Bangladesh Bank has eased rules for foreign-currency bank guarantees and standby letters of credit (SBLCs), allowing authorised dealer banks to issue them on behalf of local entities involved in projects awarded to foreign companies through international tenders.
The central bank announced the decision in a circular issued by its Foreign Exchange Policy Department-1 (FEPD-1) on Thursday.
Under the new arrangement, authorised dealers can issue foreign-currency guarantees or SBLCs in favour of government authorities, agencies, state-owned enterprises and other authorised project or procurement bodies. The facility will apply when a foreign company wins a contract or work order through an international tender in Bangladesh.
Such guarantees may cover bid bonds, performance guarantees and SBLC requirements associated with the project.
The move is intended to make it easier for foreign companies to participate in projects in Bangladesh by enabling local entities with genuine contractual or commercial ties to the foreign contractors to arrange the required financial instruments.
Bangladesh Bank, however, has placed several conditions on the facility. The relevant contracts must permit the project or procurement authorities to accept the guarantees or SBLCs, while resident entities must provide documentary evidence of their bona fide relationship with the foreign company.
Banks have also been instructed to ensure that their exposure from issuing the guarantees is adequately backed by collateral or counter-security. The level of security must correspond to the nature and extent of the bank`s exposure and the underlying contractual arrangements.
The contracts must also ensure that resident entities are reimbursed and compensated by the foreign companies for any costs, liabilities or expenses arising from the guarantees or SBLCs.
If a guarantee is invoked, any resulting payment must ultimately be settled by the foreign company according to the agreed contractual arrangements.
Bangladesh Bank said authorised dealers must follow applicable credit standards, risk-management policies and prudential requirements, including the prescribed single-borrower exposure limit. Required approval from the bank`s board or competent authority must also be obtained where applicable.
Claims arising from an invoked guarantee will generally be settled in the taka equivalent. However, if the tender or contract specifically requires payment in foreign currency, banks may settle the claim in foreign currency through the Real Time Gross Settlement (RTGS) system.
The latest circular also refers to paragraph 13 of FE Circular No. 34, issued on September 2, 2025, which dealt with guarantees in favour of local project authorities on behalf of resident entities.
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