The central bank declared that borrowers active in manufacturing, particularly export-oriented businesses, will be able to obtain dollar loans under the Long-Term Financing Facility (LTFF) even though the World Bank's LTFF has expired.
These funds are primarily intended to provide foreign-currency soft loans with low-interest rates and lengthy terms to exporters, enterprises, and other private-sector firms in order to purchase capital machines, cover installation costs and expand or establish new manufacturing industries.
With these new initiatives in place, the central bank seeks to create a more stable and conducive environment for borrowers and lenders, while addressing the economic challenges posed by the dollar crisis.
According to Bangladesh Bank (BB) circular, the maturity of the loans will be three to 10 years, including the grace period which will be determined by banks based on the projected timing of the cash inflows of individual projects.
However, the grace period will not be more than one year.
An indicative pricing range of 180-day average SOFR plus 0.25% to 1.25% would be applicable to private finance initiatives (PFIs).
However, the Secured Overnight Financing Rate (SOFR) is a benchmark interest rate for dollar-denominated derivatives and loans that replaced the London Interbank Offered Rate.
The circular was issued on Sunday (July 16) with an Operating Guideline.
According to Bangladesh Bank, the banks will determine their own loan interest rates to the borrowers by considering their cost of borrowing and operational expenses, plus a reasonable risk-adjusted spread and profit margin in the range of 1% to 2% above the cost of funds.
An individual borrower can apply for BB-LTFF for any amount not exceeding a maximum threshold limit of $5 million through a single bank and for any amount not exceeding a maximum threshold of $10 million under syndicated financing through two or more banks.
The financing will be given through banks, known as participating financial institutions, authorized to deal with foreign exchange.
Among other qualifications, banks must have a minimum rating of three or better Camels ratings determined by the Bangladesh Bank, must have less than 8% non-performing loan, and meet the minimum regulatory capital adequacy requirement to be eligible to participate in the fund.
Emphasizing that all banks will not be able to avail of the facility, the official explained that banks having a large number of classified loans will not get loans from here.
The BB-LTFF loan will be available to those banks with a reputation for good governance and low Non-Performing Loans (NPL).
This means traders must take the bank's reputation into consideration to receive a loan under the scheme, a Bangladesh Bank official requesting anonymity told Dhaka Tribune.
In Operating Guidelines, Bangladesh Bank said the recently completed Long Term Financing Facility (LTFF) program under Financial Sector Support Project (FSSP) helped to bridge much of these gaps by allowing access to long-term financing in foreign currency for the capital-intensive manufacturing firms in Bangladesh while generating employment and growth and fostering real output of the economy through inclusive socially responsible banking ethos and Environmental and Social (E and S) compliances.
The success and popularity of the LTFF prove that there exists a huge demand in the market for a sustainable longer-term credit facility.
Based on the success of the recently completed LTFF under the FSSP, Bangladesh Bank now decides to continue providing long-term financing for private sector firms, mainly export-oriented manufacturing (small, medium and large) firms so that they can adopt sustainable means of digital transformation of the Fourth Industrial Revolution (4IR) and thus augment their competitive advantage in the Global Value Chains (GVCs).
This financing will be offered in US Dollars (USD) and provided through eligible banks, namely the Participating Financial Institutions (PFIs), authorized by Bangladesh Bank to deal in foreign exchange for lending/refinancing to the private sector firms.
The name of this financing facility would be Bangladesh Bank - Long Term Financing Facility (BB-LTFF).
This Operating Guidelines (OG) delineates the procedures and other relevant issues for the effective implementation of this financing facility. Bangladesh Bank may amend/revise the manual from time to time.