Banking rules and regulations stipulate a single exposure limit for the borrower to ensure that a bank’s fortunes are not tied to the ebb and flow of a customer’s business. However, the banking regulator itself has regularly ignored this rule over the past 16 years.

The Bangladesh Bank has always allowed the limit to be exceeded with special considerations, which has put state-owned banks in a difficult situation.

Banks are not allowed to lend more than 25 percent of their paid-up capital to any single party, according to the law.

But what is surprising is that some lenders lent more than 500% of their paid-up capital.

For example, state-run Janata Bank’s loan exposure to Beximco Group stood at Taka 25,000 crore, or about 950 per cent of the lenders’ paid-up capital.

As much as Tk 19,000 crore of Beximco’s loans went into default.

The sprawling conglomerate took out a huge amount of loans as the central bank allowed Janata to exceed the limit.

In August last year, the banking regulator issued a no-objection certificate to grant loans worth Taka 479 crore to Beximco, although the amount violated the single borrower exposure limit of Janata.

Despite objections from the Offsite Supervision Department, the central bank body charged with monitoring and regulating banks, then-governor Abdur Rouf Talukder granted the exemption to Beximco.

This is not just the case for Beximco, the BB has allowed state-owned banks to exceed the exposure limit for many conglomerates including S Alam Group, Orion Group and Bashundhara Group.

The controversial S Alam Group has taken huge loans from Islami Bank. The Chattogram-based conglomerate also dominated the board of directors of the Sharia-based lender.

S Alam also took Tk 10,449.45 crore from Janata, which constituted 451 per cent of the state lender’s paid-up capital.

Three state-owned banks – Janata, Agrani and Rupali – had approved loans of Taka 10,579 crore for an Orion group power plant, going well beyond their limits thanks to the BB’s policy relaxation.

The three lenders were able to approve such a large amount for Orion because the central bank had in November 2022 relaxed Article 26-kha (1) of the Banking Companies Act of 1991, which states that loans extended by a bank to a single borrower must not exceed 25 percent of the bank’s capital.

The BB has relaxed the rule for coal-based power companies for the next five years. She issued the no-objection certificates for loans to the Orion Power Plant.

However, the loans were later canceled following a request from the business group.

Orion obtained approval for the syndicated loan based on the financial credibility of the coal project and without any undue influence, said Salman Obaidul Karim, its managing director.

Bashundhara Group, one of the country’s largest conglomerates, has availed loans of Tk 2,726 crore in 2022 from five state-owned banks – Sonali, Rupali, Janata, Agrani and Bangladesh Development Bank – under the close scrutiny of BB for its gold refinery project.

All except the Bangladesh Development Bank exceeded the exposure limit per single borrower.

The scammed Janata Bank, which is in deep trouble, has approved the highest amount of Tk 883 crore for the project.

In this case, Mohammad Abu Tayeb, media advisor of Bashundhara Group, told Daily Star that the infrastructure of the gold refinery project is ready now and they are waiting for the machines to arrive.

Banks provided loans to the project after proper appraisal and inspection.

In some cases, the banking regulator allowed state lenders to exceed the exposure limit due to political pressure or pressure from influential quarters, BB officials said.

However, BB spokesperson Husne Ara Shikha recently told the Daily Star that the waiver of the single borrower exposure limit was granted by the central bank to certain clients for special purposes and interests.

“This type of exemption is granted in the case of many large projects,” she added.

The Deshbandhu Group recently requested the BB to relax the single borrower exposure limit for importing essential commodities ahead of Ramadan.

State-owned banks are hostage to a few customers due to frequent violations of exposure limits, industry insiders said.

A lender’s risk increases when a single customer gets a large portion of the loans, sometimes even more than their principal, they added.

As of June last year, Janata had the highest number of large borrowers (67) and the highest proportion of large borrowers having exceeded the single borrower exposure limit of 25 per cent of capital, according to documents of the central bank.

Sonali had 21 large borrowers and 13 of them exceeded the exposure limit per single borrower.

Agrani had 55 large borrowers and 20 of their exposures were over the limit.

As of June 30 last year, Rupali had 35 large borrowers and the exposure of 10 of them was higher than the limit set for a single borrower.

“Since the central bank itself allowed banks to exceed the exposure limit per single borrower, there was no need to set this limit,” said Mustafa K Mujeri, former chief economist of the BB.

Such waivers for certain customers are not legal.

The current difficult situation in the banking sector is a reflection of these deviations from rules and regulations, said Mujeri, also executive director of the Institute for Inclusive Finance and Development.

“Laws and rules are made to be respected, but what is the logic of having laws and policies when they are not respected? The central bank cannot deny its responsibility for the fragile situation of most banks “, he added.

At the end of September, the six state-owned commercial banks – Agrani, Janata, Rupali, Sonali, Bangladesh Development Bank and BASIC Bank – together had defaults amounting to Taka 126,111.5 crore, or 40.35% of their loans disbursed.

Of this, Janata accounted for Tk 60,489 crore, Agrani Tk 26,891 crore, Sonali Tk 16,623 crore and Rupali Tk 12,738 crore.

The central bank should never allow the exposure limit to be exceeded as it is not meant for good governance, said Anis A Khan, former president of the Association of Bangladesh Bankers (ABB).

Some large borrowers who obtain loans beyond their capacity are no longer able to pay interest on the loans.

The exposure limit of a single borrower can only be relaxed for import of essential commodities during Ramadan and for the power sector as electricity is very important for the country, Khan said, also former managing director of Mutual Trust Bank.