Until recently, foreign exchange (“FX”) liquidity funding for banks in Bangladesh was provided only by Bangladesh’s Central Bank – Bangladesh Bank (“BB”) - through the country’s robust reserves. However, since the beginning of 2011, as part of the pre-conditionality for a US$1 billion program from the International Monetary Fund (“IMF”), BB has ceased to provide direct FX liquidity support to banks. This development has resulted in an acute systemic FX, mainly US Dollar (“US$”), liquidity squeeze in the banking system.

The lack of FX liquidity has negatively impacted the timely issuance of L/Cs by banks, particularly for small and medium enterprise (“SME”) clients. Since the bulk of the Bangladesh economy is value-added (imports, processed then re-exported), the ability to issue L/Cs on a timely basis is critical to the well-functioning of the economy. Hence, to mitigate the adverse impact of the US$ shortage on the country’s trade flows and the SME sector, BB is now permitting select local banks with licensed offshore branches, to meet their short-term FX requirements from the international market.

The proposed project is a direct response to the prevailing FX liquidity crisis and is in line with the World Bank’s and IFC’s strategy of promoting economic growth by providing access to finance to underserved market segments and promoting international trade. The Project consists of a short-term loan and a participation in IFC’s Global Trade Finance Program (“GTFP”) to The City Bank Ltd.’s (“City Bank” or the “Bank”) offshore unit to support foreign currency trade and working capital financing for the Bank’s SME clients.