Central Bank Tightens Oversight of Large Loans

Bangladesh Bank is preparing to introduce a far more stringent supervisory regime for large-scale lending, as part of a broader effort to improve asset quality, governance, and transparency across the banking sector. The move reflects growing concern over long-standing structural weaknesses, particularly the overvaluation of collateral, forged documentation, and irregular record-keeping, which have historically contributed to elevated credit risk and rising non-performing loans.

Under the proposed framework, loans exceeding BDT 5 billion will be brought under special scrutiny by the central bank. This threshold has been chosen deliberately, as large exposures have repeatedly been identified as more vulnerable to malpractice and weak risk assessment. By tightening oversight at this level, the regulator aims to curb systemic risk before it spreads through the wider financial system.

The plan was outlined by Governor Dr Ahsan H. Mansur during the announcement of the January–June monetary policy. He emphasised that the central bank’s current policy stance prioritises financial discipline, institutional integrity, and prudent risk management over rapid credit expansion. According to the governor, a formal directive will be issued shortly, authorising Bangladesh Bank’s own inspection teams to conduct on-site verification of large loans.

These inspections will go beyond desk-based reviews. Inspectors will physically verify whether pledged collateral actually exists, confirm the authenticity and ownership of title deeds, and assess whether declared asset values are consistent with prevailing market prices. Particular attention will be paid to land records, registration documents, mutation certificates, and mortgage papers—areas where manipulation has frequently occurred in the past. Officials believe this hands-on approach will significantly reduce opportunities for fraud and inflated valuations.

To support the initiative, Bangladesh Bank is strengthening its internal technical capacity. Specialised staff are being trained to identify forged documents and to analyse land and registration records more effectively. Commercial banks, anticipating tighter regulation, have already begun exercising greater caution when approving large loans, especially in the BDT 10–20 billion range. Risk analysis and collateral verification are now receiving heightened emphasis, signalling a gradual shift away from aggressive loan growth towards more responsible credit management.

On the legal front, Dr Mansur expressed disappointment that proposed amendments to the Bangladesh Bank Order of 1972 were not approved by the interim government. He argued that reforming the law is essential to enhance the central bank’s autonomy, accountability, and governance. The amendments, along with pending changes to the Bank Company Act, are expected to be resubmitted once an elected government assumes office. Nevertheless, he noted that two key laws—including a bank resolution framework—have already been approved and are being implemented to strengthen financial stability.

Dr Mansur concluded by reiterating that permanent legal protection for central banks is a global best practice, vital for safeguarding long-term financial stability against short-term political pressures.

Key Features of the Proposed Large-Loan Oversight Framework

Observers believe this initiative marks a decisive step by Bangladesh Bank to address structural weaknesses in large-scale lending and to restore confidence in the integrity of the banking system.