Banks hold $800m more in August YoY on cautious repayments

Banks held $800 million more in their vaults in August than in the same month last year, reflecting their prudent approach regarding forthcoming payment obligations.

According to data from the Bangladesh Bank, the total gross dollar holdings of banks stood at $5.81 billion at the close of August this year, 15.74% up from $5.02 billion held during the corresponding month last year. In other words, banks have accumulated an additional $800 million over the course of one year. 

However, the figure is approximately $90 million lower, constituting a decrease of 1.56%, in comparison to July of the current year.

A senior official of the central bank told TBS that the calculation of gross dollar holdings is based on the amount of dollars deposited in the Nostro accounts of commercial banks. A higher balance in these Nostro accounts signifies an increased ability on the part of banks to cover import costs.

Nostro accounts, as they are referred to in the banking world, are accounts that Bangladeshi banks open with foreign banks. These accounts serve as conduits for receiving export proceeds or remittances, with funds also being disbursed from these accounts to fulfill import-related expenses and other financial obligations.

Central bank data reveal that from July last year through January this year, deposits in Nostro accounts of banks generally remained below the $5 billion mark. However, this trend has been on the upswing since February, with the figures reaching nearly $6 billion in the months of July and August.

Emranul Huq, managing director and CEO of Dhaka Bank, said that the surge in bank-held dollars is a result of prudent measures taken in response to last year's dollar crisis, which left banks grappling with a shortage of dollars. 

In preparation for impending deferred LC payments in the coming months, banks are now opening import LCs for amounts they can comfortably cover. 

These factors have collectively contributed to the increase in banks' dollar reserves when compared to the same period in the previous year, he said.

A senior official of a private bank added that while the overall banking sector has witnessed a growth in dollar holdings, not all banks are in the same position. 

Some banks boast healthy foreign currency holdings, while others are resorting to borrowing from foreign banks to meet their obligations related to deferred import LCs due to their inadequate foreign currency reserves. These loans come with an interest rate of 8%-9% in foreign currency. 

He further noted that if short-term loans were excluded from the gross dollar holdings, the net dollar holdings would be lower.

Mashrur Arefin, managing director and CEO of The City Bank, told TBS that the dollars that the country's banks have in the Nostro account are the dollars deposited by different customers. The banks can make payments with the export proceeds when the customers encash them, he said.

He also pointed out that the increase in the dollars held in Nostro accounts is due to a decrease in imports and robust export growth. 

"The dollar shortage in the banking sector was high in August last year. During that period, our monthly imports were hovering around $8 billion, but they have since decreased to below $6 billion. Concurrently, our exports have seen a notable uptick. Additionally, our net open position (NOP) is currently in a favorable state. These factors have contributed to the steady growth of our foreign exchange holding," he said.