Banking Companies Act to be amended to fund power projects

The government may amend the banking law to facilitate the country's power sector to get loans beyond the single borrower exposure limit.

The move comes after the power division last month requested banks to channel Tk 20,000 crore into the power sector over the next six months.

At present, banks can provide loans of up to 25 percent of their capital to a single borrower. For some banks it would not be possible to lend at a scale needed by the power sector companies without exceeding the limit.

For instance, a prominent business group has recently sought a large sum for its power project from a state-owned bank but was turned away due to the single borrower exposure provision.

This prompted the chairman of the group to request the Bangladesh Bank to relax the provision.

Subsequently, a committee was formed on July 4 to go through the Bank Company Act 1991 to check if there is any provision that bars banks from providing large loans to the power sector. If yes, the committee has to recommend the necessary amendments.

The single borrower exposure limit is a global practice to enable banks to effectively manage their credit risks, said Salehuddin Ahmed, a former governor of the BB. He said the amendment of the provision to facilitate a certain sector will put the banks at risk and harm the financial stability.

Moreover, such amendment will reduce the bank's ability to comply with Basel-III capital requirement, Ahmed added.

The move to amend the law is to facilitate a certain business group, said a senior executive of a private bank.

“It will open up opportunity for the group to take money from the government bank,” he added.

The Banking Companies Act 1991 was last amended in 2013 to extend the tenure of shareholding directors and double the number of directors in a bank's board from a single family.

The amendments, which were as per the recommendation of the International Monetary Fund and followed international best practices, came against the backdrop of directors getting involved in irregularities.