Staff Correspondent: In a move poised to ease credit access and stimulate foreign investment, Bangladesh Bank (BB) has issued a new directive permitting local banks to provide loans in Taka against foreign currency deposits held in offshore banking units (OBUs). This policy applies to both resident and non-resident individuals and entities, including Bangladeshi expatriates.
According to the circular issued on Thursday, foreign currency held by non-residents in their offshore accounts can now be used as collateral for borrowing in local currency through domestic banking channels. Bangladeshi-origin foreign nationals, expatriates, foreign individuals and institutions, as well as overseas-registered companies, are eligible to maintain such deposits in OBUs.
The central bank has clarified that a logical relationship must exist between the account holder and the borrower-for instance, an expatriate and their local beneficiary, foreign shareholders and their companies, or related foreign-owned firms operating in Bangladesh.
The loans permitted under this arrangement will be restricted to short-term working capital financing. Importantly, banks are not allowed to charge any fee on the use of these deposits as collateral. However, to hedge against currency exchange risk, a portion of the deposit may be retained as a margin by the bank.
In the event of loan default, the bank is authorised to liquidate the pledged foreign currency following prescribed procedures to recover the loan.
Furthermore, the central bank has allowed balances held in private foreign currency accounts and non-resident foreign currency deposit accounts to be used as collateral for Taka-denominated loans. However, balances in international banking accounts operated via OBUs will remain ineligible as security.
The policy shift has been welcomed by representatives of foreign-owned companies operating in Bangladesh. They noted that providing local collateral often poses difficulties, and the new rule will simplify access to credit by allowing foreign shareholders or investor companies to use their deposits as guarantees. Observers believe this will encourage fresh foreign investment in the country.
With this move, Bangladesh Bank appears to be addressing both liquidity needs in the private sector and the broader objective of supporting investment amid a tight monetary environment.