The Bangladesh Bank Permits the Use of Offshore Banking Deposits as Collateral for BDT Financing

Banks in Bangladesh can now extend loans in BDT to resident companies and individuals by accepting foreign currency deposits held by offshore banking units (“OBUs”) as collateral. This facility also applies to expatriate Bangladeshis, who may pledge their OBU foreign currency deposits to secure loans.

According to the circular, “To facilitate financing activities, it has been decided that OBUs may allow foreign currency deposits of non-resident account holders for use by their domestic banking units (DBUs) as collateral against financing to resident companies/firms and individuals.”

The arrangement is subject to specific conditions. There must be a formal request from the account holder, and OBUs must verify a bona fide relationship between the depositor and the borrower—such as an NRB and their beneficiary, or a foreign shareholder/investor and their investee company. The collateral may only be used by DBUs to provide short-term working capital loans in local currency. No fees or charges may be imposed for using the deposits as collateral, and DBUs should apply margin requirements they consider necessary to mitigate exchange rate risks.

If a borrower fails to repay, the pledged deposits will be liquidated. OBUs must transfer the collateral to DBUs, which will report the liquidated value as wage remittances in the case of NRB deposits. For non-NRB deposits, the amount will be reported as equity investment; however, where agreed between the borrower and the depositor, the encashment may be treated as loan proceeds. In such cases, any future repayment by the borrower may be credited back to the OBU account, subject to the BB’s approval.