Shawdesh Desk:

The Bangladesh Bank on Wednesday allowed banks to issue performance bonds or guarantees in favour of overseas buyers or contractors on behalf of resident exporters and subcontractors, without needing prior permission.

The BB issued a circular in this regard on the day in a move to support export growth and streamline cross-border trade.

Previously, banks required specific authorisation for issuing such bonds or guarantees.

BB officials said that this change was aimed at easing business transactions and encouraging export activity and remittance inflows associated with local deliveries for foreign contractors.

Authorized dealers are now permitted to issue performance bonds or guarantees to overseas buyers in cases involving letters of credit, purchase-sales contracts, work orders or advance payments, the circular said.

This adjustment also covers scenarios where customary trade practices, including contracts without tenders, necessitate performance bonds or guarantees from resident exporters to foreign buyers.

Furthermore, resident subcontractors working for non-resident contractors, particularly those awarded projects under international tenders, are also eligible for these bonds to complete specific projects or works.

The Bangladesh Bank emphasised the importance of due diligence by banks in issuing such bonds or guarantees, requiring them to ensure the legitimacy of underlying arrangements and compliance with the relevant instructions from the guidelines for foreign exchange transactions.

Banks must also adhere to prudential credit norms, including single borrower exposure limits, when issuing these guarantees.

In cases involving resident subcontractors, banks must verify that the contractual terms support the proper repatriation of inward remittances tied to the respective projects.