BB eases Taka finance against overseas guarantees for resident companies
Photo: Collected
DHAKA, March 15, 2026 (BSS) – Bangladesh Bank (BB) has issued a new directive
granting general authorization to banks and finance companies to extend Taka-
denominated loans to resident companies against overseas Bank Guarantees
(BGs) and Standby Letters of Credit (SBLCs).
The move is expected to significantly enhance access to domestic credit for
resident individuals and institutions, including foreign-owned or foreign-
controlled entities, said a BB circular issued here today.
In the circular, the central bank stated that the decision was made pursuant
to Section 18(2) of the Foreign Exchange Regulation Act, 1947.
The policy shift aims to facilitate financing activities and ease
restrictions previously stipulated in paragraphs 3 and 6(1) of FE Circular
No. 34, dated September 2, 2025, which restricted lending against overseas
guarantees or collateral located outside Bangladesh.
According to the circular, the authorization allows all licensed banks and
finance companies to provide Taka finance regardless of the borrowing
company’s ownership or controlling status.
However, such financing remains subject to compliance with applicable credit
norms, prudential parameters, and specific regulatory conditions.
The central bank has outlined rigorous criteria for overseas instruments to
ensure the security of domestic lending. Overseas BGs or SBLCs must be
unconditional, irrevocable, and payable on first demand.
Furthermore, these instruments must be issued by a non-resident bank or
institution holding a satisfactory credit rating from a recognized
international agency.
Lending institutions are mandated to ensure that these instruments align with
their internal credit policies, risk appetite frameworks, and country risk
assessment standards. Crucially, the central bank has prohibited additional
costs for borrowers, stating: No fees, commissions, charges, or economic
benefits of any kind shall be payable by the resident borrower, directly or
indirectly, in respect of these overseas instruments.
To protect the interests of the domestic financial system, lending banks and
finance companies must ensure that the governing law, dispute resolution
mechanisms, and enforceability of the overseas BGs or SBLCs are clearly
established and legally vetted before any credit is disbursed.
In the event of a borrower default leading to the liquidation or invocation
of the guarantee, the lending institution must inform Bangladesh Bank
immediately. For finance companies extending such credit, the circular
specifies that overseas BGs or SBLCs must be routed through Authorized
Dealers and issued in accordance with paragraph 11 of FE Circular No.
34/2025, against back-to-back overseas guarantees or equivalent cash
deposits.
The central bank emphasized that lending institutions must conduct thorough
due diligence to satisfy themselves regarding the financial soundness,
repayment capacity, and overall creditworthiness of the borrower. This
assessment must be supported by audited financial statements and
comprehensive cash flow analysis.
For loans maintained under renewed SBLCs or BGs, the concerned institutions
must document a clear improvement in the borrower’s business performance.
This includes demonstrable growth in turnover, profitability, and cash flow,
alongside a satisfactory record of account conduct as assessed by the lender.
The circular details specific procedures for handling the liquidated value of
guarantees. If a guarantee is invoked, the funds must be reported as equity
investment in accordance with Chapter 9 of the Guidelines for Foreign
Exchange Transactions-2018, Vol. 1 (GFET), depending on the arrangement
between the resident borrower and the foreign guarantor.
Alternatively, the amount may be reported as loan proceeds. The central bank
clarified that while reporting is mandatory, any future repayment of such
loan proceeds by the resident borrower will require prior approval from the
Foreign Exchange Policy Department-2 of Bangladesh Bank, head office.
Banks and finance companies are required to maintain comprehensive records of
these financing arrangements, including guarantee documents, relationship
evidence, legal opinions, and utilization of funds. These records must be
made available for inspection or supervisory review by Bangladesh Bank upon
request.
The central bank noted that all other relevant instructions regarding foreign
exchange transactions and lending shall remain unchanged.
