Central Bank Tightens Oversight on Large Loans

Bangladesh Bank is preparing to introduce a far more stringent supervisory regime for large-scale lending, aiming to address long-standing structural weaknesses, governance lapses and the persistent risk of non-performing loans in the banking sector. The initiative reflects growing concern that irregularities associated with high-value loans have posed disproportionate risks to overall financial stability, largely due to inflated collateral valuations, forged documentation and weak record-keeping practices in the past.

Under the proposed framework, any loan exceeding BDT 50 billion will fall under special supervision. The central bank’s rationale is that larger exposures inherently carry higher systemic risk, and any failure in proper credit appraisal or risk assessment can quickly escalate into a sector-wide problem. Regulators believe that focusing first on large loans will make it easier to safeguard the stability of the banking system as a whole, while simultaneously improving asset quality and transparency.

The outline of this policy was presented by Bangladesh Bank Governor Dr Ahsan H. Mansur during the announcement of the monetary policy for the January–June period of the current year. He emphasised that, in the present policy stance, financial discipline, institutional integrity and prudent risk management are being prioritised over rapid credit expansion. According to the governor, a formal directive will soon be issued authorising Bangladesh Bank’s own inspection teams to conduct direct, on-site verification of large loan accounts at commercial banks.

This inspection process will extend well beyond desk-based reviews of paperwork. Inspectors will physically verify the existence of pledged collateral, examine the ownership and authenticity of title deeds, and assess whether declared asset values are aligned with prevailing market prices. Particular attention will be paid to land records, registration documents, mutation certificates and mortgage deeds, areas where fraudulent practices have historically been most prevalent. The central bank expects that this hands-on approach will significantly reduce opportunities for misrepresentation and overvaluation.

To ensure the effectiveness of the initiative, Bangladesh Bank is also strengthening its internal technical capacity. Specialised personnel are being trained to identify forged documents and analyse land-related records more rigorously. In parallel, commercial banks have begun tightening their own procedures, especially for loan approvals in the BDT 100–200 billion range, signalling a gradual shift towards more responsible credit management.

On the legal front, the governor expressed disappointment that proposed amendments to the Bangladesh Bank Order of 1972 were not approved during the interim government’s tenure. He argued that legal reforms are essential to enhance the central bank’s autonomy and accountability. These amendments are expected to be resubmitted once an elected government assumes office. Meanwhile, two critical laws, including a bank resolution framework, have already been approved and are under implementation, strengthening the broader financial stability architecture.

Dr Mansur also noted that internationally recognised standards emphasise permanent legal protection for central banks, enabling them to maintain long-term financial stability free from short-term political pressures.

Key Features of the Proposed Large Loan Oversight Framework

Analysts view the tighter oversight of large loans as a critical step towards addressing entrenched weaknesses in the banking sector and restoring confidence among depositors and investors alike.