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Bangladeshi Banks Seek Foreign Funds for Dollar-Denominated Loans Amid Tax Exemption

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Commercial banks in Bangladesh are actively pursuing foreign funds to strengthen their offshore portfolios, aiming to offer customers dollar-denominated loans. The recent removal of a 20% tax on interest from foreign loans has reduced borrowing costs, sparking renewed interest in foreign financing, particularly from four local private commercial banks: City Bank, Prime Bank, Eastern Bank, and Bank Asia. These banks are currently in talks with the International Finance Corporation (IFC) to secure a total of $160 million to meet immediate US dollar liquidity needs and provide loans.

The exemption of the 20% tax on foreign loans has made foreign borrowings more attractive, with expectations that they will contribute to reducing the deficit in the country’s financial account by increasing dollar inflows. The IFC has sought the opinion of the Economic Relations Division of the Finance Ministry regarding potential investments in these banks to support working capital, trade-related dollar lending programs, and the broader Bangladeshi economy affected by the COVID-19 pandemic and global economic challenges.

Banks such as City Bank are now engaged in negotiations with the IFC, emphasizing that the tax exemption makes foreign borrowing more viable. These funds are crucial for improving dollar liquidity, facilitating dollar lending to importers and exporters, and contributing to reducing the overall deficit. Eastern Bank also expressed interest in securing foreign currency loans to address import bills and support businesses relying on imported raw materials.

Industry insiders suggest that, with IFC funds, banks could lend in dollars at an approximately 9% interest rate to local enterprises, compared to the 11% rate after the tax imposition in the current budget. The initial tax imposition was aimed at curbing foreign loan borrowing by both banks and businesses, leading to a decline in short-term foreign loans and contributing to a negative balance in foreign deposit accounts.

While the negative balance in foreign deposit accounts initially put pressure on financial accounts, the situation has been gradually improving as banks resume borrowing from foreign sources. The recent exemption of the tax until February has further incentivized banks to seek foreign financing, with imports hitting a 37-month low in December. The ongoing efforts by banks to source foreign funds aim to support economic activities, stabilize the forex market, and address dollar liquidity challenges faced by businesses in Bangladesh.

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Cenbank Prolongs Import Payment Terms for Raw Materials Until Dec 2024

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The Bangladesh Bank (BB) has announced an extension for the payment period against imports of industrial raw materials from 180 to 360 days, a measure now set to remain in place until December 2024. This policy, initially scheduled to end in June of this year, has been prolonged to facilitate trade transactions, according to a BB circular issued today.

“To support trade transactions, it has been decided to extend the policy support until December 31, 2024. The extended usance period will not apply to imports under EDF loans, as previously stipulated. All other relevant instructions remain unchanged,” the circular stated.

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Banks in Industrial Areas to Open June 14-16 for Eid Payments

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To ensure timely payment of salaries and bonuses to garment industry workers before Eid-ul-Azha, the branches of banks in key industrial areas will remain open on a limited basis on June 14, 15, and 16.

The Bangladesh Bank (BB) issued a notification stating that bank branches in Dhaka metropolitan, Ashulia, Tongi, Gazipur, Savar, Bhaluka, and Narayanganj will operate on these days to facilitate financial transactions for garment sector employees.

Typically, Friday and Saturday (June 14 and 15) are weekly holidays, and Sunday (June 16) will be closed for Eid. Despite these closures, the BB has mandated that banks in industrial regions stay open to manage the disbursement of wages and bonuses and facilitate the sale of export bills.

Additionally, bank branches in Chattogram metropolitan and industrial areas will also be open to support garment workers’ payments and the processing of export bills.

The BB has instructed banks to coordinate with local authorities to ensure adequate security at the branches during this period.

Eid-ul-Azha, one of the most significant religious festivals for Muslims, will be celebrated in Bangladesh on June 17.

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Cenbank Mandates Real-Time Reporting of Willful Defaulters

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The Bangladesh Bank (BB) has issued new instructions to banks to submit data on willful defaulters to the Credit Information Bureau (CIB) database. This directive was issued on Tuesday, requiring immediate compliance from commercial banks and non-banking financial institutions (NBFIs).

In a circular released by the CIB of the central bank, banks have been instructed to report their June data in real-time starting July 1. The circular has been sent to top executives of banks for prompt execution.

This move follows an earlier initiative by the BB, outlined in a circular on March 12, aimed at identifying willful defaulters within the banking sector. The central bank also detailed actions to be taken against such defaulters.

According to the circular, any client who takes a loan anonymously and misuses it will be classified as a willful defaulter. Banks were directed to establish a ‘willful defaulter identification unit’ by April 9 to facilitate this identification process.

The circular further stipulates penalties for non-compliance. Banks that violate these conditions will face fines ranging from Tk 50 lakhs to Tk 1 crore. Continued violations will incur additional fines of Tk 1 lakh per day.

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