Cenbank allows banks to transfer 30% of capital to offshore units

The central bank has lifted its complete ban on transferring funds from domestic banking units to their offshore banking units.
 
Banks are now permitted to transfer up to 30% of their regulatory capital in foreign currency from domestic units to offshore accounts, according to the Bangladesh Bank.
 
The facility was fully suspended by the central bank on 16 January this year.
 
Today, the central bank issued a circular regarding this change and sent it to the managing directors of all scheduled banks.
 
According to the circular, "It has also been decided that Off-shore Banking Operations (OBOs) which already have excess borrowings (above 30% of regulatory capital) from Digital Banking Units (DBUs) shall adjust within 31 December 2024."
 
A senior official of the central bank said, "In January, we halted the transfer of funds to offshore banking units in the expectation that our inflow from abroad would increase. However, there has been only a slight improvement in recent months."
 
He continued, "Many of our institutions are currently in arrears with foreign entities. Prolonged overdue payments could harm our country's reputation and make it challenging to secure new funding. Therefore, we have reinstated this facility to help settle outstanding payments."
 
He further explained, "There is no way to pay foreign dues from the domestic unit of the bank because the funds are held in offshore units."
 
Offshore banking operates as a distinct system within banks, allowing them to lend to foreign companies and accept deposits from foreign sources, with transactions conducted in foreign currency.
 
Offshore banking is not subject to the same regulations as scheduled banks in Bangladesh, except for the accumulation of profit and loss accounts. Currently, 35 banks in Bangladesh engage in offshore banking activities.
 
According to the central bank's circular, banks were allowed to allocate up to 20% of their regulatory capital to offshore units until 2019. This limit was increased to 30% during the Covid-19 pandemic.