Bangladesh Bank on Wednesday allowed banks to provide loans to clients against government Treasury Bonds held under lien with an aim of widening access to credit for investors.

In a circular issued on Wednesday, the central bank allowed banks to lend up to 75 per cent of the face value of treasury bonds pledged by clients as collateral.

The instruction takes effect immediately.

The directive said that treasury bonds placed under lien would be recognised as eligible collateral, allowing banks to provide overdraft or term loan facilities to clients holding such securities.

Before extending any loan, the lending bank must mark the bonds as lien in the Financial Market Infrastructure system.

However, the outstanding loan amount, including accumulated interest and other charges, cannot exceed the bond’s face value under any circumstances.

The central bank also stipulated that the tenure of the loan facility must not exceed the maturity period of the bond.

Banks have also been barred from offering loans for the purpose of purchasing treasury bonds.

Treasury bonds were traditionally held mainly by banks, financial institutions and insurance companies.

In recent years, however, individual investors and private institutions have increasingly invested in the instruments due to tax benefits and relatively attractive returns.

The latest instruction is expected to improve liquidity for bondholders by allowing them to unlock part of their investment without selling the securities.

The move will support the development of the domestic bond market while providing investors with easier access to bank financing.