The Bangladesh Bank’s decision to relax single borrower and large loan exposure limits appears a reckless retreat at a time when the banking sector is already standing on a fragile ground. The move effectively rewards the big borrowers that have pushed the sector into crisis. The central bank in February acknowledged that large corporate borrowers and wilful defaulters were primarily responsible for the unprecedented surge in non-performing loans, now standing at more than 30 per cent, one of the highest in the world. The February report showed that more than half of all loan accounts above Tk 50 crore had reportedly turned non-performing by September 2025. Yet, instead of tightening oversight and enforcing discipline, the central bank has now opened the door for banks to lend even more to the powerful business groups. The revised rules, keeping to a circular issued on May 14, allow funded exposure to rise from 15 per cent to 25 per cent of a bank’s capital while also reducing the regulatory weight of non-funded exposure such as letters of credit and guarantees, which, in effect, means that banks are now permitted to conceal larger risks on paper while assuming greater liabilities in practice.
The central bank has also relaxed large loan portfolio restrictions for banks with high default loans. Previously, banks with default loans below 3 per cent were allowed to disburse 50 per cent loans of the total loan portfolio. But under the revised rules, banks with default loans below 10 per cent non-performing loans are allowed to disburse the same per cent of total loans. Moreover, the new rules permit banks with non-performing loans as high as 25 to 30 per cent to continue maintaining substantial large borrower exposure. This effectively allows financially distressed institutions to deepen the very concentration risks that threaten their survival. All this may undermine the essential safeguard in banking regulation — limiting concentration risk. When a banking system becomes excessively dependent on a handful of politically connected conglomerates, any collapse within those groups can trigger wider institutional instability. Such a move by the central bank is, therefore, beats logic. Equally concerning is that when senior banking executives and Bangladesh Bank officials opposed the relaxation, as the media report, they were ignored. Such a situation suggests that the regulatory policy may have been shaped by influential business groups that had pushed for such relaxation on grounds of facilitating international trade and fuel import.
The argument that such relaxations are necessary for trade and fuel import is unconvincing and if any flexibility was required, it could have been selectively granted to financially sound banks with strong governance and low default ratios. The central bank should, therefore, review its decision as it might further endanger an already weakened banking system.
