Dhaka, Bangladesh (BBN) - The central bank of Bangladesh has raised substantially the net open position (NOP) limit for commercial banks to keep the foreign exchange (FX) market stable.
“We’ve already informed the banks about the revised NOP limit and asked them to maintain the new limit to holding foreign exchange,” a senior official of the Bangladesh Bank (BB), the country’s central bank, told BBN in Dhaka.
Under the revised directives, the banks are now empowered to retain more foreign exchange that helps minimizing sale pressure of the US dollar on the inter-bank FX market.
The new limit has been determined on the basis of 20 per cent of the total regulatory capital of the banks as on March 31, 2016.
Earlier, the NOP was re-fixed on the basis of 15 per cent of the total regulatory capital of the banks on March 31 last year.
The central bank enhanced the NOP by more than 11 per cent to US$1.51 billion on July 20 last year from $1.36 billion earlier for the all banks.
The BB has taken the latest move against the backdrop of increased flow of foreign exchange into the market as well as capital base of the banks because of lower import-payment obligations in the recent months.
Besides, the higher growth of export earnings has boosted the supply of the greenback to the local forex market recently, the central banker explained.
Rising trends in retained earnings have contributed to improvement of the capital base of the banks, according to the BB official.
The bankers, however, expressed mixed reactions on the latest BB move, saying that it would help them to settle foreign-exchange transaction in a better way but have to face new challenges relating to volatility risk.
Talking to BBN, a senior private banker said the revised directives will help reduce selling pressure of foreign exchange. “But it will increase forex-volatility risk of the banks.”
He also said the cost of funds of the banks will increase due to the holding of low-yielding asset.
BBN/SSR/AD