The central bank has received at least five proposals for allowing hedging the price risk of commodities to offset the effect of their price volatility in the global market, officials said.
Two foreign commercial banks - Citibank NA and Standard Chartered Bank - have already submitted proposals to the Bangladesh Bank (BB) seeking permissions to sign deal with three corporate entities for hedging price risk of commodities like cotton, zinc and wheat.
Three corporate entities, which have already showed interest in hedging price risk of the items, are Square Group, PHP Group and ACI Limited.
"We're now scrutinising the proposals carefully to protect the importers' interest," a BB senior official told the FE Tuesday, adding that the central bank initially allows such transactions on case to case basis.
He also said at least two local private commercial banks have already contacted the concerned officials of the central bank to know about the hedging of price risk of commodities.
On May 27 last, the central bank allowed hedging the price risk of commodities to offset effect of volatility in prices of essentials, including petroleum products, in the global market.
Hedging is a strategy designed to minimise the exposure to an unwanted business risk while still allowing the business to profit from an investment activity.
Under the provisions, all the details of commodity hedge transactions that have been approved and booked with the clients should be reported to the central bank on a monthly basis.
Besides, the commercial banks will have to send a detailed report to the BB on maturity of each transaction, according to the circular, issued by the central bank earlier.
The banks must advise client on all costs, charges and commissions relating to the commodity hedge prior to engaging such deal, the central bank said, adding that the banks must explicitly mention all the downside risks and worst-case-scenarios of the commodity derivative hedge to the client prior to entering into a transaction.
On the other hand, the central bank also allowed commodity options for buying or selling a product at a predetermined price within a specified period of time.
In South Asia, India and Sri Lanka have already allowed such transactions to minimise exposure to foreign exchange and commodity price risks, the officials added.
