Banks asked not to give fresh credit to adjust previous loans

The central bank yesterday asked banks not to give out fresh loans to clients in order to adjust their previous loans.

Some banks have recently adjusted the previous loans of borrowers by way of disbursing fresh loans, which is a clear violation of credit discipline, according to a central bank notice.

The banking regulator earlier issued Guidelines on Credit Risk Management for Banks where it asked lenders to monitor clients strictly to ensure proper use of their loans.

In 2018, banks were also asked not to release any instalment of a project loan without ensuring the proper use of the previous instalment.

The central bank has also instructed banks to take measures against the borrowers who will not invest the loans appropriately or divert the fund breaching the rules.

Banks have also been asked to carry out internal audits to tackle such situations.

Bangladesh Bank recently received allegations against some banks, which have settled their loans by giving out fresh loans, a central banker said.

This helps lenders to avoid new defaulted loans artificially, he said.

But such practices are weakening corporate governance in the banking sector.

If lenders do not follow the central bank's rules, punitive measure will be taken against them, he said.