Bangladesh Bank Eases Foreign Currency Guarantee Rules for Local Projects

According to a Bangladesh Bank circular issued on 27 August 2026 by the Foreign Exchange Policy Department-1 (FEPD-1), authorized dealers (ADs) of foreign exchange may now issue bank guarantees and standby letters of credit (SBLCs) in foreign currency on behalf of resident entities in favor of local project and procurement authorities — specifically where foreign companies have secured contracts through international tenders.

The structural change

The measure addresses a recurring friction point in the project finance pipeline: internationally tendered contracts have historically required bid bonds, performance guarantees, or SBLCs denominated in foreign currency, a demand the prevailing guarantee framework did not adequately accommodate. The circular permits ADs to extend such instruments, conditional on the underlying contract explicitly authorizing the relevant authority — whether a government department, agency, state-owned enterprise, or duly authorized procurement body — to accept them. Resident entities must additionally demonstrate a bona fide contractual or commercial relationship with the foreign awardee, supported by documentary evidence proportionate to the exposure.

Prudential parameters

ADs are required to ensure that exposure arising from guarantee or SBLC issuance is appropriately covered by collateral or counter-security, calibrated to the nature of the underlying contract and the banker-customer relationship. Claims will ordinarily be settled in taka equivalent; however, where tender or contract documents specifically require foreign-currency settlement, ADs may route payment through the Real Time Gross Settlement (RTGS) system. All issuances must conform to applicable credit norms, risk-management policies, and prudential parameters — including the prescribed single-borrower exposure limit — with board-level approval mandatory where applicable. The contractual framework must also provide for reimbursement and compensation to resident entities for costs, liabilities, and expenses arising from any invocation.

Forward read

The adjustment is incremental rather than transformative: the circular references paragraph 13 of FE Circular No. 34, dated 2 September 2025, layering a targeted facility onto the existing guarantee regime rather than overhauling it. The operational signal, however, is consequential. Bangladesh is narrowing the currency-denomination gap that has historically dampened foreign contractor participation in tenders, without diluting prudential guardrails. For ADs, the practical implication is an expanded intermediation role — and a correspondingly expanded exposure profile requiring careful calibration against capital adequacy norms. The wider pattern of capital intermediation being actively reshaped — from regulatory easing in project finance to private capital reconfiguring adjacent industries, as examined in How Private Equity Is Reshaping the Business of Professional Sports — points to a broader restructuring of the channels through which cross-border investment is deployed and risk is absorbed.