Bangladesh: BRPD Circular No. 5, April 9, 2005: Master Circular - Single Borrower Exposure Limit

This "Master Circular No. 5", issued by the "Bangladesh Bank" enables banks to improve their credit risk management by consolidating all the instructions issued so far and incorporating some amendments to the previous circulars. The circular:

• Decrees a reduction in borrower expense limit from 50% to 35%, thereby:
  • Limiting the total outstanding financing facilities by a bank to any single person/enterprise/organization/group;
  • Permitting the provision of non-funded credit facilities to a single large borrower.
• Lists prudential norms that the bank has to follow, including:
  • Considerations for a loan to be termed 'large';
  • The sanctioning of large loans according to limits set against their classified loans;
  • The inclusion of non-credit facilities in determining total credit facilities.
• Sets out restrictions for 'public limited company' and 'loans backed by cash guarantees'.
• Specifies the necessity of:
  • Collecting loan information on borrowers;
  • Performing Lending Risk Analysis before sanctioning or reviewing large loans;
  • Judging a borrower's overall debt repayment capacity while sanctioning or renewing a loan;
  • Examining a borrower's financial statements;
  • Seeking the approval of the Board of Directors while sanctioning a loan.
• Stresses that if the bank has already exceeded the specified loan amount, it will have to take steps to bring down the loan amount;
• Specifies the period of submission of quarterly loan statements.