Banks no longer need BB approval to obtain guarantees for loans to foreign companies

Commercial banks in Bangladesh will not need approval from Bangladesh Bank to obtain guarantees from foreign banks when lending to foreign companies operating in the country.

The facility will apply only to overseas banks that maintain satisfactory credit ratings from internationally recognised rating agencies.

A senior official of the central bank said that foreign banks acting as guarantors must have credit ratings from agencies such as Moody's or S&P Global etc. The official added that banks may also consider granting loan relief, as many companies operating in the country lack sufficient collateral. However, when these companies seek loans, banks require collateral, which they often do not have. As a result, such companies turn to foreign banks to act as guarantors.

The senior official said the facility is open to both foreign and local companies, although foreign multinational companies benefit more often due to the lack of collateral in Bangladesh. These foreign companies typically obtain guarantees from banks such as HSBC, JP Morgan Chase, Bank of America, Bank of China, and Standard Chartered etc.

Another senior official of the central bank explained to the Business Standard that several companies operate in Bangladesh, often receiving projects from other companies. For example, a company may secure a project worth Tk20 crore but require a Tk2 crore bank loan. When approaching a bank, the company is typically asked to provide collateral. In such cases, a foreign bank can step in as a guarantor. These companies have limited fixed and movable assets, which is why they require bank guarantees. On the other hand, banks in Bangladesh need extra security.

In the circular, overseas BGs (Bank Guarantee) or SBLCs (Standby Letter of Credit) shall be unconditional, irrevocable, and payable on first demand, and shall be issued by a non-resident bank or institution having a satisfactory credit rating from a recognised international credit rating agency, with such rating being at least equivalent to 'BB Rating Grade 1–2' as per BRPD Circular.

Acceptable to the lending banks and finance companies in accordance with their internal credit policies, risk appetite frameworks, and country risk assessment standards.  No fees, commissions, charges, or economic benefits of any kind shall be payable by the resident borrower, directly or indirectly, in respect of such overseas BGs or SBLCs. 

Lending banks and finance companies shall ensure that the governing law, dispute resolution mechanism, and enforceability of the overseas BGs or SBLCs are clearly established and legally vetted prior to credit disbursement. Bangladesh Bank shall be informed immediately in the event of liquidation or invocation of the overseas BGs or SBLCs due to payment default by borrowers. 

The lending banks or finance companies shall satisfy themselves about the financial soundness, repayment capacity, and overall creditworthiness of the borrowing entity based on audited financial statements, cash flow analysis, and other relevant financial indicators; and the renewed SBLC or BG against the respective Taka loan may be kept under lien. 

However, in such cases, the concerned institutions must ensure improvement in the borrower's business performance, including growth in turnover, profitability, and cash flow, as well as satisfactory account conduct, as assessed by the respective lending banks or finance companies.