BB allows banks to issue foreign currency guarantees for foreign firms' local projects
Bangladesh Bank (BB) has allowed authorised dealers (ADs) of foreign exchange to issue bank guarantees and standby letters of credit (SBLCs) in foreign currency on behalf of resident entities in favour of local project and procurement authorities.
The decision was announced today in a circular issued by the Foreign Exchange Policy Department-1 (FEPD-1) of Bangladesh Bank.
The circular, addressed to all authorised dealers in foreign exchange in Bangladesh, aims to facilitate the participation of foreign companies in projects awarded through international tenders.
According to the circular, foreign companies awarded contracts or work orders under international tenders in Bangladesh may require bid bonds, performance guarantees or SBLCs in favour of relevant government authorities, departments, agencies, state-owned enterprises, project or procurement entities and other duly authorised bodies.
To facilitate such arrangements, ADs may now issue guarantees or SBLCs in foreign currency on behalf of resident entities in favour of relevant project or procurement authorities against contracts or work orders awarded to foreign companies through international tenders.
The facility will be subject to several conditions. The underlying contractual arrangements must allow the relevant project or procurement authorities to accept the guarantees or SBLCs.
Resident entities must also have bona fide contractual or commercial relationships with the foreign awardees, supported by documentary evidence.
Bangladesh Bank has further instructed ADs to ensure that their exposure arising from the issuance of guarantees or SBLCs is appropriately covered by collateral or counter-security, proportionate to the nature and extent of the exposure and based on the banker-customer relationship and underlying contractual arrangements.
The contractual arrangements must also provide appropriate reimbursement and compensation to resident entities for costs, liabilities and expenses arising from the guarantees or SBLCs.
Any amount payable following invocation of a guarantee must be settled by the foreign company in accordance with the agreed arrangements.
The central bank said ADs must issue such guarantees or SBLCs in line with applicable credit norms, risk-management policies and prudential parameters, including the prescribed single-borrower exposure limit.
Required approval from the board of directors or competent authority must also be obtained where applicable.
The circular further states that claims arising from invocation of the guarantees will ordinarily be settled in taka equivalent.
However, where the relevant tender or contract documents specifically require settlement in foreign currency, ADs may settle the claim in foreign currency through the Real Time Gross Settlement (RTGS) system.
The latest circular refers to paragraph 13 of FE Circular No. 34, dated September 2, 2025, concerning the issuance of guarantees in favour of local project authorities on behalf of residents.
