Bangladesh Bank suggests Banks take insurance coverage

SUMMARY:

The banks have been advised by the Bangladesh Bank to take insurance coverage against their financing to exports in an attempt to cut down menace of loans.

CONTEXT: 

The central bank published a circular to encourage banks to secure their financing through insurance coverage under credit guarantee strategy which is locally accessible from insurance companies. This will provide banks with additional succor since insurance companies remain accountable in cases where banks do not obtain the promised funds.

As per the conventional banking rules, lenders can provide exporters with post-shipment financing since they hang about to receive funds from buyers via correspondent banks.

In case of such events, a default risk always loiters if the correspondent banks, through which the exporters receive the funds, fail to reimburse the value of the products that have been shipped on time. This particular default risk will plummet if banks consider the notice of Bangladesh Bank and take insurance coverage.

The circular articulated that banks will be acquiring coverage from exporters with their consent. In the present time, banks can augment financing benefits to exporters against usance- the allowable period that has been permitted by the custom (i.e. between the date of the bill and its payment) – export bills by discounting in foreign currency. 

The circular further added that default risk coverage by appropriate insurance may also be embraced at the pre-shipment level against funded or non-funded benefits to exporters.

The circular warned banks that insurance coverage would not exempt them from realizing export revenues, which must be repatriated within four months of shipment, as required by current foreign currency regulations.

Business insiders have divulged that the insurance coverage would make it easier for banks to lend credit to exporters since the insurance would protect the banks’ finances.

Bangladesh’s exports have increased dramatically this fiscal year, resulting in a significant increase in financial requirements.

Due to a higher performance of readymade garment products, Bangladesh’s export earnings increased by 33.41 percent to $38.60 billion in July-March FY22, compared to $28.93 billion in the same period the previous fiscal year.

Article Source: NewAgeBD

Picture Source : BangladeshBank

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