Bangladesh Bank Headquarters

Dhaka, Bangladesh (BBN)– The central bank of Bangladesh has turned down an appeal of banks’ for exemption of complying with cash reserve requirement (CRR) and statutory liquidity ratio (SLR) rules for their Offshore Banking Operations.

This was communicated at a meeting with leaders of Association of Bankers, Bangladesh (ABB), held at the central bank headquarters in the capital Dhaka on Wednesday with Bangladesh Bank (BB) Governor Fazle Kabir in the chair.

Refusing the appeal termed as Banking Companies Act issues, the BB also advised the bankers to maintain such CRR requirement with balance of their foreign currency clearing accounts, according to officials.

Under the mechanisms, the banks will be eligible to comply with enhanced CRR requirements using their balance of foreign currency clearing accounts particularly from Offshore Banking Operations (OBOs), they explained.

Talking to the BBN, a BB senior official said the central bank may also allow the banks to comply with the SLR rules using their balance of NASTRO accounts.

He also said the BB will issue a clarification to notify about such revisions on policy for Offshore Banking Operation of the Banks in Bangladesh, issued by the central bank on February 25 last.

The central bank earlier asked the banks to comply with the CRR and SLR rules for their OBOs through issuing the new policy.

In it, it directed banks to keep 13 percent of their total liabilities as SLR and 5.50 percent as CRR from July 1.
CRR and SLR are regulatory tools deployed to ensure liquidity and solvency of banks.

SLR is the money a bank needs to preserve in the form of cash, gold or government-authorised securities before providing credit to customers, while CRR is a certain amount of deposit that it must hold as reserves with the BB.

The central bank has also refused another proposal of the ABB relating to keep their exposure of OBOs free from maintaining advance-deposit ratio (ADR) and whole sale borrowing, according to the central banker.

“Cost of fund may rise slightly to meet extra pressure for complying with the CRR and the SLR requirements under the offshore banking operations,” Syed Mahbubur Rahman, chairman of the ABB, said while explaining possible impact on the matters.

Mr. Rahman also managing director and chief executive officer of Dhaka Bank Ltd., said the central bank will also allow fund transfer from OBOs to domestic banking units (DBUs). “It will help minimising extra pressure on fund to some extent.”

The central bank has accepted some proposals of the ABB that will help implementation of the new policy for OBOs, he added.

Local business entities will be allowed to borrow from OBOs with receiving prior approval from the central bank, another BB official said.

He also said the new policy will help mitigate the risks of OBOs in Bangladesh as the central bank will be empowered to strengthen monitoring and supervision.

In the past, the central bank was not empowered fully to monitor and supervise the Offshore Banking Unit (OBU) operations closely due to legal constraints.

Currently 36 commercial banks out of 59 are running their OBUs across the country and disbursed loans amounting to BDT 592.27 billion as of December 2018 as per a directive issued by the Banking Control Department of BB on December 17, 1985.

Under the directive, the OBUs had been exempted from the purview of certain provisions of the Banking Companies Ordinance 1962 as per the government notification.

Besides, the OBUs were 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.

It means the OBUs were exempted for maintaining CRR and SLR with the central bank of Bangladesh against their liabilities.