Banks are required to submit daily currency monitoring reports to the BB

| Update:
February 18, 2022 9:55:46 p.m.

The regulator is closely monitoring the operations of offshore banking units (OBUs) of banks following a surge in demand for foreign currency loans, especially in the private sector.

As part of the regulatory measure, according to sources, the Bangladesh Bank (BB) has included the operations of the OBU in a new head of daily foreign exchange monitoring report.

The daily reporting obligation should finally take effect from March 21.

A report format has already been released in this regard to collect information on assets and liabilities of OBU operations as well as other relevant data related to the overall foreign exchange risk exposure of regular banks, officials said.

Scheduled banks have already been asked to provide daily trade position, including OBU trades, using a new Streamlined Entry Model (RIT) on a trial basis from February 16, add- they.

BB officials, however, say the daily monitoring report will help them know the real situation in the country’s foreign exchange (forex) market.

In addition, the central bank wants to know the compliance with the rules and regulations of OBU operations by the operators using the daily monitoring report.

“In fact, we want to know the latest limit for raising OBU funds from domestic sources as well as the size of assets and liabilities of offshore banks,” a senior BB official told the FE.

Earlier on January 31 last year, the central bank had asked banks to reduce the limit on raising OBU funds from domestic sources to 30% of their total regulatory capital by December 31, 2021.

In addition, at the close of business on any day, the value of offshore banking assets in Bangladesh must not be less than 75% of offshore bank liabilities, according to the notification issued by the central bank on February 25, 2019.

The central bank had regulated offshore banking in Bangladesh by issuing the policy in 2019.

In the past, the central bank was not fully empowered to closely monitor and supervise the operations of the OBU due to legal constraints.

“We have included OBU operations in our new reporting format to properly monitor foreign currency inflows and outflows via offshore banks,” another central banker told FE while explaining the main focus of BB’s latest metrics. to regulate the foreign exchange market which remains heated lately with the exchange rate of the US dollar with the local currency rising.

Meanwhile, demand for foreign currency lending through banks’ OBUs has steadily increased despite the central bank capping the lending rate at a maximum of 9.0%.

“Short-term foreign currency credits are still cheaper than local currency loans, mainly due to lower interest rates on such loans,” a senior executive at a major bank told the FE on Thursday. Private Commercial Banking (PCB), while explaining the upward trend in these loans. .

Under the latest BB policy, banks are now allowed to set interest rates on buyer/supplier credits at six-month LIBOR (London Inter-bank Offered Rate) plus a maximum of 3.50%.

The effective interest rate on foreign currency loans is now around 4.0%, according to the private banker.

Businessmen are now allowed to avail themselves of these credits to import capital goods and industrial raw materials.

Meanwhile, the outstanding amount of OBU loans that were granted in foreign currency increased to 801.80 billion taka as of September 30 last calendar year from 630 billion taka as of December 31, 2020, according to the latest statistics from the central bank.

Outstanding OBU loans were Tk 730 billion as of June 30, 2021.

However, senior bankers say such foreign currency lending has increased significantly in recent months following increased import payment obligations imposed on the economy.

Bangladesh’s import expenditure jumped over 54% to $38.97 billion in the July-December period of the current fiscal year (FY), 2021-22, from $25.23 billion. dollars over the same period a year earlier.

Rising prices of key commodities, including petroleum products, on the world market also pushed up the country’s import payments during the review period, they explain.

Indeed, Bangladesh’s foreign trade covering both imports and exports increased significantly during the period under review owing to the gradual reopening of economic activities, both domestically and globally, after more than a year of slump mainly due to the Covid-19 pandemic.

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