Bangladesh Bank on Thursday said if a person or a company controls from 20 per cent to less than 50 per cent voting rights or shares in another entity, the entity would be considered a member firm of a group of companies. BB officials said the central bank was forced to define corporate group after a number of companies, hiding their corporate relation, had taken huge amount of loans from banks, violating single borrower exposure limit.
On Thursday, the BB issued a circular to managing directors and chief executive officers of all banks explaining control, relationship and financial interdependence of member companies under a group of companies.
A BB official told New Age that some companies had recently taken huge amount of loans from different banks by misusing the single borrower exposure limit.
The companies were under corporate groups but they hid their relationship with the groups to enjoy loan facility, violating the exposure limit, he said.
Against the backdrop, the central bank defined the corporate group, he said.
According to Bank Company Act 1991, the outstanding amount of borrowing exposure, both funded and non-funded loans, to a single person, counterparty or a group will not exceed 35 per cent of the capital of a bank at any point of time.
The BB circular said if a number of companies include with other companies under the process,
they will be treated as a group of companies.
A group of companies will get loans maximum 35 per cent of the capital of a bank.
Besides, financial dependency of one party on another or more other parties will mean that all of them are connected and will be treated as a corporate group, the BB circular said.
The companies will be treated as a group when 50 per cent or more of one counterparty’s gross receipts or gross expenditures (on an annual basis) is derived from transactions with the other counterparty.
‘When the expected source of repayment for each loan is the same and neither of the counterparty has another source of income from which the loan may be fully repaid, the companies will be treated as group,’ the circular said.
The companies will be treated as a group where it is likely that the financial problems of one of the counterparties would cause difficulties for the other counterparties in terms of full and timely repayment of liabilities.
The BB, however, said that a public limited company, which has 50 per cent or more public shareholdings, would not be considered an enterprise or organisation of any group.
In case of credit facilities provided to the government or against government guarantees and ‘AAA’ rated multilateral development banks’ (like World Bank, ADB or IFC)
guarantee, it would not be considered an enterprise of any corporate group.
In case of interbank money market transactions with a contractual maturity of less than one year, the restrictions will not be applicable.
-With New Age input