The Bangladesh Bank has ordered banks to lift the limit on working capital loans to keep business activities buoyant and ensure additional money supply as the cost of raw materials in the international market and transportation have risen.
In a circular on Wednesday, the central bank said there was now no limit for banks to invest in working capital. At the same time, banks have been urged to give importance to their own risk and the financial capacity of their customers when lending for working capital.
Despite the maximum utilization of the working capital credit limit already sanctioned by the banks, borrowers are unable to carry out production activities, including payment for necessary raw materials according to demand, which hinders production.
As a result, there is a risk that the dynamics of ongoing economic activities such as imports and exports will be disrupted. In this context, instructions have been given to increase the current capital credit limit to a reasonable level.
On April 1, the Chairman of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), Md Jashim Uddin, had written a letter to the Central Bank Governor, Fazle Kabir, asking for an increase in the minimum loan limit. in current capital at 40% to keep the country’s economic activities afloat. .
The letter says that due to the current Covid-19 pandemic and the Russian-Ukrainian war, the prices of raw materials and other commodities on the international market are constantly rising.
The increase in raw materials, shipping, all transaction fees and other costs have hurt the country’s production and trade. As a result, the country’s trade and economic activities are disrupted, he added.
In this situation, importers and exporters are unable to conduct normal business due to high costs and debt limit of traders. Now the Bangladesh Bank has to step in to increase the capital limit to deal with this situation.
This is why the chairman of FBCCI made a special request to the governor to issue instructions to all banks, according to the letter.
According to the Banking Companies Act 1991, the loan facility granted to any person, institution or group must in no case exceed 25% of the capital of the bank in question.
However, the central bank stated in a 2014 circular that the funded loan facility granted to an institution cannot be granted for more than 15% of the bank’s capital.
Later, the rule was relaxed for certain sectors and institutions such as the electricity sector and the Dhaka elevated highway under special facilities. But now there is no limit for banks to invest in working capital.