Bangladesh Bank increased the range of offshore banking –

With a view to further expand trade finance activities, Bangladesh Bank has brought important amendments in the guidelines regarding the operation of Offshore Banking Units (OBUs).

As a result, the offshore unit of one bank will be able to give loans to the customers of other banks as well. Where until now offshore units only had the opportunity to provide loans or services to customers of their own banks.

The Central Bank has issued a circular in this regard on Tuesday (November 11). This brings greater flexibility in trade finance financing through Authorized Dealer (AD) Banks.

So far OBUs could provide trade finance to institutions located in specialized and non-specialized areas only through AD branches of their own banks. Which includes Buyers Credit, Accepted Bill Financing etc. The scope of scope has been significantly increased by removing that restriction through the new amendment.

According to the amended provisions, henceforth OBUs will be able to extend trade loans through AD branches of other banks in addition to their own bank’s AD. However, in this case risk assessment, counterparty exposure and limit setting should be done properly. This is seen as a major step towards enhancing inter-bank cooperation in the offshore financing sector.

In the case of institutions located in specialized zones, OBUs can now provide trade finance to institutions that are not wholly foreign-owned through their own AD banks or in collaboration with ADs of other banks for fixed periods. However, this financing must comply with conventional lending policies, prudential guidelines and due diligence processes.

Similarly, institutions in non-specialized areas will now get financing through buyers’ credit, accepted bill financing and other approved trade finance methods through OBU’s own bank or any other bank’s AD. Here also proper risk assessment will be mandatory.

This initiative of Bangladesh Bank is seen as part of strengthening and diversifying the trade finance ecosystem of the country. Expanding the scope of operations of OBUs with ADs of various banks will create opportunities for more efficient use of offshore liquidity, reduce transaction complexity and enhance the competitive environment in the financial sector.

Experts in the sector hailed the decision as a timely and positive step. According to them, the revised framework will widen foreign currency financing opportunities for domestic exporters and importers.

EAR/MKR/JIM