Banks still buying remittance dollars at much higher rate

A day after two top bankers' associations announced a reduction in the remittance dollar rate by Tk0.50, breaking a trend of over a year of steady increases, banks, instead of decreasing the rate, offered significantly higher rates to fulfil the growing demand.

Banks reported obtaining remittance dollars from exchange houses on Thursday at the highest rate of Tk121-122, in contrast to the Tk118-119.50 they had paid just a day earlier.

An official at a leading bank said despite offering a rate of Tk117 on Thursday, they did not receive any remittances.

The Association of Bankers, Bangladesh (ABB) and the Bangladesh Foreign Exchange Dealers Association (Bafeda) announced a new dollar rate on Wednesday in which the purchasing rate for export proceeds and remittance was decreased to Tk110 from Tk110.50, while the selling rate for import settlements was set at Tk110.50, down from Tk111.

Under the new rate, banks can pay a maximum of Tk112.75 for remittances with incentives from their own funds. And remitters will receive Tk115.5 with incentives announced by the government. However, banks cannot charge more than Tk110.50 when selling these dollars.

The revised lower dollar rate was meant to be implemented on Thursday, but several banks have not adhered to it.

According to senior officials at several banks, the highest dollar rate for remittances had risen to Tk124 on 8 November. The next day, the central bank held a meeting with the managing directors of 13 banks and gave instructions to reduce the dollar rate. Additionally, inspections started at banks to verify allegations of remittances being acquired at elevated prices.Furthermore, a policymaking officer from the central bank contacted banks, urging them to decrease the remittance rate. Consequently, banks reduced their remittance purchases with the higher rates in compliance with the central bank's directive, the officials added.

A senior official at a private bank claims that the remittance inflow has decreased slightly compared to the previous week due to lower rates."There is a lot of demand for dollars in banks now because of the end of the year. One of the reasons is that many banks are trying to settle their overdue payments," he added. When a deferred import letter of credit (LC) is opened, it has a predetermined term for payment. If the bank fails to settle the payment for any reason, these payments become overdue, which, according to sector stakeholders, can tarnish the bank's reputation.

However, they highlighted that the magnitude of overdue payments varies across banks. Those banks with higher overdue payments are reportedly purchasing some of their remittance dollars at elevated rates.

The managing director of another bank informed TBS that banks need to finalise their balance sheets by the end of December. As all banks aim to present favourable conditions on their balance sheets, none desire to exhibit increased dollar liabilities. Consequently, the dollar rate for remittances may rise due to these considerations.

Among these developments, the Bangladesh Bank, in a press conference on Thursday, commended the recent decision of the ABB and Bafeda to reduce the price of dollars by Tk0.50.

"In the last several months, we closely monitored the demands for imported products and their supply. Our observations reveal a surplus in the current account balance," said Mezbaul Haque, spokesperson for the central bank. 

"Although our financial account is currently in deficit, it is anticipated to improve in the upcoming days, with debt payments gradually decreasing."

He noted that as debt repayments decrease, the demand for dollars will ease. Currently, most LCs are settled at sight, exerting control over the demand for dollars in imports.

Haque said remittances are on the rise, ensuring a healthy supply of foreign exchange.

Highlighting the positive position of all banks' Net Open Position, he emphasised that there is an ample supply of dollars.