Bangladesh Bank has allowed banks and financial institutions to provide loans in Taka against foreign bank guarantees and standby letters of credit (SBLCs), expanding the scope for domestic lending.
The central bank issued a circular on Sunday granting general permission for such financing to companies registered in Bangladesh, including those that are foreign-owned or foreign-controlled.
According to the circular, the decision was taken under Section 18(2) of the Foreign Exchange Control Act 1947.
The new policy relaxes earlier restrictions on lending against guarantees or collateral located abroad that were outlined in Sections 3 and 6(1) of FE Circular No. 34 issued on September 2, 2025.
Under the revised rules, all licensed banks and financial institutions will be able to provide loans in local currency against foreign guarantees, regardless of the ownership structure of the borrowing company. However, such financing must comply with prevailing lending policies, prudential financial standards and other regulatory requirements.
To safeguard the domestic financial system, the central bank has set strict conditions for accepting foreign guarantees. These guarantees or SBLCs must be unconditional, irrevocable and payable on first demand.
In addition, they must be issued by foreign banks or institutions with satisfactory credit ratings from internationally recognised rating agencies.
Banks and financial institutions must also ensure that the guarantor institutions meet their internal credit policy requirements, risk management frameworks and domestic risk assessment criteria.
The circular further states that the domestic borrower cannot directly or indirectly pay any fee, commission or other financial benefit in relation to such foreign bank guarantees or SBLCs.
Before disbursing loans, lenders have been instructed to verify the legal validity, applicable laws and dispute resolution mechanisms related to the foreign guarantees.
If a foreign bank guarantee or SBLC is encashed due to borrower default, Bangladesh Bank must be informed immediately.
For financial institutions, the circular specifies that foreign guarantees or SBLCs must be issued through an Authorised Dealer (AD) bank and backed by an equivalent foreign guarantee or cash deposit as outlined in paragraph 11 of FE Circular No. 34 of 2025.
The directive also requires lenders to assess the financial strength and repayment capacity of borrowers before approving loans, based on audited financial statements, cash flow analysis and other relevant financial indicators.
For loan renewals based on renewed SBLCs or bank guarantees, banks must verify improvements in the borrower’s business performance, including growth in turnover, profit and cash flow.
The circular also outlines procedures if a guarantee is encashed. The received amount must be reported either as equity investment or as a loan in accordance with the Guidelines for Foreign Exchange Transactions 2018 (GFET), depending on the arrangement between the foreign guarantor and the domestic borrower.
If the amount is treated as a loan, prior approval from Bangladesh Bank’s Foreign Exchange Policy Division-2 will be required for repayment.
The central bank added that all other existing guidelines related to foreign exchange transactions and lending will remain unchanged.
Source: BSS
Bd-pratidin English/ Jisan
