BB tightens loan facilities for bank directors, sponsors

February 24, 2014

Bangladesh Bank on Sunday issued rules and regulations on bank directors and shareholders’ taking loans from their respective banks that included a bar on waiving any loan of any director and interests that are included in the bank’s earning. The BB issued the rules and regulations in line with the amended version of the Bank Company Act 1991. It said that the total funded loan facilities of a bank to directors and sponsors should not be more than 10 per cent of the core capital of the bank.
According to the BB directive, a bank director, his or her firms, the firm he or her has shares and the public and private limited companies where he or she is a director, can take loan, advance, guarantee and other loan-related facilities from a bank up to 50 per cent of paid-up capital of his or her share in the bank.
The banks must inform the central bank if such loan, guarantee and other facilities exceeds the limit by the date of issuance of the BB circular on Sunday and the directors must bring down the excess amount within the limit by a deadline given by the central bank.
The BB said that the bank would not be able to waive any loan taken by a director and his firms and companies, his or her family members and dependants and any individual and organisations where the director is involved as a guarantor. The interest of the loan that is included in the earning cannot be waived.
Banks will have to take personal guarantee of directors while approving loans and advance to such firms and family members including husband, wife, parents, children, siblings and dependants of directors, the circular said adding that collateral against those loans must be mortgaged.
In case of Mudaraba or Musharaka loans and investment scheme, wherein loan receivers are provided exemption from bearing loss, banks have been prohibited from disbursement of such loans to directors and their family members and dependants.
BB made the approval of majority members of board of directors of a bank mandatory for providing a director, firms in which the director have involvement and interest and his family members and dependants with all kinds of loan facility, guarantee and other financial benefits.
Those loans and financial benefits must be approved in the annual general meeting and mentioned in audited financial statement, it said.
Banks will have to take prior approval of the central bank to disburse Tk 50 lakh as direct loan and Tk 1 crore as total loan that included direct loan, indirect loan and other facilities.

-With New Age input

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