Pressure on import payments drives up remittance dollar rates
Remittance dollars were being purchased by banks at Tk122.50 on Tuesday (28 January)
After remaining stable for nearly three weeks due to strict measures by the Bangladesh Bank, the remittance dollar market has once again started to become volatile, with rates rising amidst mounting pressures on banks to clear overdue payments.
According to senior officials from at least eight banks, the current buying rate for remittance dollars has climbed to Tk122.50, an increase of 50 basis points over the past two weeks, with a notable 20-basis-point rise just Tuesday (28 January).
However, banks continue to report the rate as Tk122 to the Bangladesh Bank, in line with its directives.
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In late December, the Bangladesh Bank issued verbal instructions to banks, setting a maximum rate of Tk122 for buying and selling remittance dollars. A central bank circular also specified that the maximum spread between buying and selling rates should not exceed Tk1, warning the banks of punitive actions, including fines, for violations.
Following the directives, banks had been offering remittance dollar rates between Tk121.50 and Tk122. However, the growing pressure from overdue import payments has led to intense competition among banks to secure remittance dollars, pushing rates higher.
The central bank's directive at a Bangladesh Bank Authorised Dealer's Forum meeting on Monday further escalating demand.
During a meeting, banks were instructed to clear all overdue payments related to general imports and back-to-back import letters of credit (LCs) without delay. The central bank warned of potential penalties for failing to comply with this directive.
As a result, the demand for remittance dollars surged, causing rates to increase by 20 basis points in a single day, Tuesday.
The country head of a foreign exchange house told The Business Standard, "The dollar market had been relatively stable following the central bank's directives. However, the market has started to become volatile again over the past few weeks."
"Banks have significantly increased their demand for dollars from us. Some banks, especially state-owned ones, are becoming more aggressive in buying remittance dollars at higher rates. As a business, I will naturally take the deal offering better rates," he added.
Talking to TBS, an official from the treasury department of a state-owned bank said they are not receiving dollar support from the central bank. Moreover, the interbank market is unable to meet their dollar demand.
Meanwhile, they are required to clear government L/C payments daily. Recently, the central bank has intensified pressure to settle overdue payments. As a result, the banks have no alternative but to purchase remittance dollars, even at slightly higher rates, to meet these obligations.
Unusual inflow and market disparities
Concerns have been raised over how certain banks are securing significantly more remittance inflows despite offering similar rates.
A deputy managing director of a private bank, seeking anonymity, said, "It is evident from the inflow chart which banks are collecting remittance dollars at higher rates. Despite offering Tk122 per dollar, we're not attracting remittances. But a comparatively weaker bank is managing to secure 4-5 times more remittance at the same rate. This data is simply not credible."
"The remittance market is highly rate-sensitive; the bank offering the higher rate will naturally attract more remittance," he added.
Analysing the weekly remittance inflow data of the central bank, as of 25 January, the banking sector received $1.68 billion in remittance. The data highlights varying trends among banks – some have experienced a decline in remittance inflow over the past two weeks, while others, who previously received around $3-4 million per week, saw their inflows surge to over $13 million in the latest week.
When asked how banks manage to misreport to the central bank despite offering rates higher than the set limit, several senior policymaking officials explained that banks employ 4-5 methods to conceal the additional rate information.
One common method involves connecting importers with aggregator remittance houses. In this arrangement, the importer deals directly with the aggregator and makes separate payments for the additional amount to the remittance house.
Other tactics include secretly paying the extra rate, creating fake accounts to temporarily hold the excess amount, and later transferring it when convenient. Aggregators are often compensated through such means.
The officials also claimed that the central bank is aware of such practices, also mentioning that punitive measures had been taken against some banks earlier.
In December 2024, the dollar rate reached Tk128, prompting the central bank to summon 13 banks for explanations on purchasing dollars at above-regulated rates. Following this, the central bank tightened controls, instructing treasury heads to refrain from buying remittance dollars above Tk123.
Later, towards the end of December, Governor Ahsan H Mansur held a meeting with managing directors of both state-owned and private banks, instructing them to offer a uniform rate for remittances and export proceeds.
To reduce aggregator influence, the central bank has relaxed rules for smaller exchange houses, eliminating the requirement for a $10,000 security deposit and minimum balances in Non-Resident Foreign Currency (NRFC) accounts. This change, effective 1 February, will allow smaller exchange houses to sell remittance dollars directly to banks.
