Bangladesh Bank has suspended a section of the Bank Company Act for a year only to allow letter of credit (LC) opening in favour of a defaulter company. The BB move has taken many by surprise.
Issuing a circular Monday, the central bank instructed the commercial banks to maintain 100-percent cash margin for opening LCs, purportedly for Abdul Monem Sugar Refinery Ltd (AMSRL).
Alongside the circular, the banking regulator also issued a notification, signed by BB Deputy Governor Dr Md. Kabir Ahmed, stating that "in exercise of the powers conferred by Section 121 of the Bank Company Act 1991, it is hereby notified for the information of all concerned that the provisions of Section 27Ka (3) of the Bank Company Act 1991 shall remain inoperative until June 30, 2027 in cases where any bank opens an import letter of credit (LC) in favour of AMSRL against a 100-percent cash margin"
Under Section 27Ka (3) of the Bank Company Act 1991, no loan defaulter is eligible to obtain new loans or open LCs.
The notification holds an indemnity clause for the regulator that says, "No liability shall accrue to the government or Bangladesh Bank in respect of any credit facility extended under this exemption, and no bank shall, in the future, be entitled to claim any financial assistance from the government."
Seeking anonymity, a BB official has said if an entity of a business group stands defaulted, other entities of the group cannot get banking supports under the Section 27Ka (3) of the Bank Company Act 1991.
"But the banking regulator can suspend the section for a particular period of time if any of the units of the group is involved in important areas like import of essential items," he told The Financial Express.
As AMSRL is engaged in refining raw sugar, which is an essential commodity, the central banker explains, the BB took the move to ensure supply of the essential items,
"But we asked the banks to maintain 100-percent cash margin for opening LCs so that no pressure is created on the lenders," he adds.
On condition of anonymity, another BB official says the regulator eased the rules after obtaining approval from the government and the initiative was taken to keep the refinery operational and ensure uninterrupted import of raw materials.
He said this is part of the new government's priority focus on reopening shuttered factories, creating jobs, and boosting economic growth.
"In line with these efforts, the BB has been relaxing various policy measures," he says, adding that, at the same time, it is trying to bring down the volume of non-performing loans.
Earlier in October last year, Abdul Monem Group sent a letter to the Ministry of Finance seeking a set of policy supports, including a 12-year loan-rescheduling facility with a two-year grace period, from the government to help restructure its overall business and restore financial stability.
According to Bangladesh Bank data as of March 2025, Abdul Monem Ltd had defaulted loans amounting to Tk6.98 billion across 24 banks and nonbank financial institutions.
Expressing his surprise over the BB decision, Former Director-General of Bangladesh Institute of Bank Management (BIBM) Dr Toufic Ahmed Choudhury says the burden of non-performing loans (NPLs) cannot be lessened with such a piecemeal support.
"Such a decision never bring any positive outcome. Encouraged by this example, other defaulters will come to get the facility. Then what the BB will do? Will they allow everybody? This is not a right approach," he notes.
To bring down NPL buildups, the economist says, political commitment is required and this decision does not show any positive commitment.
"The BB should look across the board, not only about any specific group," he adds.
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