Offshore banking can be third-biggest source of foreign currency inflow in Bangladesh

Bangladesh can be one of the most attractive destinations for foreign currency deposits as offshore units of Bangladeshi banks are offering higher returns than US and Europe with tax and duty-free income, said bankers.

However, the government needs to improve the country's rating to popularise offshore banking and bring in foreign institutional deposits.

The government should go for more road shows and branding to build a positive image among non-resident Bangladeshis to build confidence, said bankers.

The main sources of foreign currency for banks here are export earnings and NRB remittance. With the liberalisation of OBU policy, now this may become another major source, the third source, said Mashrur Arefin, managing director of City bank.

Previously, banks would operate foreign trade business through taking loans from foreign sources in offshore units. The country's banking industry has a total of $6 billion to $7 billion in loans taken from various foreign sources for offshore banking.

Now, the government has enacted a new law for fixed deposits in offshore banking units. Interest income against offshore deposits are exempted from any kind of tax, including excise duty. Offshore accounts are also tax-free, which means depositors are not required to show it in their tax files.

Not only non-residents and foreign nationals, but Bangladeshi residents can now open offshore accounts on behalf of their relatives or friends residing abroad.

Our main foreign currency inflow is exports and remittances. Offshore fixed deposits can replace remittances as Bangladeshi migrant workers move away from low-skilled jobs in the future.

Mashrur Arefin said the country's annual imports have dropped to $60 billion from $90 billion due to the dollar crisis. However, annual imports will go up to $120 billion with a growing economy and offshore banking will play a vital role in meeting the dollar demand, he added.

When imports will open up, exports will grow and continue to be the biggest source of export earnings, he added.

However, to build trust among non-residents, credit rating by international rating agencies is very important, he said.

 "Non-residents may not have an idea about any particular bank in Bangladesh. Credit rating by globally reputed agencies like Moody's or Fitch will come handy in that respect. It will provide clarity to them about the health of a Bangladeshi bank," he said.

"Country credit rating is also important. But our historically poor governance in the banking sector, and overall political uncertainty that is prevalent now (which is eroding the trust of people) are not helping our cause. Lastly, people may perceive some repatriation related uncertainty too under the current BoP (Balance of Payment) conditions. We need to address all of the above," said Arefin.

Brac Bank Managing Director Selim RF Hussain said the lion's share of our country's foreign currency funding comes from exports and remittances.

"Besides, we get loans from foreign banks and foreign multilaterals. I think OBU deposits will be a new source of foreign funds for our country," he added.

Pubali Bank Managing Director Mohammad Ali said, "Many institutions charge taxes on deposits abroad. Deposits in our offshore banking accounts are tax free. On the contrary we are offering good interest on term deposits.

We do not expect huge amounts of funds, especially from non-Bangladeshi sources initially. It takes years to generate the confidence which international depositors or investors need to keep their money. I expect that the first customers will be the Bangladeshi diaspora as they are aware of who the good banks are. We need to ensure that our services meet the standards which they are required to

Sohail RK Hussain , managing director, Bank Asia

"We are following the successful strategies of other countries with thriving offshore banking sectors. For instance, Mauritius, with a population of 1.6 million, received over $800 billion through offshore banking. Given our population of 160 to 180 million, both domestically and abroad, we expect to attract $1 trillion through offshore banking in the next few years. We believe that Pubali Bank's current portfolio will be surpassed by our offshore banking units within a few years," he said.

Sohail RK Hussain, managing director of Bank Asia, said many of their customers already know a little bit about Bangladesh, therefore their comfort level will already be there. "And we hope to convince non-Bangladeshis, both individuals and institutions, about the safety track record of banks in Bangladesh as no bank has failed their international obligations in the last 50 years."

He said the country's rating by international rating agencies is absolutely essential. On top of that, the image of good governance is also similarly extremely important.

"So as we enhance our position in these, we will become a more attractive destination for this particular group of products," Hussain added.

"We do not expect huge amounts of funds, especially from non-Bangladeshi sources initially. It takes years to generate the confidence which international depositors or investors need to keep their money. I expect that the first customers will be the Bangladeshi diaspora as they are aware of who the good banks are. We need to ensure that our services meet the standards which they are required to.

"We will need to do more visits, roadshows to not only attract the Bangladeshi diaspora but also to attract international organisations and funds, many of whom we already have some sort of relationship with," Hussain further explained.

The role of country rating is crucial in securing adequate funding for offshore banking, said Syed Mahbubur Rahman, managing director of Mutual Trust Bank.

"International credit rating agencies like Moody's, Fitch, and S&P have downgraded Bangladesh's rating. Since foreign institutions rely on these ratings for funding decisions, improving the country rating is essential to popularising offshore banking. In this regard, the government's role is significant," he added.

"Many are talking about how Pakistan has progressed in offshore banking. Actually offshore banking in Pakistan has done well in 2020. At that time the interest rate in the international market was very low. Then the SOFR interest rate was less than 1% now it is more than 5.5%. They got low interest loans at that time due to which they got more funds," he explained.

He further said that the number of white collar jobs in Pakistan is very high. Compared to that, Bangladesh has very little. Although new white collar job holders are leaving our country. "Our target customers are very low in numbers compared to that in Pakistan. Our Ministry of Foreign Affairs will have to run various publicity campaigns, which is very important for our banks," Rahman said.

"We have to talk regularly with expatriate Bangladeshis, foreign institutions, and foreign individuals. The reason is that many people from abroad think of our country as a 'natural climatic' country, but when those expatriates come to our country, their idea is wrong. So we have to go to them again and again. We have to improve the branding of our country," he added.

He also said that we have to bring various foreign corporate institutions to the country. Foreign institutions should be attracted.