The Bangladesh Bank has directed banks to lift the limit of working capital loans to keep business activities dynamic and ensure additional money supply as the cost of raw materials in the international market and transportation has increased.
In a circular on Wednesday, the central bank said from now on, there is no limit for banks to invest in working capital. At the same time, banks have been asked to give importance to their own risk and the financial capacity of their customers in lending for working capital.
Despite the maximum utilisation of the already sanctioned working capital credit limit by banks, borrowers are not able to carry out production activities including payment of required raw materials as per the demand, which is hampering production.
As a result, there is a risk that the dynamics of the ongoing economic activities such as imports and exports will be disrupted. In this context, instructions were given to increase the current capital credit limit to a reasonable level.
On 1 April, Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) President Md Jashim Uddin had written a letter to central bank Governor Fazle Kabir requesting an increase in the minimum limit of current capital loan to 40% to keep the country's economic activities afloat.
The letter said that due to the prevailing Covid-19 pandemic and the Russia-Ukraine war, the prices of raw materials and other commodities in the international market are constantly increasing.
Rising raw materials, shipping, all transaction charges and other costs have adversely affected the country's production and trade. As a result, trade and economic activities of the country are being disrupted, it added.
In this situation, both the importers and the exporters are not able to conduct normal business due to the high costs and the debt limit of the traders. Now the Bangladesh Bank needs to intervene to increase the capital limit to deal with this situation.
That is why the FBCCI president made a special request to the governor to give 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 shall not in any way exceed 25% of the capital of the certain bank.
However, the central bank said in a 2014 circular that the funded loan facility given to an institution cannot be given for more than 15% of the bank's capital.
Later, the rule was relaxed for some sectors and institutions such as the power sector and the Dhaka Elevated Expressway under special facilities. But from now on, there is no limit for banks to invest in working capital.