EBL fined for breaching banking rules

The Bangladesh Bank has imposed a fine of Tk 5 lakh on Eastern Bank Ltd (EBL) for disbursing loans to its subsidiary and associate in violation of the single borrower exposure limit.

On March 29, the BB issued a letter to EBL, asking it to pay the fine within 14 days, or else it will deduct the amount from the current account of the bank with the central bank.

Banks in Bangladesh are not allowed to disburse more than 25 per cent of their regulatory capital as a loan to a single client or a group of companies. They have to follow the rule while giving out loans to their subsidiaries and associates as well.

But the loans extended to EBL Securities Ltd and EBL Finance (HK) Ltd, respectively the subsidiary and the associate of the private commercial bank, stood at around 37 per cent of its regulatory capital amounting to Tk 3,300 crore as of September.

The exposure limit set by the BB helps banks avoid excessive loan concentration to individuals and companies and lessen the credit risk by curbing default loans.

The central bank has issued several letters to EBL since October, asking it to explain the violation of the single borrower exposure limit. But, the central bank did not find the bank's explanations to be satisfactory.

EBL also gave out loans to Super Oil Refinery Ltd, breaching the Guidelines on Internal Credit Risk Rating (ICRR) System, another reason that prompted the BB to impose the fine.

As per the guidelines, no loan will be sanctioned to borrowers whose ICRR is 'unacceptable' unless the loan is 100 per cent cash covered or fully guaranteed by the government or multilateral development banks, or the loan is for a state-owned organisation or project.

EBL flouted the guidelines by disbursing fresh loans to the company, according to a central bank letter. The central bank had ordered EBL to explain it, but the reply has failed to satisfy the BB. EBL declined to comment on the matter.