Non-banking financial institutions (NBFIs) have welcomed the central bank move of relaxing foreign exchange regulations which would allow them providing term loans in local currency to foreign companies through authorised dealer (AD) banks.

"This is a great step taken by the Bangladesh Bank and it will widen our business further," chairman of Bangladesh Leasing and Finance Companies Association (BLFCA) Asad Khan told the FE Monday.

The new arrangements will help create an opportunity for the NBFIs to invest funds in foreign-owned companies.

"We have long been appealing to the bank regulator to withdraw all restrictions in investing our money in foreign companies," BLFCA chairman said.

So long AD banks were allowed to offer such loans to the foreign-owned companies after complying with the conditions set by the BB.

Asad Khan also said that he is confused regarding the Bangladesh Bank circular whether it is applied to fully-owned or partly-owned companies as NBFIs have already been financing in partly-owned entities since they started business in the country.

Under the conditions, the term loans in Bangladesh Taka (BDT) should not exceed, as percentage of total term borrowings, the percentage of equity of the firms/companies held by Bangladesh nationals and firms/companies, not owned or controlled by foreigners.

Besides, the total debt liabilities of the firms/companies must not also exceed the 50:50 debt equity ratio.

Terming it a good sign, Mofizuddin Sarkar, Managing Director of Bangladesh Finance Investment Company Ltd., said it seems that government wants that foreign companies have more involvement in the country.

Normally the foreign-owned companies do borrow funds in the term loans from external sources, he said, adding that the companies are also allowed to receive such loans in BDT from local banks, subject to compliance with specific regulations.

He said the move will certainly boost NBFIs business and help to come out from liquidity shortage-hit non-bankers.

Currently, 31 NBFIs are operating in Bangladesh.

According to the central bank circular, AD banks are also to ensure that the companies follow all provisions, in line with the existing guidelines for foreign exchange transactions (GFET) for the whole amount of financing.

"As per new rules, if the loan is in foreign exchange then transaction has to be under foreign exchange transaction guidelines," he added.

Financial Express/Bangladesh/ 8th May 2012