Bangladesh Bank Allows Foreign Currency Accounts to Hold Foreign Loan Funds

Bangladesh Bank has allowed eligible borrowers to open foreign currency (FC) accounts to hold funds from approved foreign loans in foreign currency. Designated authorised dealer (AD) banks can now open such accounts in the names of eligible borrowers. However, the funds must be used only for the purposes for which the foreign loans were approved.

The Foreign Exchange Policy Department-2 of Bangladesh Bank issued a circular on Wednesday (October 7), and the instruction took effect immediately. According to the circular, private industrial enterprises in Bangladesh can obtain medium- and long-term foreign financing with prior approval from the relevant authorities, as stated in paragraph 28 of a circular issued on September 2. The new facility has been introduced to facilitate cross-border transactions using funds from these approved foreign loans.

AD banks must collect and preserve certified copies of the approvals issued by the relevant authorities for the foreign loans. Where applicable, approval from the Foreign Loan/Suppliers’ Credit Scrutiny Committee of Invest Bangladesh Authority (IBA) must also be obtained.

If a foreign loan is approved by Bangladesh Bank and/or the Standing Committee on Non-Concessional Loans (SCNCL), the AD bank must also collect and preserve copies of the relevant approvals. Funds held in the FC accounts may be used to pay import costs for purposes approved under the foreign loan. Such payments must comply with the applicable Import Policy Order and foreign exchange regulations.

The funds may also be used to pay in foreign currency for genuine services required to implement the approved project or work. Where necessary, approval from the relevant authority must be obtained for service payments. The AD bank must conduct the required checks and deduct applicable taxes and value-added tax (VAT) under existing laws and regulations before depositing them with the government.

If goods or services need to be procured locally, the foreign currency held in the FC account may be converted into taka, subject to the conditions of the approval. Bangladesh Bank said the FC accounts opened under this arrangement may earn interest or profit according to the applicable terms of the banker-customer relationship.

AD banks must regularly report to Bangladesh Bank on the use of the foreign loan funds. Details of fund utilisation must be submitted to the Foreign Exchange Investment Department (FEID) through the prescribed Form-LU at the end of each quarter, namely December, March, June and September. The circular said the relevant FC account must be closed and Bangladesh Bank’s FEID must be informed once the foreign loan funds have been withdrawn and fully utilised.

However, if a loan agreement requires funds to be retained for repayment of the foreign loan, the account may remain open until the loan maturity. Such an account may receive surplus funds from legitimate export earnings after deducting import payments, as well as funds obtained by converting taka from legitimate local sources into foreign currency.

However, the amount retained for loan repayment must not exceed the amount required to pay the next three instalments. Bangladesh Bank said the instructions will apply to FC accounts opened against foreign loans for eligible borrowers approved by the IBA, Bangladesh Bank and, where applicable, the SCNCL. In each case, the relevant approvals and the terms of the loan agreement with the foreign lender must be followed.

AD banks must ensure that foreign loan funds held in these accounts are used only for the purposes for which the loans were approved. They must also ensure full compliance with existing foreign exchange regulations, approval conditions and all terms of the foreign loan agreements.

The decision creates a formal banking mechanism for approved foreign loan funds to be brought into Bangladesh and retained in foreign currency for payments related to imports and legitimate services for the relevant projects. However, quarterly reporting on fund utilisation and the requirement to use the funds only for approved purposes will remain in place.