Bangladesh Bank has allowed banks to issue foreign-currency bank guarantees and standby letters of credit (SBLC) for local projects implemented through international tenders. The central bank issued a notification on the matter Thursday.
Under the new directive, local banks will be able to issue foreign-currency bank guarantees and SBLCs on behalf of foreign entities, in favor of the relevant project authority, against contracts. This partially amends the provisions governing guarantee issuance by Bangladeshi entities acting on behalf of such foreign entities.
According to Bangladesh Bank’s directive, domestic entities acting as a foreign entity’s strategic partner, local agent or authorized representative will be able to arrange the required bid bonds, performance guarantees or SBLCs for a project.
Bangladesh Bank has attached certain conditions to this facility. These include a requirement that the main contract explicitly allow for foreign-currency guarantees or SBLCs. There must also be a genuine, acceptable contract or business relationship between the domestic entity and the foreign contracting entity, supported by valid documentation. Banks must secure adequate collateral or counter-security against the risk and liability arising from issuing the guarantee or SBLC.
The amount of collateral will be determined based on the level of risk and the banker-client relationship. The contract must clearly specify how the resident entity’s costs, liabilities and other expenses related to the guarantee will be settled, and how the foreign entity will reimburse funds if the guarantee is called (cashed).
Banks have been instructed to comply with their own credit policies, risk management practices and single-borrower exposure limits when offering this facility. Where applicable, approval from the board of directors or appropriate authority is also required.
বাংলায় মূল প্রতিবেদন পড়ুন · Read the original Bengali report