Bangladesh Bank has allowed resident companies to obtain domestic Taka loans backed by guarantees issued by overseas banks, easing earlier restrictions that limited the use of foreign guarantees to access local currency credit.
The central bank announced the move in a circular issued on Sunday, saying the facility will be available to all resident companies regardless of ownership or controlling status.
The regulator said overseas bank guarantees and standby letters of credit must be unconditional, irrevocable and payable on first demand.
They must also be issued by non-resident banks or financial institutions with satisfactory ratings from recognised international credit agencies.
Borrowers will not be permitted to pay any fees, commissions or charges related to such guarantees.
Banks and financial institutions providing the loans have been instructed to verify the governing law, dispute resolution mechanism and enforceability of the guarantees through legal review before disbursing funds.
Lenders must also inform Bangladesh Bank immediately if any overseas guarantee is invoked or liquidated because of borrower default.
Before approving credit, banks are required to assess the borrower’s financial health, repayment capacity and creditworthiness using audited financial statements, cash-flow analysis and other relevant indicators.
The circular allows renewed bank guarantees or standby letters of credit to remain under lien, but lenders must ensure the borrower’s business performance improves in terms of turnover, profitability, cash flow and account conduct.
Finance companies must route overseas guarantees through authorised dealer banks and, where necessary, obtain back-to-back guarantees or equivalent cash deposits.
If a guarantee is liquidated, the proceeds may be recorded either as equity investment or as loan funds depending on the agreement with the foreign guarantor.
Any future repayment of such funds will require prior approval from Bangladesh Bank’s Foreign Exchange Policy Department.
Banks and financial institutions have also been instructed to maintain complete records of guarantee documents, legal opinions, proof of relationships and fund utilisation for inspection or supervisory review by the central bank.
