Exporters failing to settle loans from the Export Development Fund (EDF) with export proceeds within the deadline will no longer be eligible for the borrowing facility from the foreign exchange reserve, said the central bank.
A circular, released on Wednesday, by the central bank's Foreign Exchange Policy Department, states, it is observed that EDF loans are settled, without repayment out of realised value in foreign currency, by extending funded facilities.
"The situation does not ensure export of goods for which EDF loans have been used. In view of the situation, you are advised to comply with the instructions in settlement of EDF loans and refrain from forwarding applications of EDF loans, irrespective of the nature of imports, for customers whose liabilities have been settled through funded facilities in the immediate past 180 days," it added.
Earlier, the Bangladesh Bank found that loans given from the foreign exchange reserve have been found to be misused by some exporters, who turned those into huge forced loans due to failure in payment to the lenders on the due date.
Borrowers are given foreign currency loans at a minimum cost from the Export Development Fund (EDF), a refinancing fund created from the foreign exchange reserve for bringing export proceeds.
Forced loans are created when clients fail to make their letter of credit (LC) payments on maturity dates, and yet banks have to meet their obligations to foreign banks. Delay in LC settlement can happen both in import and export.
In the case of many of these loans, no export earnings were generated with buyers failing to pay back the money, resulting in the piling up of forced loans against the EDF in banks, according to findings by the Bangladesh Bank.
In a recent meeting with the top executives of four state-owned banks – Sonali, Janata, Agrani, and Rupali – the Bangladesh Bank addressed the issue of forced loans against the EDF.
The Business Standard covered the development in a 14 June report titled "State lenders waste export fund, now forex in stress further".
Bangladesh Bank has set aside $7.5 billion in EDF facilities for exporters from its reserves. Recently, exporters have asked the fund to be increased to $10 billion.
According to the Bangladesh Bank, the total reserves stood at $48 billion in August last year mainly on remittance inflow. Since the beginning of the current fiscal year, the central bank had been selling extra dollars as imports have outpaced exports leading to a decline in reserves.
The central bank has sold about 7.5 billion us dollars so far in the current fiscal year. As of yesterday, the central bank's reserves stood at $41.87 billion.