A dozen banks in massive drive to raise $1b offshore deposits

TBS Infographic

Most commercial banks in the country have launched extensive campaigns to promote offshore banking products, aiming to raise at least $1 billion in foreign currency deposits within the next two years.

According to industry insiders, a dozen banks have already introduced offshore banking products, opening up new investment avenues for non-resident Bangladeshis, foreign individuals and institutions.

We believe that providing such interest rates to our country's citizens without obtaining similar rates from foreigners will benefit our people. It will also increase our funding sources.

Selim RF Hussain, MD, BRAC Bank

Banks are offering a maximum interest rate of 8.59% on deposits, though the yield rate is less than 6% in developed countries. Moreover, offshore depositors can avail themselves of home loans and investment guidance to buy land, shares, bills, and bonds in Bangladesh.

According to banks, foreign currency depositors can keep their money in nine currencies, including the US dollar, British pound, euro, Australian dollar, and Canadian dollar.

What different banks are offering?

Pubali Bank, for instance, is offering free investment guidance for offshore depositors through its investment committee. Non-residents can invest in the stock market by taking regular advice from the experts on the investment committee. Foreign currency depositors can also explore other investment opportunities with guidance from Pubali Bank.

BRAC, one of the largest private commercial banks, is offering lucrative interest rates for offshore deposits. Investors will receive at least 3% higher interest rates than in the US and Europe. BRAC Bank is offering a maximum interest rate of 8.59% on offshore deposits.

Meanwhile, Jamuna Bank is offering home loans to NRBs against their offshore deposits. Offshore investors will get home loans at an interest rate of 2% lower than the market average. Moreover, investors will receive investment suggestions for investing in bills and bonds through the offshore unit.

Dutch-Bangla Bank is offering offshore deposits in five foreign currencies – USD, GBP, CAD, AUD, and EUR.

Mutual Trust Bank has designed its offshore products to provide a better banking experience with smooth digital services to attract ultra-rich non-resident Bangladeshis to park their money at home.

Bank Asia is offering wealth management services for offshore depositors to make Bangladesh an attractive destination for the super-rich.

Eastern Bank is expanding its network to top remittance source countries to create good connections with not only non-residents but also with foreign nationals to bring investment to the offshore unit.

Social Islami Bank, the third largest remittance earner among banks, has designed its offshore products to target remitters and institutional investors.

New law passed

The Offshore Banking Act 2024 was passed in parliament on 5 March, shortly after receiving the final approval from the cabinet on 28 February. The act aims to build up foreign deposits amid the rapid erosion of foreign exchange reserves.

According to the law, the government will not levy any tax on profits made by foreigners in the offshore banking units (OBUs) of Bangladeshi banks. The law also provides several facilities to depositors, such as the ability to withdraw their deposits whenever they wish.

Soon after the law was passed, the Bangladesh Bank began urging banks to promote offshore banking to attract foreign deposits. So far, only City Bank has brought in $23 million in deposits since the introduction of the new offshore law. Some other banks have brought in insignificant amounts.

'Expats, foreigners keen to invest in Bangladesh'

"We have received interest from parent companies of multinational corporations based in Bangladesh and our correspondent banking partners," said Mashrur Arefin, managing director of City Bank.

He said foreign companies willing to invest in Bangladesh can also be a good source of investment for OBUs. The option to easily transfer funds abroad makes this product attractive to institutional investors.

Moreover, wealthy Bangladeshis who reside abroad but manage business in Bangladesh may now do so much more productively through International Bank (IB) accounts offshore, he added.

If banks can successfully source OBU deposits, our dependency on foreign banks will be reduced and we can then reduce the cost of fee expenses spent on foreign banks, he said.

Selim RF Hussain, managing director of BRAC Bank, said they alone plan to raise $400 million in foreign currency funds over the next three years.

"In our country, 30 banks have offshore banking units. BRAC Bank's OBU amounts to about $700 million. We provide foreign trade support to our customers through these units. We assist them in importing or obtaining loans from abroad," he said.

"Out of our $700 million, we received $50 million as deposits and the rest as loans through foreign correspondent banks. The cost of these funds is around 8.5%. We believe that providing such interest rates to our country's citizens without obtaining similar rates from foreigners will benefit our people. It will also increase our funding sources."

Mohammad Ali, managing director at Pubali Bank, said, "We are following the steps of other countries in the world that have excelled in offshore banking units. Countries like Mauritius, with a population of 1.6 million, have received more than $800 million through offshore banking.

"We have a population of 160 to 180 million both domestically and abroad, so we expect $1 billion to come through offshore banking in the next few years. We believe that offshore banking will surpass the current portfolio of Pubali Bank within a few years," he added.

Mohammed Monirul Moula, managing director of Islami Bank, said, "Since the enactment of the Offshore Banking Act 2024, we have been receiving very positive responses from non-residents.

"Customers from Germany, the US, Cyprus, and various other parts of the world are making inquiries. We are also providing them with information. We observe a growing trust among our clients," he added.

"The ability to source foreign currency liquidity from diverse sources through OBUs will help lower the cost of foreign funds, make international trade transactions at competitive pricing, and support importers to get immediate access to goods by paying quickly to beneficiaries," said Ali Reza Iftekhar, managing director of Eastern Bank.

"With possibilities of churning extra liquidity, OBUs can provide mid and long-term financing for capital-intensive projects, which will help reduce foreign currency outflow," he said.