How offshore banking will benefit foreign trade in Bangladesh

Offshore banking can significantly benefit foreign trade in Bangladesh by providing a robust framework for financial transactions that are essential for international commerce, said Mohammed Monirul Moula, managing director of Islami Bank. 

"The recent Offshore Banking Act 2024 has been a pivotal move, allowing non-resident individuals and foreign entities to open offshore bank accounts, which is expected to bolster the nation's foreign currency reserves and attract foreign investment," he said. 

These offshore banking units (OBUs) are authorised to offer a range of services, allowing UPAS LCs (letters of credit) and other foreign trade-related services which can streamline the process of conducting international trade, Monirul added. 

"Moreover, the Act permits transactions in major currencies, enhancing the ease of doing business with global partners," he further said.
Monirul highlighted that by offering deferred export bill discounting facilities and medium to long-term loans to local enterprises, OBUs can provide necessary liquidity support, potentially stabilising the local currency and mitigating the ongoing foreign currency crisis. 

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

Ali Reza Iftekhar, managing director of Eastern Bank

This strategic initiative is poised to enhance the competitiveness of Bangladeshi exports by simplifying financial operations and reducing transaction costs, thereby fostering a more conducive environment for foreign trade.

Ali Reza Iftekhar, managing director of Eastern Bank, said the banking sector is one of the most pivotal players in the country's industrialisation and economic growth. 

"Traditionally, foreign funds have long been dependent merely on DFIs and foreign financial institutions. The ability to source foreign currency liquidity for OBUs from diverse sources will help lower the cost of foreign funds, make international trade transactions at competitive pricing and will support importers to get immediate access to the goods by paying to beneficiaries at sight. 

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

Mirza Elias Uddin Ahmed, the managing director of Jamuna Bank, said, "In the current economic context, offshore banking units are essential in every bank. The central bank has made offshore banking significantly easier and has provided considerable concessions, so there is an opportunity for our banks to expand their offshore operations further. In light of the new policy and the central bank's facilities, we can do so.

"Jamuna Bank has the opportunity to expand its offshore banking operations further. Previously, we focused more on bill discounting through offshore banking. We used to bring in some funds from foreign banks through term placements to support this," he added.

"Moreover, most of the dollars that were in the domestic banking units (DBU) of banks were transferred to the offshore banking units for investment. However, due to a directive issued by the central bank, the opportunity to transfer funds from the DBU to the OBU has now been closed," Mirza Elias further said.

Generally, most of the dollars in our domestic banking unit belonged to customers, he noted, adding that exporters would deposit dollars with banks to pay for foreign back-to-back LCs. 

"We would then invest those dollars in offshore banking. However, this was very risky because customers might need their funds at any time, and failing to return the funds when needed could create a mismatch. Now, the central bank has put an end to this practice.

"We have plans to generate funds through offshore means for back-to-back transactions and bill discounting in the future. We also plan to collect offshore deposits from foreign nationals, foreign companies, Bangladeshi companies registered abroad, or foreign companies stationed in Bangladesh," the Jamuna Bank MD added.