B Mirror Report: Bangladesh Bank (BB) has issued a new directive granting banks and finance companies general authorization to extend Taka-denominated loans to resident companies using overseas Bank Guarantees (BGs) and Standby Letters of Credit (SBLCs) as collateral.

The move, outlined in a circular issued today, is expected to expand access to domestic credit for resident businesses and individuals, including foreign-owned or controlled entities. The decision was made under Section 18(2) of the Foreign Exchange Regulation Act, 1947.

Previously, lending against overseas guarantees or foreign-based collateral was restricted under FE Circular No. 34 of September 2, 2025. Under the new policy, all licensed banks and finance companies may provide Taka loans irrespective of the borrower’s ownership status, while ensuring compliance with credit norms, prudential rules, and regulatory conditions.

The circular specifies that overseas BGs or SBLCs must be unconditional, irrevocable, payable on demand, and issued by banks with satisfactory international credit ratings. Lending institutions must also verify enforceability, governing law, and dispute resolution before disbursing funds, and no extra costs can be imposed on borrowers.

In case of default or invocation of the guarantees, banks must immediately report to Bangladesh Bank. Finance companies must process overseas instruments through Authorized Dealers following FE Circular No. 34/2025. The central bank also emphasized thorough due diligence, including audited financial statements, cash flow analysis, and evidence of improved business performance for renewed guarantees.

The circular outlines reporting procedures for liquidated guarantee values, which can be treated as equity investment or loan proceeds, subject to prior approval from the Foreign Exchange Policy Department-2 for repayments. Banks and finance companies are required to maintain comprehensive documentation for supervisory review.

Bangladesh Bank clarified that all other foreign exchange and lending instructions remain unchanged.