Banks asked to ease opening forex accounts to boost dollar inflows 

The Bangladesh Bank has instructed banks to simplify the procedure for opening foreign currency accounts, with the aim of boosting dollar inflows and enhancing the nation's reserves.

During a meeting with the treasury heads of banks on Tuesday (27 February), the central bank suggested streamlining the account opening process for foreigners and non-resident Bangladeshis, a treasury head told The Business Standard.

Furthermore, he stated that the money market regulator also advised against excessively scrutinising the source of funds in these accounts and their transactions. Additionally, the Bangladesh Bank is considering providing tax benefits to these account holders.

The treasury department head at a private sector lender, who was also present at Tuesday's meeting, also said the Bangladesh Bank also suggested offering fixed interest rates on their deposits in accordance with instructions from the central bank.

When asked about this, Md Sarwar Hossain, a director and assistant spokesperson for the Bangladesh Bank, told TBS, "We had a meeting with the treasury departments of commercial banks today [Tuesday]. There, instructions have been given to comply with the circulars of the Bangladesh Bank properly. Additionally, discussions related to the dollar were held during that meeting."

In recent months, the central bank has implemented several policy measures aimed at bolstering dollar inflows to strengthen the country's international reserves.

As part of the initiative, on 3 December 2023, the central bank issued a circular stating that banks will pay more than 7% interest on resident foreign currency deposits (RFCD). Additionally, various benefits, including the ability to send money outside the country and issue multiple cards, will be available from such accounts.

The notification stated that individuals can deposit up to $10,000 as RFCD. Moving forward, banks will pay at least 1.5% interest on these deposits, in addition to the benchmark rate, which refers to the SOFR rate.

Moreover, two supplementary cards can be issued against the deposit, which can be used by dependents, including children or siblings. Furthermore, education expenses abroad can be remitted from this account, and medical expenses of spouses, children, siblings, and dependent parents can also be covered.

On 1 February this year, the central bank issued another circular, raising the interest rate by 50 basis points to 4% for foreign borrowings, aiming to increase dollar inflow and attract lenders abroad. Local banks are now able to offer rates of SOFR plus 4% to foreign lenders and depositors, encouraging them to park their funds with these banks for trade financing purposes. Banks then lend to local borrowers in foreign currency using these funds through their offshore banking units.

The circular also revised the all-in-cost ceiling per annum, incorporating a mark-up or margin of 4%, an increase from the previous 3.5%, added to benchmark rates such as the Secured Overnight Financing Rate (SOFR), Euribor, etc.

While acknowledging that the increased mark-up might impact the overall cost for importers seeking financing for their foreign trade activities, bankers assert that it will enable local banks to attract foreign funds, meet customer needs, and boost foreign exchange reserves, which have been on a downward trend for nearly two years.

"We lend local customers by borrowing from foreign sources, but our margin has gone down significantly and banks are making losses," the head of the treasury department at a leading private commercial bank said at the time.

After a 50 basis point hike in mark-up, banks that borrow from foreign lenders, such as Dubai-headquartered Mashreq, JP Morgan, Citi, and the International Finance Corporation (IFC), would be encouraged to lend Bangladesh more, he added.

Bangladeshi banks avail $3 billion to $4 billion annually from foreign lenders as trade finance, also known as off-shore finance, according to treasury officials at different banks.

They said the move would boost the supply of dollars in the country. Besides, lending from the bank's offshore unit will bring some profit, which was at a loss