Regulatory Alerts2022-06-02
Added
BRPD Circular Letter No. 21: Single Borrower and Large Loan Exposure Limit
The document clarifies that no conversion factor is applied to non-funded facilities when calculating large loan exposure for a single borrower or group, meaning both funded and non-funded exposures are included at 100%. However, conversion factors of 25% for the power sector and 50% for other sectors must still be used to determine the maximum limit of large loans in the bank's portfolio. Banks are required to immediately implement this clarification and correct any previously submitted Form L reports that incorrectly applied conversion factors to large loan calculations.
Banking Regulation and Policy Department Bangladesh Bank Head Office Dhaka. Ref No: BRPD Circular Letter No. 21 Date: ------------------- 19 Joishtha 1429
To, Managing Director/Chief Executive Officer All Scheduled Banks Operating in Bangladesh.
Dear Sir,
Reference is invited to BRPD Circular Letter No. 01 dated: 16 January 2022.
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Through the aforementioned circular, an integrated policy on Single Borrower/Group and Large Loan Exposure Limits has been formulated. According to Section 1(i)(iii) of the said circular, any loan granted by a bank in favor of a single borrower or group exceeding 10% of the bank's capital or more shall be considered a large loan. Furthermore, Section 2(i)(ii) of the said circular provides instructions to use a conversion factor of 25% for the power sector and 50% for all other sectors when determining the maximum limit of large loans in the bank's portfolio regarding non-funded facilities.
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Now, in light of queries from various banks regarding whether a conversion factor is used for non-funded loans in calculating large loans and subsequent Form L reporting as defined in Section 1(i)(iii) of the said circular, this is to clarify that no conversion factor shall be used for non-funded facilities in calculating large loans granted by a bank in favor of a single borrower or group as per Section 1(i)(iii); i.e., 100% of both funded and non-funded exposures shall be included in the large loan calculation. However, in determining the maximum limit of large loans in the bank's portfolio, conversion factors must be used in accordance with the instructions in Section 2(i)(ii).
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These instructions shall take immediate effect. If large loan calculations and Form L reporting were previously done using conversion factors prior to the issuance of these instructions, necessary arrangements must be made to correct the said reports as soon as possible by contacting the Department of Off-Site Supervision.
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The existing instructions, including the aforementioned circular, shall remain unchanged.
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These instructions have been issued under the powers conferred by Section 45 of the Bank Company Act, 1991.
Yours faithfully,
(Maksuda Begum) Director (BRPD) Phone: 9530252