Bankers unhappy with uniform exchange rate

The Bangladesh Foreign Exchange Dealers Association (BAFEDA) is going to propose four different taka-dollar exchange rates against imports, exports, remittances, and inter-bank transactions for all banks to the Bangladesh Bank today amid worries that the rates would not be viable for all banks.

Bankers allege that the proposed rates are dictated by the central bank and do not reflect their suggestions. 

The proposed exchange rate for LC (letter of credit) settlement of imports is Tk89.95 per dollar, while the rate is Tk88.95 for exports, Tk89.80 for remittances, and Tk89.85 for inter-bank transactions, according to the association. All the proposed exchange rates are around Tk2 higher compared to the current official rates, and up to Tk11 lower than open market rates. 

The exchange rates have been fixed jointly by the forex exchange dealers association and the Association of Bankers, Bangladesh (ABB), and will take effect once the central bank gives the final nod. 

The proposed uniform exchange rates for all banks come following a decision made at a tripartite meeting of the Bangladesh Bank with top leaders of the BAFEDA and the ABB on Thursday. 

If the proposed rates are accepted, the central bank will have to go for a devaluation of taka by another Tk2. 

Currently, the inter-bank exchange rate of $1 is fixed at Tk87.90 by the Bangladesh Bank, while the banks' officially declared rate is Tk88 for LC, Tk87 for remittance, Tk86.6-86.90 for export, according to the central bank. 

But, the official rates are not effective now as banks are mostly ignoring them because the price of $1 ranges between Tk90 and Tk97 in the open market.

Md Ataur Rahman Prodhan, chairman of the forex exchange dealers association, and managing director of Sonali Bank, told The Business Standard that they will put forth their proposals to the Bangladesh Bank on Sunday and that the proposed exchange rates will come into effect only after the central bank approves them, he said. 

Even though uniform exchange rates are not in practice anywhere in the world, the Bangladesh Bank has moved for such a policy for the time being considering the existing volatility in the forex market, said a senior executive of the central bank. 

Bangladesh Bank Governor Fazle Kabir at an event of Al-Arafah Islami Bank held on Saturday stated that the country is facing a new challenge regarding inflation and dollar rate volatility. 

"This is a challenge not for only the central bank but also for the whole banking community," he mentioned, calling upon all the banks to make concerted efforts to overcome the challenge. 

Why banks are not happy

Although some top leaders of the banking community, at Thursday's meeting with the Bangladesh Bank, agreed to implement the uniform exchange rate, most banks are unhappy with it because the rate they wanted to set according to the market demand was not allowed by the Bangladesh Bank.

According to meeting sources, although bankers were called to a meeting to discuss solutions to the dollar rate volatility in the foreign exchange market, the Bangladesh Bank did not pay heed to them in fixing the exchange rate. 

No solution could be found to address the current crisis in the first one and a half hours of the meeting, which made bankers feel disappointed, the sources said, adding that at one point, one banker urged the governor to provide them with a concrete solution to the dollar rate volatility. 

Later, the governor left the meeting room giving bankers the floor to collectively set an exchange rate. The bankers agreed to set the exchange rate between Tk95 and Tk96, but the central bank instructed them to set the rate below Tk90.

Now, following the central bank's instruction, bankers are going to propose new rates against their will, said a senior banker. 

"It will be impossible for all banks to maintain the rates. This is because the central bank will not give official directives to implement the rates; it will only suggest banks follow the BAFEDA rates." 

Speaking to TBS, several bank officials observed that the new rates will be ineffective because the dollar balance is not the same in all banks. Some large banks have high income from exports and inward remittances, but most medium-sized and small banks do not have good earnings. 

In this situation, if all banks offer a uniform rate to exporters and remitters, only the large banks will be the gainers. 

Moreover, remittance earnings have already fallen drastically in some big banks despite having good facilities because of the high difference between official and unofficial rates. In this situation, the rate below Tk90 for remitters and exporters will not be effective, they told TBS on condition of anonymity. 

According to Bangladesh Bank's data, Islami Bank held 22.33% of total remittance earnings came through the banking channel in the January-March quarter of the current year. 

Dutch-Bangla bank accounted for the second-highest 12% share in total remittance earnings. The other good remittance-earning banks are Agrani Bank, Sonali Bank, Bank Asia, Southeast Bank, Pubali Bank, Mutual Trust Bank, Janata Bank, and The City Bank.

Other banks collectively held a 30.66% share of total inward remittance.