Bangladesh Bank (BB) has eased bank guarantee requirements for foreign companies awarded projects in Bangladesh through international tenders, allowing their local partners, agents or authorised representatives to arrange foreign-currency guarantees through domestic banks.
The move allows foreign companies to use local entities to arrange bid bonds, performance guarantees and standby letters of credit (SBLCs) required for such projects instead of relying solely on their own or overseas banks.
The central bank issued a circular on Thursday, partially modifying existing rules governing guarantees issued on behalf of resident entities in favour of local project authorities.
Under the revised arrangement, a foreign company awarded a project through an international tender may have its local strategic partner, agent or authorised representative arrange the required guarantee in favour of the relevant project authority or procuring entity. Authorised Dealer (AD) banks will be allowed to issue such guarantees in foreign currency.
To qualify, the local entity must have a bona fide contractual or commercial relationship with the foreign company and provide documentary evidence. The project contract must also allow the procuring entity to accept a guarantee arranged by the local entity.
Banks must secure their exposure through appropriate collateral or counter-security, with the level of security determined based on the bank-customer relationship, contractual arrangements and the nature and extent of the exposure.
The contract between the foreign company and its local partner must specify reimbursement or compensation arrangements for costs, liabilities or expenses arising from the guarantee. It must also outline, where applicable, how the foreign company will settle any amount payable if the guarantee is invoked.
Banks issuing such guarantees must comply with credit standards, risk-management policies and applicable prudential requirements, including the prescribed single-borrower exposure limit.
The guarantee will also require approval from the bank’s board of directors or other competent authority, as applicable.
