Remittance rate jumps to Tk124 per dollar

The country's foreign exchange market experienced renewed volatility as exchange houses quoted remittance rates between Tk123 and Tk124 per dollar on Tuesday, significantly higher than the official set rate of Tk110.50.

This marks the highest remittance rate recorded since 22 October removal of the limit on additional incentives offered with the official remittance rate.

Most of the banks did not purchase remittances on Tuesday as the gap between remittance and import rates widened to Tk13 per dollar when the dollar selling rate for importers was set at a maximum of Tk111 by the Association of Bankers Bangladesh (ABB).

The ABB and the Bangladesh Foreign Exchange Dealers Association (Bafeda) are set to hold a meeting Wednesday to adjust the import rate in line with the remittance rate to minimise the gap and stabilise the forex market, according to industry insiders.

The remittance rate, which stood at Tk120 last month, has experienced an upward trend since the beginning of the current month.

Talking to The Business Standard, the managing director of a private commercial bank, wishing not to be named, said the huge gap between buying and selling rates is fostering corruption.

"If we purchase remittances at Tk124 per dollar and sell to importers at Tk111, then we will have to make a loss of at least Tk130 crore in a month," he said, adding that to avoid such losses, his bank would have to go for underhand dealings with importers and sell dollars at the remittance rate. However, this would necessitate his bank's officials handling large sums of cash.

Asserting that most banks are involved in underhand dealings due to the widening gap between remittance rates and import rates, he said while the gap previously hovered around a manageable Tk1 to Tk2 per dollar, it has now ballooned to an astonishing Tk13. The gap will be even higher when additional incentives are factored in.

Before 22 October, remitters received a maximum incentive of 5%, comprising a 2.5% government incentive and a 2.5% incentive funded by banks themselves.

Subsequently, the ABB abolished the 2.5% cap on incentives that banks could offer for remittance income. This implies that banks now have the autonomy to determine their own incentive rates for remittances. However, each bank's board of directors must approve the proposed incentive rate before implementation.

In a significant decision, the bankers' association mandated that all foreign currency inflows be purchased at a fixed exchange rate of Tk110.50, applicable to both remitters and exporters.

This change is expected to enhance the competitiveness of remittance rates offered by banks, potentially incentivising more individuals to remit funds through formal banking channels.

After lifting the incentive limit, some banks approved their highest incentive limit of 2.5% in the board, which means they will provide a maximum 5% incentive, including the government offer.

With the 5% incentive, banks will have to spend Tk130 per dollar on remittances, said a senior officer of a private commercial bank.

On the other hand, exporters have been involved in foreign exchange dealings as they are selling their earnings to importers directly at higher rates, which is illegal, said another top executive of a private bank.

He said banks got authorised dealer licences from the Bangladesh Bank to deal with foreign currency. No individual can deal with foreign currency.

State-owned banks concerned about remittances

The head of the treasury department of a state-owned bank told TBS that along with the government's 2.5% incentive on remittances, banks can also offer another 2.5% incentive. Banks will show this additional cost as their corporate social responsibility (CSR) expenditure. As a result of such a decision, the remittance collection of state-owned banks will be further disrupted.

He said, according to the guidelines, if a bank has net profit, it can spend on CSR. But most of the state-owned banks are not in net profit. In that case, how will they show this expense?

Besides, the expenditure of the CSR sectors has been specified in the guidelines. Additional expenditure on remittance incentives is not allowed to be shown in this sector. The central bank should clarify the issue through a circular, he said.

Another private bank's treasury head told TBS that banks are now required to sell 10% of their received remittance dollars in the inter-market. The highest rate at the inter-market will be Tk114. But banks can buy dollars and open import LCs at a maximum of Tk111, which will create more volatility in the market.

He also said forcing banks to sell 10% of the dollars in the inter-market cannot be a good market feature. Even if some banks sell, they will do it only as an eyewash.