Regulatory Alerts2024-11-27
Added
BRPD Circular Letter No. 50: Loss from exchange rate fluctuations during settlement of import liability
The document instructs scheduled banks in Bangladesh to recognize unexpected exchange rate losses incurred by specific industries (steel, cement, and price-controlled sectors) on import raw materials purchased between January and December 2022. Banks must calculate the loss as 80% of the difference between the exchange rate at settlement and the rate at the letter of credit establishment, applied to the foreign currency amount. This calculated loss amount may be restructured as a separate term loan with a maximum tenure of eight years and a one-year grace period, subject to credit risk analysis, non-default status of the borrower, and compliance with single borrower exposure limits. Customers must apply for this facility by March 31, 2025, and banks must retain supporting documentation for inspection by the Bangladesh Bank's inspection department.
Bangladesh Bank Chief Controller's Office Motijheel, Dhaka-1000 Bangladesh Ref No: BRPD Circular Letter No. 50 Banking Regulation and Policy Department 27 November 2024 12 Agrahayan 1431
Managing Directors / Chief Executive Officers All Scheduled Banks Operating in Bangladesh
Dear Sir,
Subject: Loss from exchange rate fluctuations during settlement of import liability
Due to various reasons including the long-term effects of Covid-19, the Russia-Ukraine war, and the global economic recession, the value of the Taka against foreign currencies has decreased unexpectedly. Consequently, local production-oriented industries have faced losses from exchange rate fluctuations when importing raw materials. As a result, the production capacity of these establishments has decreased, non-performing loans are being created, and current capital shortages are being observed.
- In this context, to maintain the production capacity of import-dependent industries such as the steel sector, cement sector, and local industrial establishments whose product sales prices are fixed by the government, and thereby to sustain the country's economic growth and export momentum, the following instructions are issued:
a) In the case of Usance Letters of Credit (LC) established between January 2022 and December 2022 for the import of raw materials by industrial establishments, the total amount of unexpected exchange rate losses must be determined by the respective bank;
b) Total amount of unexpected exchange rate losses = (Exchange rate on the date of LC settlement - Exchange rate on the date of LC establishment) × 80% × Amount of foreign currency payable;
c) An amount equivalent to the determined loss may be transferred as a separate term loan outside the working capital credit limit, based on the bank-customer relationship after credit risk analysis and with the approval of the appropriate authority. This loan shall be repayable in equal installments (monthly/quarterly) with a maximum grace period of 1 (one) year and a maximum tenure of 8 (eight) years;
d) The Single Borrower Exposure Limit (SBEL) must not be exceeded under any circumstances;
e) No defaulting customer establishment shall be eligible for this benefit;
f) To avail this benefit, the customer must submit an application to the respective bank by March 31, 2025;
g) The bank must verify whether the customer has actually suffered asset loss due to foreign exchange rate fluctuations and must properly preserve relevant documents for verification by the inspection department of Bangladesh Bank.
- These instructions are issued under the powers conferred by Section 45 of the Bank Company Act, 1991.
Yours faithfully,
(Mohammad Shahriar Siddique) Director (BRPD) Phone: 9530252