Banks can now offer higher incentives to boost remittance

The Association of Bankers Bangladesh (ABB) and the Bangladesh Foreign Exchange Dealers Association (Bafeda) have removed the 2.5% limit on incentives that banks can offer on remittance income.

Effective immediately, banks are free to set their own incentive rates for remittances. However, each bank's board of directors must approve the incentive rate before it can be implemented.

This change means that banks can now offer more competitive rates on remittances, which could encourage more people to send money home through banks. This could have a positive impact on the Bangladesh economy by increasing the inflow of foreign currency. Besides, remitters will get 2.5% government incentive as per previous rules.

Banks will have to bear the cost of the incentives they offer on remittance income, and this additional cost cannot be passed on to customers.

In addition, the official buying and selling rates for remittance and export proceeds have been increased to Tk110.50 and Tk111, respectively. Previously, banks could buy a dollar at Tk110 and sell it at Tk110.50.

These decisions were finalised at a meeting between the ABB and BAFEDA on Tuesday, according to two managing directors of private banks.

In addition to the other measures announced, the interbank selling rate of the dollar has been increased to Tk114 from Tk110.50. Banks have also been mandated to sell 10% of their monthly remittance income to the interbank market.

This means that if a bank receives a remittance of $10 million in October, it must sell $1 million to other banks in the interbank market in November. However, banks can still sell dollars to customers at a maximum rate of Tk111.

A treasury head of a private bank told The Business Standard that some banks are in an oversold position because they have sold dollars by taking loans from their foreign bank accounts. "If these banks have to sell dollars in the interbank market, how can they manage to pay back the loans in dollars?"

A managing director of a private bank has expressed concern about the instability in the price of the dollar, noting that the meeting called for the dollar to be bought at a higher price and sold to customers at a lower price. He questioned how this was possible, given that banks are businesses that are not in the business of charity.

The meeting also brought changes to the rules for credit card dollar rates and student banking dollar rates. From now on, banks must follow their own cash dollar selling price when providing dollars for credit cards or students going to study abroad.

Currently, banks are selling cash dollars at rates between Tk110.50 and Tk114. Prior to this change, banks were selling these dollars at a maximum Tk110.50.

At a meeting held on 20 October, banks were allowed to take remittances by offering an additional Tk2.75 or 2.5% incentive on top of the official buying rate of Tk112.75 per dollar, in a desperate effort to boost the inflow of foreign currency.

Bankers have reported that many banks are already offering remittance dollar rates in the range of Tk115-Tk116, even before receiving BB's verbal instructions, in response to their demand for a steady supply of greenbacks. 

While the ABB and the Bafeda have formally authorised an additional dollar rate for remittances, it still falls short of the prevailing rates offered by banks.

However, the primary concern among bankers pertains to the selling rates of the dollar, as the ABB and the Bafeda have yet to provide clarity regarding the rates at which the dollar can be sold to importers.