Published: 12:47 AM, 15 October 2026
Beyond Approval: Managing Foreign Loans Better
Bangladesh Bank’s decision to allow designated authorized dealers (ADs) to open and maintain foreign currency (FC) accounts for eligible private-sector industrial enterprises against approved medium- and long-term external loans marks an important refinement of the country’s external financing framework. Issued on October 7, 2026, the circular may appear operational in nature, but its implications are broader. It changes how foreign borrowing can be received, retained, deployed and ultimately serviced, giving borrowers greater flexibility while placing greater responsibility on banks to ensure that foreign currency remains linked to the approved purpose.
The significance of the measure becomes clearer against the evolution of Bangladesh’s external financing regime. Private industrial enterprises increasingly require foreign currency financing for capital machinery, imported inputs, technology, specialized services and infrastructure-related expenditure. At the same time, external borrowing creates a continuing foreign exchange liability. The policy challenge is therefore not simply to facilitate borrowing, but to ensure that borrowed foreign currency can be managed efficiently without weakening regulatory discipline. The new FC-account arrangement addresses an important part of that challenge.
An approved foreign loan does not always translate into an immediate payment requirement. A loan may be disbursed today while the corresponding import payment becomes due weeks or months later. Large projects may involve staggered imports, supplier payments and service expenditures. Foreign currency may also be needed for debt servicing long after the original project expenditure has been completed. The new arrangement provides a bridge between these different stages.
Under the circular, designated ADs can open FC accounts in the names of eligible borrowers for retaining the proceeds of approved foreign loans. Foreign currency therefore need not necessarily be converted into Taka immediately when the underlying foreign currency expenditure has not yet fallen due. The borrower can retain the funds and deploy them in accordance with the approved financing purpose.
This is particularly relevant for large industrial projects where expenditure takes place in stages. Import contracts may have different shipment schedules, suppliers may require payments at different points, and project-related services may be delivered over an extended period. Retaining loan proceeds in foreign currency can reduce unnecessary conversion and reconversion and provide greater certainty in managing payment obligations.
The arrangement may also reduce exchange-rate risk arising from timing gaps. If a borrower converts foreign loan proceeds into Taka before an underlying foreign currency payment becomes due, it may subsequently have to purchase foreign currency again. Exchange-rate movements during the intervening period could increase the Taka cost of the project. Where retention is justified by the approved financing arrangement, keeping the funds in foreign currency can provide a natural hedge.
This does not, however, provide unrestricted access to foreign currency. The FC account remains tied to the approved external loan and its permitted purposes. Balances may be used for import payments in accordance with the prevailing Import Policy Order and foreign exchange regulations. They may also be used for bona fide service payments required for implementation of the approved works. Foreign currency may be converted into Taka for approved local procurement.
The distinction is important. The circular creates flexibility within a controlled framework rather than a general-purpose foreign currency facility. External borrowing ultimately creates a foreign currency liability. If the proceeds are diverted to unrelated purposes, the borrowing could create foreign exchange obligations without generating corresponding productive capacity or foreign exchange earnings. The requirement that ADs ensure utilization only for approved purposes is therefore a critical safeguard.
The role of AD banks consequently becomes more important. Banks will have to obtain and retain relevant approvals, including those issued by the Scrutiny Committee on Foreign Loan/Supplier’s Credit of Invest Bangladesh Authority, Bangladesh Bank and/or the Standing Committee on Non-Concessional Loan, as applicable. They will also have to conduct due diligence for service payments and ensure compliance with applicable tax and VAT requirements.
This represents a useful shift towards bank-based implementation. Once an external loan has received the required approval, the AD can process transactions within the approved framework rather than requiring the borrower to approach the central bank for every operational payment. Such delegation can make implementation faster and more predictable while preserving the regulatory audit trail.
The provision allowing FC accounts to earn interest or profit is also commercially relevant. If foreign currency has to be retained for a period before utilization, the balance does not necessarily have to remain economically idle. Subject to the applicable banker-customer relationship, the provision recognizes the opportunity cost associated with holding foreign currency. Perhaps the most significant feature is the provision relating to repayment of external loans.
Normally, the FC account is expected to be closed after completion of drawdown and utilization of the approved loan proceeds. However, where the loan agreement requires funds to be retained for repayment, the account can remain open until maturity. It may then be credited with export proceeds, net of import payments, as well as funds arising from conversion of Taka from legitimate local sources. The balance maintained for repayment purposes cannot exceed the amount required for three subsequent installments. This creates a practical debt-servicing mechanism.
For enterprises with predictable foreign currency debt obligations, maintaining a reasonable foreign currency buffer can reduce the risk of payment disruptions simply because the required currency is not immediately available. At the same time, the three-installment ceiling prevents the facility from becoming an avenue for excessive accumulation of foreign currency.
The provision may also encourage better treasury management. Companies can plan foreign currency inflows and outflows more systematically, matching export earnings and other legitimate foreign exchange resources with future debt-service obligations. In effect, the FC account can serve as a limited-purpose liquidity management tool.
There could also be wider implications for Bangladesh’s external debt management. External borrowing is not necessarily problematic if it finances productive investment capable of generating future export earnings, import substitution, productivity gains or foreign exchange savings. What matters is the quality, cost, maturity and utilization of the borrowing. By improving the operational management of approved external financing, the new arrangement can support more efficient deployment of foreign capital.
The benefit may be particularly meaningful as exchange-rate management becomes more market-oriented. Greater flexibility in holding and using foreign currency allows industrial borrowers to manage genuine foreign exchange exposures more professionally rather than treating every inflow and outflow as an isolated transaction.
At the same time, the facility should not be interpreted as permission for enterprises to accumulate foreign currency indefinitely. Quarterly reporting through Form LU, the linkage with specific loan approvals and the requirement to close accounts after completion of drawdown and utilization provide important checks. ADs will need effective systems to track each loan, its approved purpose, drawdown, utilization and outstanding balance.
Implementation quality will therefore determine much of the reform’s success. Banks should maintain clear transaction-level audit trails and ensure that these accounts do not become substitutes for general-purpose FC accounts. Their scrutiny should be proportionate but effective. Equally, the regulatory framework should avoid unnecessary procedural barriers that could undermine the efficiency the circular seeks to achieve.
The broader policy message is perhaps the most important aspect of the initiative. Bangladesh’s foreign exchange framework is gradually moving from a predominantly permission-driven approach towards a system in which approved transactions can be executed through clearly defined rules, delegated bank-level responsibility, reporting and post-transaction oversight.
The principle is straightforward: when foreign borrowing is approved for productive purposes, the regulatory system should make its legitimate use as seamless as possible while keeping the foreign exchange trail firmly within sight. The October 7 circular moves Bangladesh’s external financing framework a step in that direction.
Mehdi Rahman writes on foreign
trade and monetary policies.
