The central bank yesterday unveiled a long-term financing facility for private sector firms, mainly export-oriented manufacturers, to help them borrow in US dollars to purchase equipment and services needed to run sustainable operations.
Under the Bangladesh Bank-Long Term Financing Facility, the loan, which could be as high as $10 million, will be offered in the US currency, according to a guideline.
Widespread opportunity for medium-and-longer term financing was inadequate in the country a decade ago and the constraint still persists.
And the financing of businesses for shorter-than-required tenure is creating a funding mismatch. As a result, the banking sector is finding it difficult to mitigate the long-term funding gap in both local and foreign currencies.
Recently, the BB completed the long-term financing facility (LTFF) programme, which gave access to long-term funds in foreign currencies to capital-intensive manufacturing firms.
The success and popularity of the LTFF prove that there exists a huge demand in the market for a sustainable longer-term credit facility, the guideline said.
So, the central bank has decided to continue providing long-term financing to private sector firms, mainly export-oriented manufacturing enterprises, so that they can adopt sustainable means of production and augment competitive advantage in the global value chains.
The financing will be given through banks, known as participating financial institutions, authorised to deal with foreign exchange.
Among other qualifications, PFIs must have a minimum rating of three or better CAMELS ratings determined by the BB, must have less than 8 per cent non-performing loan, and meet the minimum regulatory capital adequacy requirement to be eligible to participate in the fund.
Problem banks or banks with large financial scams or those with an observer or coordinator placed by the central bank are ineligible, according to the guideline.
Refinancing from the fund against the loans that had been disbursed before January 1, 2021 will not be permissible.
A borrower can apply for BB-LTFF for any amount not exceeding a maximum threshold limit of $5 million through a single PFI and for any amount not exceeding a maximum threshold limit of $10 million under syndicated financing through two or more PFIs.
The fund can be used to procure capital machinery, meet expenses related to their installation, and expand or set up new manufacturing industries.
The purchase of ocean-going vessels and specialised transport vehicles supporting the transportation of goods manufactured in the country and establishing businesses that comply with environmental and social standards will be facilitated.
Financing will not be provided to any loans that result in direct economic, social or environmental impacts through land acquisition, involuntary resettlement, impact on indigenous people, and loss of income sources or means of livelihood.
The maturity of the loans will be three to 10 years, including the grace period. The grace period will be determined by PFIs based on the projected timing of the cash inflows of individual projects.
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 per cent would be applicable to the PFIs.
The Secured Overnight Financing Rate (SOFR) is a benchmark interest rate for dollar-denominated derivatives and loans that replaced the London Interbank Offered Rate.
PFIs will determine their own loan interest rates to borrowers considering their cost of borrowing and operational expenses, plus a reasonable risk-adjusted spread and profit margin to be in the range of 1 per cent to 2 per cent above the cost of funds.