Cenbank seeks explanations from banks for remittance dollar purchase at higher rates

The Bangladesh Bank has instructed the managing directors of several banks to explain why punitive measures should not be taken against the officials involved in purchasing remittances at unusually high rates from foreign exchange houses.

In a letter issued to the banks last Thursday evening, they were instructed to provide an explanation to the central bank by today (22 December).

Several reports published in TBS last week highlighted the growing instability in the dollar market. In response, Bangladesh Bank Governor Ahsan H Mansur stated in a comment to this newspaper last Thursday, "Some immature traders in the banking sector have destabilised the market. They are abusing the opportunity of opening the dollar market. Those who have destabilised the market definitely need to be punished."

The central bank's letter stated, "In the directive regarding exchange rates, banks were instructed to buy and sell dollars based on the Crawling Peg Mid Rate, with Tk117 as the reference rate. Recently, your bank's exchange house has been purchasing remittance dollars at a rate that is not consistent with the rate specified by the central bank. As a result, discipline in the country's foreign currency market is not being maintained."

After a relatively stable period of about four months, instability began to spread in the dollar market from the beginning of December. In the last two business days, the dollar-taka exchange rate set a new record, reaching the highest rate in history twice. Last Thursday, banks had to spend as much as Tk127.70 to purchase remittance dollars.

A policy-making official of the Bangladesh Bank said many banks have not fully adhered to the exchange rate declared by the central bank. "A few banks have played a key role in destabilising the market. Currently, explanations have been sought from these banks." 

The official also mentioned that the number of banks receiving the letter could be around 10 to 12.

When asked about the matter, another senior official from the central bank said, "Issuing letters to the banks is part of our routine work. We have all the information about how and at what rate the banks are collecting dollars from the remittance market. Based on the directives of the Bangladesh Bank's policy-making officials, we have sought explanations from the banks." 

Requesting an explanation does not necessarily mean punishment, he said, adding that after receiving the explanations from the banks, the next course of action will be determined.

Accusing the banks for the increase of remittance dollar rates, the official said, "Every day, banks quote the demand and exchange rates for remittance dollars to the exchange houses. The exchange houses sell the remittance dollars to the bank offering the highest rate. If the banks do not offer unusually high rates, the exchange houses cannot exert much influence on the market." 

He further said, "We have information that last week, some banks offered unusually high rates to exchange houses to collect more remittance dollars. As a result, instability spread in the remittance dollar market. Explanations have been sought from the banks with the aim of stabilising the market and removing the instability."

According to central bank data, by 14 December, remittances worth $1.38 billion had been received by the banking sector. 

Among the country's banks, state-owned Agrani Bank topped the list with the highest remittance inflow of $208 million. 

Private sector Islami Bank Bangladesh, which had been in first place for remittance inflows every month, dropped to second place in December, receiving $189 million. 

BRAC Bank, in third place, received $120 million while Sonali Bank and Janata Bank secured fourth and fifth places, receiving $100 million and $94 million, respectively.