Dhaka, Bangladesh (BBN)- The central bank of Bangladesh has allowed banks to issue foreign currency guarantees and standby letters of credit (SBLCs) on behalf of resident entities representing foreign firms that win contracts through international tenders, widening financing support for major projects.
Under the new arrangement, resident entities acting as strategic partners, local agents or authorised representatives of foreign companies may arrange the required bid bonds, performance guarantees or SBLCs for projects in Bangladesh, according to a notification issued by the Bangladesh Bank (BB) on Thursday.
The central bank issued the notification as a partial modification of the existing provisions governing the issuance of guarantees in favour of local project authorities on behalf of resident entities, according to officials.
They also said the facility will apply where the underlying contractual arrangements permit the acceptance of such guarantees or SBLCs by the relevant project authorities or procuring entities.
The resident entity must also have a bona fide contractual or commercial relationship with the foreign awardee, supported by documentary evidence.
The central bank said Authorised Dealer (AD) banks must ensure that the exposure arising from such guarantees or SBLCs is adequately covered by collateral or counter-security, commensurate with the nature and extent of the exposure and based on the banker-customer relationship and underlying contractual arrangements.
The contractual arrangements must also provide for appropriate reimbursement and compensation to resident entities for costs, liabilities and expenses arising from the guarantee or SBLC.
They should specify, where appropriate, how any amount payable upon invocation will be settled by the foreign company.
The ADs will have to issue such guarantees and SBLCs in accordance with their applicable credit norms, risk-management policies and prudential requirements, including the prescribed single-borrower exposure limit. Approval from the Board of Directors or other competent authority, as applicable, will also be required.
BBN/SSR/AD