Bangladesh Bank Headquarters

Dhaka, Bangladesh (BBN) – The central bank of Bangladesh has asked the banks to stop aggressive attitude in their offshore banking unit (OBU) operations to avert possible exchange rate risk in future.

The advice was made at a meeting of 29 banks, held at the central bank headquarters in the capital on Monday, with Bangladesh Bank (BB) Deputy Governor S K Sur Chowdhury in the chair.

The BB’s latest move came against the backdrop of rising demand for the comparatively cheaper foreign-currency loans from the OBUs in the recent months.

Total outstanding loans with OBUs of the banks jumped by more than 19 per cent to BDT 468.74 billion as on June 30 this year from BDT 393.30 billion six months before. It was BDT 419.72 billion as on March 31, 2017.

Besides, the banks, which are running OBUs, have also been asked to bring down borrowing from onshore sources, officially known as domestic banking units (DBUs), at a reasonable level from the existing one.

Currently, total exposure of the OBUs stands at US$6.40 billion, of which $2.25 billion has been financed from the DBUs, according to the BB’s latest statistics.

The managing directors (MDs) and chief executive officers (CEOs) along with the heads of treasury and credit of the banks took part at the review meeting, according to officials and bankers.

They also said higher financing from the DBUs has already created a liquidity pressure on the country’s foreign exchange market.

Operations of the OBUs are normally maintained by the banks concerned through collection of funds from their own sources, overseas sources and taking clean deposit from other banks.

Currently, 36 commercial banks, out of 57, are running their OBUs across the country as per a directive issued by the BB Banking Control Department on December 17, 1985.

Under the directive, the OBUs have been exempted from the purview of certain provisions of the Banking Companies Ordinance 1962.

Besides, the OBUs will also be considered for exemption from Article 36(1) of the Bangladesh Bank Order 1972 on such terms and for such period as may be deemed fit by the government.

The OBUs are exempted for maintaining CRR (cash reserve requirement) and SLR (statutory liquidity ratio) with the BB against their liabilities.

Under the existing provisions, the central bank is not fully empowered to closely monitor the OBUs’ operations due to legal constraints.

The BB is now working on issuing a fresh directive to mitigate the risks of OBUs’ operations through strengthening supervision.

They also said the meeting reviewed the credit exposure of the banks’ OBUs as well as the overall credit and deposit situation.

At the meeting, the banks have also been advised not to offer higher rates to the overseas exchange houses for receiving inward remittance that influences the overall exchange rates in the market, they added.

The BB also advised the banks to reconcile NOSTRO accounts regularly and stop foreign currency deals in the name of corporate ones.

The banks have also been asked to improve the deposit growth than that of credit one stopping unhealthy competition.

The rate of deposit growth, year-on-year, came down to 10.88 per cent as on July 30, 2017, from 12.21 per cent three months before that time, the BB data showed. The deposit growth was 13.13 per cent in December 31, 2016.

On the other hand, the overall credit growth rose to 17.16 per cent as on July 27 this year, from 15.90 per cent as on March 30. It was 15.32 per cent on December 31, 2016.