B Mirror Report: Bangladesh Bank has eased the requirement for maintaining security reserves in a bid to encourage banks to increase lending to the agriculture and SME sectors. As a result, banks will now need to set aside smaller reserves against these loans than before.

Banks usually maintain security reserves from their operating profits, so the relaxation is expected to enhance their profitability. The central bank issued a circular in this regard on Monday.

According to the circular, banks are required to maintain security reserves at the rate of 1% and 5% against standard and special mention account (SMA) loans, respectively. However, to promote short-term agricultural financing and lending to cottage, micro, and small enterprises under the CMSME sector, Bangladesh Bank has introduced a temporary relaxation.

Until December 31, 2026, banks will only need to maintain a 1% security reserve against all unclassified (standard and SMA) short-term agricultural loans and loans to cottage, micro, and small industrial enterprises within the CMSME category.

The decision follows a proposal raised by representatives of the Association of Bankers, Bangladesh (ABB), during a meeting with Bangladesh Bank officials late last month. BB Governor Ahsan H. Mansur and other senior officials attended the meeting, after which the central bank approved the concession announced on Monday.