Flash Report /

Bangladesh government declares policy support for Covid-19

  • Bangladesh central bank reduces CRR requirement by 50bps and policy rate by 25bps

  • BDT50bn (US$595mn) incentive package for export-oriented industry will ensure 1.5 months of minimum salary

  • Relaxed loan classification and ease in foreign transaction policy

IDLC Securities
27 March 2020
Published byIDLC Securities

Bangladesh identified the first Covid-19 patient on 8 March and has reported 44 confirmed cases and 5 deaths till now. However, the global pandemic has already hit the Bangladesh economy, especially the export-oriented industries with both supply and demand-side disturbances. In the wake of these intertwined events, the government and the regulators have come up with incentive packages and relaxed policies to help businesses survive. Besides, the government has declared a general holiday till 4 April 2020. 

Central Bank reduces CRR Requirement by 50bps and policy rate by 25bps

Bangladesh Bank has reduced the Cash Reserve Ratio of scheduled banks to 5.0% on a bi-weekly average basis from the prevailing 5.5% with a provision of minimum 4.5% on a daily basis from the previous 5% – effective from 1 April 2020. This will release approximately BDT60bn. The central bank has also reduced the repo rate by 25bps to 5.75% from 6.00% – effective from 24 March 2020.

BDT50bn (US$595mn) incentive package for export-oriented industry

On 25 March 2020, Prime Minister Sheikh Hasina, in her address to the nation, declared a BDT50bn incentive package for export-oriented industries. However, this fund can only be used to pay the workers' wages. We estimate that this incentive package can ensure 1.5 months of the minimum salary for c4mn garments workers. 

Relaxed loan classification

Bangladesh Bank (regulator of banks and NBFIs) and Microcredit Regulatory Authority (MRA –regulator of Microcredit Agencies) have directed the respective scheduled banks, non-banking financial institutions and microcredit agencies to suspend downgrading loans/leases/advances in loan-classification ladder until 30 June 2020. However, loan accounts can be upgraded in the classification ladder following the regulations. For scheduled banks, this relaxed policy is effective from 1 January, 2020. This relaxation effectively allows borrowers to defer their installment payment until June. 

Increased MFS transaction limit and waiver of withdrawal fees 

Bangladesh Bank has ordered all MFS providers to waive the P2P transaction charges in the purchase of medicine and daily necessities. The central bank also increased the monthly transaction limit from BDT75,000 to BDT200,000 in this regard. Charges on up to BDT1,000 cash withdrawal have been waived. 

The merchant discount rate (MDR) and Interchange Reimbursement Fee (IRF) will not be applicable to purchase medicine and daily necessities inside the country via debit and credit card. Also, the limit of the daily transaction has been raised to BDT100,000 from BDT15,000. 

Near Field Communication (NFC) transaction limit has also been increased to BDT5000 from BDT3000. Like the aforementioned case, MDR and IRF will not be applicable.

Extension of usance period of raw material import and life saving drugs 

Bangladesh Bank, in a circular issued on March 23, 2020, said authorised dealers can extend the usance period up to maximum 360 days (from the prevailing 180 days limit) to industrial importers of raw materials. In the case of import of life saving drugs, the usance period can be extended up to a maximum of 180 days from the prevailing 90 days. Both of these rules will be applicable until 30 September 2020. 

Increasing advanced payment limit of Covid-19 related drugs

The advanced payment against the import of Covid-19 related drugs, medical equipment and other items has been increased to US$500,000 from the current US$10,000 limit.

Relaxation of foreign exchange regulations

Exporters are now allowed to extend the tenure of realisation of export proceeds up to six months instead of the existing four months. On the other hand, importers are also allowed to submit a bill of entries to the banks within six months instead of four months from the day of payment. Besides, the usance period of back-to-back LC can also be extended up to 360 days from the permissible 180-day limit.

Utility payment deferred for 3 months

No utility (Gas, electricity or water) payment needs to be made till June 2020. All deferred payments can be paid in July without any late payment.