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Banks restricted from spending beyond 30% of paid up capital on land, floor space

  • Published at 03:45 pm August 12th, 2013
Banks restricted from spending beyond 30% of paid up capital on land, floor space

Bangladesh Bank has imposed a restriction on banks, having book value of properties already exceed-ing 30% of paid up capital, to purchase immovable properties like land and floor space.

According to a circular issued yesterday these group of banks would not be allowed to buy properties unless they increase paid up capital. The restriction takes immediate effect.

A banker and economic analyst Mamun Rashid said the banks have a tendency to buy-sell properties, which is not their main business. “This trend cannot be seen anywhere else in the world.”

Bangladesh Bank initiative would help prevent these activities, prompting the banks to focus on their main business of deposit collection and providing loans to the productive sectors, he said, urging the central bank to enforce the restriction.

Earlier in January 2010, Bangladesh Bank had asked the scheduled banks to take permission before any purchase or sell of immovable properties to prevent the tendency of unnecessary purchase or sell.

On July 30, 2013, the central bank issued a circular imposing restrictions on purchase of any land, floor space or taking lease of space for ten years and more than that for any purposes other than the use of their own by the head offices.

It directed the banks that they could only purchase a floor or take a space on lease for the use of its branch within the area of the city corporation.

If a bank wants to purchase land, building, floor space and acquire their lease, it will have to get prior permission of the central bank, the circular said.

BB sources said some banks have been purchasing land or permanent structures without any logical ground or need, which is a violation of the Bank Company Act.

The central bank also received allegations of corruption in the purchase of land by a number of banks. In many cases, owners are selling low quality lands or lands with legal complications to banks at higher prices, the sources said.

BB officials said giving loans for buying lands is on the rise. The land price has been on a steep rise as a sequel to a growing propensity by institutions like banks to buy land and their increased demand for it.

Because of the flow of money to such unproductive sectors, it is having an adverse impact on the country’s economy.

The sources said the amount of bank loans for purchasing land has been increasing every year.

However, the amount of loans for land purchases is, in real sense, much higher than what is shown in the books of accounts of banks because of a diversion of a substantial amount of credits, sanctioned for other purposes, to making land-related deals.

A high official of a bank admitted that many borrowers take loans from banks and buy land.

In one or two years, the price of the land increases because of its scarcity and the borrowers then sell the land at a higher price.