Take insurance coverage for export financing

The Bangladesh Bank yesterday asked banks to take insurance coverage against their financing to exporters in a bid to minimise default risk of loans.

As per banking norms, lenders can provide post-shipment financing to exporters as they wait to receive funds from buyers through correspondent banks.

In such a situation, there is always a default risk if the correspondent banks, through which funds are received by exporters, don't pay back the value of the items shipped on time.

The default risk will be minimised if banks take insurance coverage, according to a Bangladesh Bank notice.

This will give an extra comfort to banks as insurance companies have to take responsibility in the event banks don't receive the funds as promised.

The central bank, however, said that banks would take the coverage with the consent of exporters.

Banks also will be allowed to take insurance coverage for their financing to exporters extended during the pre-shipment stage.

The central bank, however, warned banks that insurance coverage would not give waiver to them from realising export proceeds, which need to be repatriated within four months from the date of shipment as per foreign exchange regulations of the BB.

A BB official says the insurance coverage will help banks provide facilities to exporters since insurance coverage protect the financing of banks from credit risks.