The Bangladesh Bank has introduced stricter rules to regulate loans to individuals and institutions linked to banks, aiming to curb internal irregularities and restore confidence in the financial sector.

Issued on Thursday, the new guideline — Transactions with Bank-Related Persons or Institutions — mandates prior central bank approval for loans of Tk 50 lakh or more to bank directors, their family members, and associated entities. For shareholder companies and their nominated directors, the threshold is Tk 1 crore.

The move follows years of allegations that powerful business groups, such as the S Alam Group, exploited their influence over multiple banks to secure large loans, some of which were allegedly siphoned abroad.

The guideline supplements provisions in the Bank-Company (Amendment) Act 2023, offering detailed compliance requirements. It also introduces new reporting obligations: banks must inform the central bank within seven working days if loans to influential insiders exceed Tk 1 crore.

A director’s borrowing is now capped at 50% of the value of their bank shares. Any excess must be reported to the board and the central bank immediately.

Additionally, banks cannot issue credit to their managing directors or CEOs, nor to institutions under their control, while they are in office. Existing loans to such individuals may not be extended, renewed, or modified.

The total credit to all related parties must not exceed 10% of a bank’s Tier-1 capital, reinforcing limits on risky insider lending.