Bangladesh Bank Opens Bank Guarantee Window for Foreign Firms in Government Tenders

Star Business Report, Dhaka — The Bangladesh Bank has formally opened a new foreign-currency bank guarantee window, allowing local companies to arrange bank guarantees and standby letters of credit (SBLCs) for foreign firms that secure contracts through international tenders for projects in Bangladesh — a regulatory shift designed to lower the participation barrier for foreign contractors and accelerate the pace of large infrastructure project execution.

The central bank issued a circular on Thursday approving the facility. Under the new arrangement, authorised dealer (AD) banks can issue guarantees or SBLCs in foreign currency on behalf of resident entities in favour of government authorities, departments, agencies, state-owned enterprises, and project or procurement entities.

👥 Who Can Use the Facility

The facility will be available to:

• 🏢 Local companies acting as strategic partners of foreign firms securing contracts via international tenders
• 👥 Local agents or authorised representatives of foreign contractors
• 🏛 Foreign companies operating in Bangladesh that require project-tied foreign-currency guarantees

Each guarantee must be tied strictly to the project for which it has been issued — a prudential restriction designed to prevent the facility from being used for unrelated foreign exchange transactions. The Bangladesh Bank said the local company must have a genuine contractual or commercial relationship with the foreign contractor and provide documents to the bank proving the relationship.

📜 Regulatory Requirements

The underlying contract must allow the project authority or procuring entity to accept the guarantee or SBLC arranged by the local company. AD banks will have to:

• 🔍 Assess risks before issuing guarantees
• 💰 Ensure adequate collateral or counter-security depending on nature and extent of risk
• 📈 Follow existing credit norms, risk-management policies and prudential requirements
• 📊 Comply with single-borrower exposure limit
• 🏛 Obtain board or competent authority approval where required

The agreements between local and foreign companies must clearly specify:

• 💰 How the local entity will be reimbursed for costs, liabilities and expenses arising from the guarantee or SBLC
• ⚖️ Arrangements for settling any amount the bank may have to pay if the guarantee is invoked

💵 Settlement Mechanics

If a guarantee is invoked, the claim settlement process follows a dual-path mechanism:

• 💵 Default settlement in taka equivalent — the claim will ordinarily be settled in the taka equivalent of the foreign-currency exposure
• 🌐 Foreign currency settlement via RTGS — where the tender or contract specifically requires payment in foreign currency, the bank may settle the claim in foreign currency through the Real-Time Gross Settlement (RTGS) system

Companies receiving foreign currency against these guarantees can settle the amount in local currency — providing an additional operational flexibility layer for project execution.

🏛 Strategic Context

The new bank guarantee window comes at a strategically important moment for Bangladesh's infrastructure investment pipeline. With several large foreign-financed projects entering their execution phase — including the Laldia terminal construction with Danish support, the BEPZA Economic Zone expansions, and the Padma Bridge Rail Link extensions — the inability of foreign contractors to obtain Bangladesh-based bank guarantees had emerged as a recurring friction point in project execution.

Historically, foreign firms awarded contracts through international tenders were required to either:

• 🏛 Arrange bank guarantees from their home-country banks (often at higher cost and slower turnaround)
• 💰 Set up local subsidiaries or branch offices in Bangladesh to access domestic bank guarantee facilities
• 👥 Rely on local agents to arrange the guarantees under pre-existing relationship frameworks

The new circular formalises and standardises the third option, providing a clear regulatory pathway that should reduce both the cost and the execution time of bank guarantee arrangements for foreign contractors and their local partners.

📊 Implications for Foreign Direct Investment

The facility has direct implications for the broader FDI climate in Bangladesh:

• 🏛 BIDA-registered projects with foreign contractor components can now execute bid bonds and performance guarantees more efficiently
• 👥 BEZA Economic Zone investors with foreign EPC contractors benefit from streamlined guarantee channels
• 🚢 Port and logistics projects involving foreign operators (e.g., APM Terminals, MSC, Red Sea Gateway at Chattogram) can now access local-currency guarantee support
• 💰 Multilateral-funded projects (World Bank, ADB, JICA) can use the facility for parallel-financed components

🏛 Bangladesh Bank's Broader Reform Direction

The bank guarantee circular is the latest in a series of Bangladesh Bank regulatory moves designed to facilitate foreign investment and project execution. Earlier in August 2026, the central bank:

• 💰 Approved Tk 60,000 crore stimulus package with 17 banks signing for Tk 41,000 crore disbursement
• 📊 Released Q4 FY26 Quarterly Review of RMG showing 10.38% QoQ net earnings rebound
• 🏢 Continued Sammilito Islami Bank restructuring with 10,000 recovery cases filed

Together, these moves reflect a coordinated regulatory effort to improve the operational efficiency of Bangladesh's external sector financing — a strategically important priority as the country approaches LDC graduation in November 2026 and the subsequent transition period, during which the country will need to deepen its attractiveness to foreign investors and contractors.