In a move aimed at bolstering financial safeguards and ensuring prudent management of external debt, Bangladesh Bank (BB)'s Foreign Exchange Policy Department (FEPD) has significantly increased the cash margin requirement to 25pc for repayment commitments on external borrowings.
A circular issued on Wednesday directed to all Authorized Dealer (AD) banks across the nation, mandates a sharp rise in the cash margin from the previous 5 per cent to a substantial 25 per cent of the total commitment amount.
This policy revision, communicated to the head and principal offices of all ADs, underscores Bangladesh Bank's proactive approach to strengthening the regulatory framework surrounding foreign currency outflows related to debt repayments. The increased cash margin acts as a buffer, requiring resident entities seeking external financing to allocate a larger upfront deposit with their banks when securing repayment commitments.
Beyond the enhanced cash margin, the circular introduces a new prerequisite for borrowers. Entities must now demonstrate an "adequate funded credit line" with their respective banks to even qualify for these repayment commitments. This additional layer of scrutiny ensures that borrowers possess sufficient financial backing and have established banking relationships capable of supporting their repayment obligations.
The current directive builds upon the foundation laid by FE Circular No. 23, issued in June 2021. That earlier circular had permitted ADs to issue repayment commitments on behalf of Bangladeshi borrowers in favor of foreign lenders, initially setting the cash margin at 5 percent alongside provisions for other eligible collaterals.
While the cash margin and the funded credit line requirement are now amplified, all other stipulations outlined in FE Circular No. 23/2021 remain in effect.
Moving forward, all applications for repayment commitments will be subject to these updated and stricter guidelines.
Authorized Dealers are now tasked with swiftly disseminating these crucial policy changes to their corporate and individual clientele who engage in external borrowing. This proactive communication is vital to ensure seamless compliance and uninterrupted processing of repayment commitments under the revised framework.
