Published :
Updated :
For all latest news, follow The Financial Express Google News channel.
To facilitate foreign investment in the country, the Bangladesh Bank has allowed offshore banking units (OBUs) to use foreign-currency deposits (FCDs) by non-resident accountholders as collateral against lending.
Under a relaxed regulation, foreign companies are eligible to avail local currency, Bangladesh Taka (BDT), loan against the collateral of foreign currency deposits maintained in Bangladesh by their shareholders or parent companies.
Mamun Rashid, Chairman of Financial Excellence Limited, welcomed the central bank's latest move, saying that it will help increase the inflow of foreign direct investment (FDI) to some extent.
Mr Mamun, also an economic analyst and experienced banker, said it will also help improve Bangladesh's position in the cost of doing business index.
"Our central bank should focus on OBU business, like Malaysia and the Philippines, to attract FDI and boost foreign currency capital inflow into the country," he told The Financial Express (FE) while responding to a query.
To facilitate financing activities, it has been decided that OBUs may allow foreign currency deposits of non-resident account-holders for use by their domestic banking units as collateral against financing to resident companies/firms and individuals, according to a notification issued by the Bangladesh Bank (BB) on Thursday.
In accordance with the regulations, the OBUs can take deposits in foreign currency from non-resident Bangladeshi nationals, persons of Bangladeshi origin, foreign nationals and enterprises, companies/firms registered and operating abroad, foreign institutional investors, etc.
From now on, the fund can be used as collateral by banks for lending to resident companies and persons, according to the central bankers.
In this case, banks will satisfy themselves regarding the bona fide relations between account-holders and borrowers in Bangladesh, such as non-resident Bangladeshis (NRBs) and their beneficiaries, foreign shareholders/investors and their investee companies, etc.
NRBs can also avail loans by keeping their foreign currency deposits as collateral, as per the latest notification.
The collateral shall be used for extending short-term working capital loans in local currency. There will be no charges/fees against such collateral, the circular noted.
The central bank also allowed banks to maintain margin if necessary to absorb exchange rate risk, they added.
In the event of the respective loan not being repaid, banks will liquidate the foreign currency collateral subject to observance of some formalities, the notification added.
In addition to foreign currency deposits of OBUs, balances held in private foreign currency accounts and non-resident foreign currency deposit accounts can be used as collateral for BDT lending.
But balances held in international banking (IB) accounts maintained with OBUs cannot be used as collateral for lending, the central bank noted.
Foreign-owned companies hailed the decision of the central bank as a milestone.
"It is not easy to arrange collateral locally for foreign-owned companies to borrow from the banking system," a senior BB official told the FE while replying to a query.
He also said the new policy will support these companies to avail local currency loans against collateral of foreign currency deposits maintained in Bangladesh by their shareholders/parent companies.
Echoing Mr Mamun, the central banker expects that the latest policy will help encourage inflow of FDI in Bangladesh in the near future.
Meanwhile, the inflow of net FDI dropped by nearly 29 per cent to US$910 million in the July-April period of the just-ended fiscal year (FY 2024-25) from $1.28 billion a year ago, according to the central bank's latest statistics.
It was $819 million in the July-March period of FY25.
siddique.islam@gmail.com