Banks can now lend more to single groups under new BB rules

The Bangladesh Bank has relaxed two major lending restrictions for banks, allowing them to significantly increase credit exposure to large borrowers and expand trade finance operations amid ongoing pressure on business financing.

According to a circular issued by the central bank today (14 May, under the new rules, effective immediately, banks can now lend up to 25% of their capital to a single borrower or business group, up from the previous 15% ceiling. The earlier cap will remain suspended until 30 June 2028.

The move substantially increases borrowing capacity for large conglomerates, industrial groups and trading houses seeking financing from a single bank.

For instance, a bank with Tk1,000 crore in capital could previously lend a maximum of Tk150 crore to one borrower group. Under the revised rule, the limit rises to Tk250 crore.

In another major relaxation, the central bank reduced the risk-weight treatment of non-funded exposures – such as letters of credit (LCs) and guarantees – for single borrower calculations.

Until 30 June 2027, banks will count only 25% of the value of such facilities against their lending limits, down from the previous 50%.

The change effectively frees up substantial lending capacity for trade finance activities, making it easier for banks to open import and export LCs without breaching regulatory exposure limits.

For example, earlier, a Tk100 crore LC consumed Tk50 crore of a bank’s single-borrower exposure limit. Now, only Tk25 crore will be counted, allowing banks to open twice as many LCs under the same limit structure.

Bankers say the relaxation will provide immediate support to businesses struggling to secure large-scale financing, particularly importers facing higher working capital needs amid foreign exchange volatility and elevated trade costs.

However, some bankers also cautioned that increasing the single-borrower limit raises concentration risks for banks, as defaults by large corporate groups could have a proportionately bigger impact on financial stability.

In 2022, the central bank tightened single-borrower exposure rules to reduce excessive concentration of loans among large business groups.