BB consolidates foreign exchange rules on loans, overdrafts, guarantees

The Bangladesh Bank today (2 September) issued a circular on foreign exchange transactions, consolidating regulations on loans, overdrafts and guarantees, in a bid to ease cross-border financial dealings.

The central bank said instructions previously scattered across the Guidelines for Foreign Exchange Transactions and subsequent circulars have now been compiled into a single framework, with necessary modifications. 

The new directive will be valid for one year from its issuance.

Industry insiders said the initiative, by bringing all relevant provisions under one umbrella, would ease both funded and non-funded transactions, particularly benefiting foreign-owned companies. 

They view the move as part of Bangladesh Bank's broader push to streamline foreign exchange regulations and ensure smoother financial dealings in an increasingly globalised economy.

The circular is divided into three parts. Part-A covers loans, overdrafts and guarantees, including commercial loans, private loans backed by overseas guarantees or collaterals, and various categories of guarantees for residents and non-residents. It also includes repayment guarantees and provisions for foreign loans by licensed finance companies. 

As per the circular, banks must follow internationally accepted best practices in issuing guarantees, standby letters of credit (SBLCs), and other payment commitments, in line with the latest versions of the Uniform Rules for Demand Guarantees (URDG), the Uniform Customs and Practice for Documentary Credits (UCP), the International Standby Practices (ISP), and other relevant standards, while ensuring compliance with applicable domestic laws and regulations.

Part-B focuses on enterprises in specialised economic zones, setting out rules for foreign currency loans to Type A, B and C enterprises, Taka loans to Type B enterprises, discounting of usance bills, working capital support for B and C enterprises, and medium- to long-term external borrowing.

Part-C addresses borrowing abroad by resident entities, with guidelines for private and public sector enterprises, guarantees for repayment of foreign loans, and working capital borrowing by foreign-owned or controlled firms.