Bangladesh Bank on Tuesday allowed foreign companies in Bangladesh to receive term loans in local currency from scheduled banks and non-bank financial institutions.
BB officials told New Age that the central bank had relaxed the foreign exchange regulations in accordance with the International Monetary Fund’s recommendations.To this end, the BB issued a circular to managing directors and chief executive officers of all banks and NBFIs saying that the foreign-owned and controlled companies engaged in manufacturing and services output activities for three years or longer in Bangladesh would be able to access term loans in local currency from the domestic market.
The BB circular said that the central bank had extended the support to foreign companies as the country’s financial sector was now maintaining a comfortable situation.
The BB asked the banks and the NBFIs to follow all applicable credit norms and prudential parameters including single borrower exposure limit and debt-equity ratio if they approved any term loan to foreign companies.
The banks and the NBFIs will have to submit report about their term lending to foreign companies to the general manager of the BB’s Foreign Exchange Investment Department in accordance with the Guidelines for Foreign Exchange Transaction.
A BB official said that the foreign companies would receive term loan from the banks and the NBFIs before 2006. The central bank imposed the restriction after the country’s banks and the NBFIs had plunged in a severe liquidity crisis in 2006, he said.
Another BB official, however, said that the central bank had relaxed the policy in accordance with the IMF’s proposals and it might create an extra burden on the country’s money market when the local businesspeople would show interest in loans from the banks.
The businesspeople have recently adopted a ‘wait and see’ approach to expand their business by receiving loan from the banks and the NBFIs due to the political uncertainty over the general elections, he said.
Against the backdrop, the rate on interest on lending will increase significantly when the business situation will be eased, he said.
The foreign companies are now bringing foreign exchange in the country to operate their business which ultimately put a positive impact on the foreign exchange reserve.
The foreign companies may not bring such type of foreign exchange in the days to come as they will be able to manage the fund from the local market, the official said.
-With New Age input
