the previous deadline set by the central bank earlier, the single-borrower exposure limit was supposed to be adjusted by December 31, 2011 instead of the earlier set-period between June 30 and August 31 this year.
On May 26 last, the BB extended the time-frame for adjustment of ‘single borrower exposure limit’ by the commercial banks for financing the operations of their subsidiaries by a maximum period of six months.
Currently, 30 commercial banks, out of a total of 47, are running 32 brokerage houses and merchant banks as their subsidiary companies.
“Most commercial banks have already complied with their single borrower exposure limits for financing by their subsidiaries,” another BB official said, adding that at least 11 banks are yet to adjust their excess amount of loans over their single borrower exposure limit.
On November 01 last, the central bank asked the commercial banks to finance their subsidiaries, considering them as belonging to the same group, to minimize credit risk.
The central bank had taken the move against the backdrop of violations of the existing provision about single borrower exposure limit by some of the banks through financing operations of their subsidiaries, considering them as separate entities.
Under the existing provisions, the total outstanding financing facilities by any bank to any single person or enterprise or organization 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 outstanding against fund-based financing facilities (funded facilities) do not exceed 15 per cent of its total capital base.
BBN/SSR/AD-19Sept11-8:55 pm (BST)
