Bangladesh expands offshore banking to secure more foreign currency

Bangladesh expands offshore banking to secure more foreign currency

Offshore banking is emerging as a key avenue for banks in Bangladesh to attract foreign currency deposits, facilitating investments and international trade. Industry experts believe it can significantly mitigate the ongoing foreign currency crisis by providing liquidity support and stabilizing the local currency.

Offshore banking in Bangladesh began in 1985, primarily to support export processing zones by offering banking services to importers, exporters, and financial institutions. The sector has gained prominence recently due to the country’s shrinking foreign currency reserves.

In March 2024, the Offshore Banking Act was enacted to bolster the US dollar supply, which has been under strain due to higher outflows than inflows. The Bangladesh Bank (BB) has eased rules, allowing both locals and foreigners to utilize the services. Domestic commercial banks’ offshore banking operations (OBOs) can now offer competitive interest rates on foreign currency term deposits to eligible customers, including non-resident Bangladeshis and foreign entities.

BB has allowed domestic banks to receive funds from OBOs up to 40% of their regulatory capital to settle payment obligations. OBOs can operate in five currencies: USD, GBP, EUR, JPY, and CNY. As of September, approximately 40 banks have offshore units, with total outstanding loans of Tk 83,826 crore. Investors benefit from up to 8.40% tax-free profits on fixed deposits and unrestricted international fund transfers.

City Bank, for example, currently has $23 million in offshore deposits, aiming to increase this to $1 billion. Similarly, Pubali Bank is developing digital solutions to facilitate account opening and transactions from abroad, highlighting the substantial potential of offshore banking in Bangladesh.

By promoting offshore banking, Bangladesh can significantly enhance its foreign exchange reserves. The country can potentially mobilize billions of dollars, leveraging its large economy and population. Industry leaders envision bringing in $50 billion through OBOs, drawing parallels with Mauritius, which holds $800 billion in offshore deposits despite a much smaller population.

Source: The Daily Star

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