Counterpart funds: exchange rates, penal interest and reports
Which exchange rate the counterpart funds are deposited at, how penal interest of 5% and then 6% above the bank rate works for late deposits, the statements and notices banks send to Bangladesh Bank, and the rule that these LCs should not provide for deferred payment.
In Lesson 38, Counterpart funds: depositing the Taka on time, Nasir's three sets of fertiliser documents taught Rakib the deadlines: three working days for clean documents, five days for discrepant ones, seven days when there is no LC, and 24-hour relays between banks.
Now Nasir is back with two new questions. "My director asks two things," he says. "The loan is in dollars, but we pay in Taka, so which exchange rate do we use? And if we are late one day, how much will it cost us?"
Sadia smiles. "Today we need someone who loves exchange rates." The guest is Rozy, a development economist at a policy research institute, who studies exchange rates and the balance of payments. "Every dollar of foreign aid has a Taka shadow at home," Rozy says. "The rate decides how big that shadow is. And the penalty for lateness is designed to sting, so nobody sits on Government money."
This lesson covers P-4 and P-5, the last two paragraphs of the import circular: exchange rates, penal interest, reports and one rule about deferred payment.
P-4 says which exchange rate turns the foreign currency value into the Taka counterpart fund. There are three cases.
(1) A forward contract was booked. For counterpart funds under foreign commodity loans, credits and grants where a forward contract has been booked, the deposit is made at the rate at which that contract was booked.
(2) Barter, no forward contract possible. Under foreign commodity credit agreements with a barter component, where no forward contract can be booked, the deposit is made at the BC selling rate prevailing on the date the LC was opened.
(3) All other cases.Unless specified otherwise, the deposit is made at the BC selling rate ruling on the date of lodgment of the bill, as applicable to a cash import without forward cover.
So three questions decide the rate: Was a forward contract booked? Is there a barter component with no forward contract possible? If neither, then unless something else is specified, it is the BC selling rate on the lodgment date.
At the desk
Nasir's fertiliser credit has no barter component, and his agency booked no forward contract. Rozy walks Rakib through P-4: case (1) doesn't apply and case (2) doesn't apply, and nothing else is specified for this credit, so under (3) the counterpart funds are deposited at the BC selling rate ruling on the date the bill is lodged, as for a cash import without forward cover. "If they had booked a forward contract," Rozy adds, "the booked rate would decide instead."
Key words
Forward booking (forward cover)
A contract made today to buy foreign currency at a fixed rate on a future date. It protects against rate changes.
BC selling rate
The rate at which a bank sells foreign currency to settle import bills (BC: bills for collection). P-4 uses it in cases (2) and (3).
Barter
Paying for goods with other goods instead of money.
Lodgment
When the import bill (the shipping documents and the payment claim) is entered in the bank's books.
Read the rule as written (Para P-4)
(1) Counterpart funds under foreign commodity loans, credits and grants where forward contract has been booked will be required to be deposited at the rate at which the relevant contract has been booked.
(2) Counterpart funds under foreign commodity credit agreements with barter component where no forward contract can be booked, are required to be deposited at the BC selling rate prevailing on the date of opening of LC.
(3) Unless specified otherwise, in all other cases deposit of counterpart funds will be made at the BC selling rate ruling on the date of lodgment of the bill as applicable to cash import without forward cover facilities.
Source: Bangladesh Bank, FEPD-1 Circular No. 30, 13 August 2026, Part P, paragraph 4 (page 45). The original circular is the authority.
P-5 has five parts: the penalty, the paperwork, and one rule about deferred payment.
(1) Penal interest. An AD that has opened an LC as designated bank, or forwarded it to the right designated bank, should be fully prepared to follow the deposit schedule in the earlier paragraphs (P-1 to P-3). If the deposit is late, the funds go to Bangladesh Bank with penal interest:
(a)5% above the bank rate for the first seven days beyond the prescribed period;
(b)6% above the bank rate for the period after those first seven days.
A pretend example: if the bank rate were 4% a year, a deposit 10 days late would carry 9% a year for the first 7 late days and 10% a year for the next 3 days. The circular gives only the formula; it doesn't state the bank rate.
(2) Statements and notices.
(a) Every designated bank sends, by the 15th of the following month, a monthly statement of all LCs opened, loan by loan, credit by credit and grant by grant, in the proforma at Appendix-18, to the Bangladesh Bank office where the counterpart funds will be deposited.
(b) If a designated bank or importer's bank receives a bill on a collection basis, because of a discrepancy or otherwise, from the negotiating bank abroad, the loan-giving agency or the ERD, it serves a notice of retirement on the importer within 24 hours of receipt, so the bill is retired against payment within the time limit. This is done under advice to the same Bangladesh Bank office, and the circular points to the proforma at Appendix-19. The sentence doesn't make clear whether Appendix-19 is the form for the notice, the advice, or both.
(3) At the time of deposit. Designated banks give Bangladesh Bank a statement in the format at Appendix-20.
(4) Places with no Bangladesh Bank office. All these instructions apply there too.
(5) No deferred payment. LCs opened by designated banks for imports under loans, credits and grants should not provide for payment on a deferred basis.
Rozy's summary: "Pay at the right rate, pay on time, and send the three forms. Lateness costs five, then six, above the bank rate."
At the desk
Nasir's agency paid late, and the designated bank's deposit for one set reached Bangladesh Bank 10 days after the prescribed period. Rakib works out the penal interest: 5% above the bank rate for the first 7 days, then 6% above the bank rate for the remaining 3 days. Sadia also reminds him of the paperwork: the Appendix-20 statement goes with the deposit, the monthly Appendix-18 statement of all LCs opened is due by the 15th of next month, and if a bill ever arrives on collection basis, the importer gets a notice of retirement within 24 hours, under advice to Bangladesh Bank, using the Appendix-19 proforma. Finally, when a colleague drafts a new LC under the credit with payment "90 days after shipment", Sadia stops it: P-5(5) says these LCs should not provide for deferred payment.
Key words
Penal interest
Extra interest charged as a penalty for being late with a payment or deposit.
Bank rate
An interest rate announced by Bangladesh Bank. Under P-5, penal interest on late counterpart fund deposits is counted as a percentage above it.
Deferred payment
Payment made at a set later date, rather than when the documents are presented.
Appendix
A section at the end of a circular that holds forms, formats or instructions.
Read the rule as written (Para P-5)
(1) An AD who has either opened an LC as designated bank or forwarded it to the appropriate designated bank should be in all preparedness to follow the schedule for deposit of counterpart funds as mentioned in the foregoing paragraphs. In case of delay in making the deposit within the prescribed period, the funds should be deposited to Bangladesh Bank along with penal interest computed on the following basis:
(a) 5 (five) percent above the bank rate-for the first seven days beyond the prescribed period.
(b) 6 (six) percent above the bank rate-for the subsequent period after the expiry of first seven days beyond the prescribed period.
(2) (a) All designated banks under foreign commodity loans, credits and grants will send, by the 15th of the following month, a monthly statement of all LCs opened (Loan/Credit/Grant wise) as per proforma in Appendix-18 to the office of Bangladesh Bank with which counterpart funds will be deposited.
(b) Submission of particulars of LCs opened and discrepant bills: In case any bill is received by any designated bank/importer's bank on collection basis due to discrepancy in the bills or otherwise, from the negotiating bank abroad/loan giving agency/ERD, notice of retirement should be served upon the importer concerned within 24 hours of receipt of such documents, for retirement of the bills against payment within the prescribed time limit, under advice to the office of Bangladesh Bank with which counterpart funds will be deposited, as per proforma at Appendix-19.
(3) At the time of deposit of counterpart funds designated banks will furnish to Bangladesh Bank a statement as per Appendix-20.
(4) Instructions contained in the above paragraphs shall also be applicable in respect of documents received at places where there is no office of Bangladesh Bank.
(5) LCs opened by the designated banks for imports under loans, credits and grants should not provide for payment on deferred basis.
Source: Bangladesh Bank, FEPD-1 Circular No. 30, 13 August 2026, Part P, paragraph 5 (page 45). The original circular is the authority.
So far: counterpart funds are deposited at the forward contract rate where one was booked; at the BC selling rate on the LC opening date for credits with a barter component where no forward contract can be booked; and otherwise, unless specified, at the BC selling rate on the bill's lodgment date as for a cash import without forward cover. Late deposits carry penal interest of 5% above the bank rate for the first seven days beyond the prescribed period and 6% above it after that. Designated banks send a monthly statement of LCs opened (Appendix-18) by the 15th of the next month; a designated bank or importer's bank that receives a bill on collection basis serves a notice of retirement on the importer within 24 hours, under advice to Bangladesh Bank (Appendix-19); and designated banks file a statement with every deposit (Appendix-20). The rules apply where there is no Bangladesh Bank office too, and LCs under loans, credits and grants should not provide for deferred payment.
Next: this was the last Part of the import circular. The import room is now complete, from Part A to Part P. Well done for reaching the end!
Check yourself
30 questions, in 3 sets of up to 10. Nobody sees your answers but you.
Set 1 of 3
P-4(1): where forward contract has been booked, counterpart funds are deposited at the rate at which the relevant contract has been booked. (P-4)
P-4(2): such funds are deposited at the BC selling rate prevailing on the date of opening of LC. (P-4)
P-4(3): in all other cases deposit is made at the BC selling rate ruling on the date of lodgment of the bill as applicable to cash import without forward cover. (P-4)
True. P-4(2) covers foreign commodity credit agreements with barter component where no forward contract can be booked. (P-4)
P-4(1): where a forward contract has been booked, the deposit is at the rate at which the relevant contract has been booked. (P-4)
P-4(3): unless specified otherwise, the BC selling rate ruling on the date of lodgment of the bill applies. (P-4)
P-4(2): the BC selling rate prevailing on the date of opening of LC applies. (P-4)
P-5(1)(a): 5 percent above the bank rate for the first seven days beyond the prescribed period. (P-5)
P-5(1)(b): 6 percent above the bank rate for the subsequent period after the first seven days. (P-5)
P-5(1): 5% above the bank rate (9%) for the first seven days, and 6% above it (10%) after that. (P-5)
Set 2 of 3
False. P-5 gives penal interest as 5% or 6% above the bank rate, without stating the bank rate itself. (P-5)
P-5(1): an AD who has either opened an LC as designated bank or forwarded it to the appropriate designated bank should be in all preparedness to follow the schedule. (P-5)
P-5(2)(a): by the 15th of the following month. (P-5)
P-5(2)(a): as per proforma in Appendix-18. (P-5)
P-5(2)(a): a monthly statement of all LCs opened (Loan/Credit/Grant wise). (P-5)
P-5(2)(a): to the office of Bangladesh Bank with which counterpart funds will be deposited. (P-5)
P-5(2)(b): notice of retirement should be served upon the importer within 24 hours of receipt of such documents. (P-5)
P-5(2)(b): the notice is served under advice to the Bangladesh Bank office, as per proforma at Appendix-19. (P-5)
P-5(2)(b) names the negotiating bank abroad, the loan giving agency and the ERD. (P-5)
P-5(3): at the time of deposit of counterpart funds, designated banks will furnish a statement as per Appendix-20. (P-5)
Set 3 of 3
True. P-5(4) says the instructions shall also be applicable for documents received at places where there is no office of Bangladesh Bank. (P-5)
P-5(5): LCs opened by the designated banks for imports under loans, credits and grants should not provide for payment on deferred basis. (P-5)
P-5(5): LCs opened by designated banks for imports under loans, credits and grants should not provide for payment on deferred basis. (P-5)
P-5(2)(b): notice of retirement should be served upon the importer within 24 hours of receipt. (P-5)
P-5(2)(a): a monthly statement of all LCs opened (loan/credit/grant wise) in Appendix-18, by the 15th of the following month. (P-5)
P-5(1)(a): 5% above the bank rate for the first seven days beyond the prescribed period. (P-5)
P-5(4): the instructions also apply to documents received at places where there is no office of Bangladesh Bank. (P-5)
P-5(3): a statement as per Appendix-20 is furnished at the time of deposit. (P-5)
False. P-5(1)(a) charges 5% above the bank rate for the first seven days beyond the prescribed period, and (b) 6% above it after that. (P-5)
P-4(3): the BC selling rate ruling on the date of lodgment of the bill as applicable to cash import without forward cover facilities. (P-4)
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