BB allows commodity hedging without case-by-case approval

The Bangladesh Bank (BB) has introduced a commodity price risk hedging facility for importers, moving away from its previous requirement for firms to obtain clearance on a case-by-case basis.

A hedging facility allows businesses to lock in prices or use financial contracts to protect themselves against international market volatility, making future import costs predictable.

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In a guideline issued yesterday, the BB said banks will be able to offer eligible importers a range of price risk management facilities without requiring case-by-case approval from the regulator.

The move comes at a time when global markets, especially those for energy commodities such as oil, face volatility amid heightened concerns over the spiralling war in the Middle East.

A hedging facility helps businesses lock in prices or use financial contracts to protect against market volatility and make future import costs more predictable

Iran has kept the Strait of Hormuz effectively shut, while the Houthis have taken control of the strategically significant Bab al-Mandeb Strait, a chokepoint for Red Sea maritime traffic.

Since the beginning of the US-Israel war on Iran on February 28 this year, energy prices have jumped.

Brent crude oil averaged $104.4 per barrel in the April-June quarter this year, up 30 percent from $80.5 in the previous quarter, according to World Bank commodity price data. The oil price was $67.8 a barrel in the April-June period of 2025.

Prices of liquefied natural gas and fertilisers, namely urea, triple superphosphate and diammonium phosphate (DAP), for which Bangladesh is highly dependent on imports, surged amid supply uncertainty caused by the war.

Under the new guideline, importers can use internationally recognised hedging instruments, including commodity futures, swaps, commodity index-based forward contracts and options, against actual import liabilities.

Importers of raw materials, intermediate goods, fuel, edible oil, metals, grains and fertiliser, among other essential commodities for domestic consumption, will fall under this facility, a senior official of the BB said on condition of anonymity.

Public sector entities engaged in strategic or large-scale import operations will also be able to take advantage of hedging.

In its directive, the central bank said businesses can hedge up to 100 percent of their actual underlying commodity exposure. Partial coverage and multiple hedge contracts are permitted, provided aggregate values do not exceed import liabilities.

“This will allow importers to protect themselves against abnormal price spikes in international markets and make cost planning easier for businesses,” said the BB official.

The regulator said hedging products must be used strictly for genuine exposures and not for speculative or leveraged trading. It is solely a mechanism to reduce price volatility risk in international markets.

Banks must ensure proper due diligence, record-keeping, risk disclosure and reporting to the BB.

The central bank official said the scope will help businesses, particularly importers, with cost forecasting and business planning. It will thereby improve their competitiveness amid global price volatility.

According to the BB, importers must operate under a board-approved risk management policy and submit written declarations confirming transactions are solely for risk mitigation.

They must also obtain annual certificates from statutory auditors confirming hedge alignment with exposures.

Hedging gains or losses must be accounted for in accordance with International Financial Reporting Standards (IFRS-9), which set out how companies should record and report gains or losses from financial contracts used to protect themselves against price changes, where applicable.

The BB said banks intending to offer these services must obtain its prior approval by submitting board-approved product specifications and standard operating procedures.