Published: 11:40 PM, 22 September 2026
Leveraging Offshore Banking for Low-Cost Foreign Currency Funding and Efficient Trade Settlement
Bangladesh Bank’s recent circular permitting Offshore Banking Units (OBUs) to undertake outright purchase and sale of foreign currency and cross-currency swap transactions represents an important milestone in developing a more efficient foreign currency management framework. The measure provides OBUs with greater flexibility to manage liquidity, optimize funding arrangements, support legitimate customer transactions, and align offshore banking operations with internationally accepted treasury practices.
The circular, issued on September 21, 2026, refers to paragraph E(1) of the Guidelines for Offshore Banking Operations issued through FE Circular No. 11 dated January 30, 2025. While the earlier framework outlined limitations on certain activities of OBUs, the latest policy facilitation allows OBUs to undertake outright foreign currency transactions and cross-currency swap arrangements with their respective Domestic Banking Units (DBUs), other Authorized Dealers (ADs), other OBUs, and other legitimate counterparties.
The significance of this policy change goes beyond allowing additional treasury transactions. It creates opportunities for OBUs to adopt more innovative and cost-effective foreign currency funding strategies, particularly by accessing lower-cost currencies and using appropriate foreign exchange arrangements to support trade settlement.
In international banking practice, financial institutions do not always borrow in the currency in which the final payment is required. Instead, banks often access funding in currencies where financing costs are comparatively lower and subsequently convert such funds into the required currency through foreign exchange transactions or cross-currency swaps. This approach allows banks and their customers to reduce overall financing costs while managing associated currency risks.
For Bangladesh, where import payments are predominantly settled in US dollars, the latest facility provides an opportunity for OBUs to explore alternative funding strategies. For example, an OBU may arrange relatively low-cost borrowing in Chinese Yuan (CNY) from international markets or eligible counterparties in China. The borrowed CNY can then be converted into US dollars through appropriate foreign exchange transactions or cross-currency swap arrangements to meet eligible import payment requirements.
Such a structure may provide a meaningful cost advantage compared with direct borrowing in US dollars, depending on prevailing market conditions. If CNY funding is available at a lower interest rate than comparable US dollar funding, the difference in borrowing cost can translate into substantial savings. In a favorable market environment, this mechanism may reduce financing costs by around 2 percent or more, thereby improving the competitiveness of trade financing arrangements.
For example, an importer requiring US dollar financing for machinery, raw materials, or other permissible imports may ultimately need to repay financing in US dollar terms. Instead of obtaining direct US dollar borrowing at a higher cost, an OBU may access CNY funding, convert the proceeds into US dollars for settlement purposes, and subsequently manage repayment obligations through appropriate currency transactions. At maturity, the OBU may purchase CNY against US dollars to repay the original CNY borrowing. Through this arrangement, the exchange rate exposure can be managed through the swap structure while benefiting from the lower-cost funding source.
The ability to undertake such transactions is particularly relevant in the context of Bangladesh’s evolving trade and financing landscape. Importers frequently require competitive financing solutions to maintain production costs and export competitiveness. Lower financing costs can support industries by reducing the financial burden associated with imported machinery, intermediate goods, and essential raw materials.
The circular also encourages OBUs to adopt prudent foreign currency funding strategies, including accessing lower-cost currency funding where feasible and arranging appropriate outright foreign exchange purchase/sale transactions or cross-currency swap arrangements. This policy direction provides a clear opportunity for OBUs to develop modern treasury capabilities and introduce internationally accepted financing structures for their customers.
However, the effective utilization of this facility will depend on proactive implementation by OBUs. Banks should develop appropriate treasury frameworks, identify potential sources of low-cost foreign currency funding, establish relationships with international counterparties, and design suitable products for eligible customers. The objective should be to transform the regulatory flexibility provided by Bangladesh Bank into practical financing solutions that reduce costs and improve efficiency.
OBUs should also strengthen their internal capacity in foreign currency risk management. Currency swaps and related transactions must be structured carefully to ensure that exchange rate risks, maturity mismatches, and counterparty exposures remain within approved limits. The circular requires OBUs to conduct such transactions in accordance with applicable foreign exchange regulations, prudential guidelines, approved internal policies, dealing limits, and sound risk management practices. These safeguards ensure that treasury flexibility is accompanied by appropriate discipline.
The facility should not be viewed merely as an additional trading opportunity. Rather, it should be utilized as a strategic tool for managing funding costs, supporting trade finance, and improving Bangladesh’s integration with international financial markets. Global banks routinely use multi-currency funding strategies to optimize balance sheets and manage liquidity. Bangladesh’s OBUs can similarly enhance their competitiveness by adopting such internationally recognized practices.
The availability of CNY funding also reflects the increasing importance of diversified currency management. While the US dollar remains the dominant currency for international trade, global financial markets offer opportunities to access alternative currencies at competitive rates. A prudent combination of foreign currency borrowing, currency conversion, and swap arrangements can help banks reduce dependence on a single funding source and improve resilience.
The latest Bangladesh Bank circular provides the regulatory foundation for such innovation. OBUs now have the flexibility to move beyond traditional foreign currency lending models and actively manage funding sources in a manner that benefits both banks and customers. By efficiently utilizing lower-cost currencies such as CNY, converting them into required settlement currencies, and managing repayment through appropriate foreign exchange arrangements, OBUs can contribute to reducing trade financing costs.
Going forward, OBUs should actively explore the opportunities created by this policy support. Effective implementation will require investment in treasury expertise, technology, risk management systems, and international market connectivity. If properly utilized, the facility can enhance the competitiveness of Bangladesh’s trade finance sector, support importers with more affordable financing solutions, and strengthen the role of offshore banking operations in the country’s external sector management.
Bangladesh Bank’s initiative therefore represents not only a regulatory relaxation but also an invitation to OBUs to adopt modern financial strategies. The policy provides the tools; the next step is for OBUs to use these tools responsibly and innovatively to deliver lower-cost foreign currency solutions for Bangladesh’s businesses. The central bank should direct administratively to comply with the newly formulated regulations so as to achieve savings outflows on account of interest cost for buyer's credit used for import payments.
Mehdi Rahman writes on
foreign trade and
monetary policies.
