Offshore banking takes on local look

Rising reserve and remittance encouraged local banks to peg offshore banking business, once dominated by a few foreign banks.

Regulatory body Bangladesh Bank believes that allowing more offshore banking will help utilise the huge foreign currency reserves and increase competition among players.

Recently, the central bank has allowed the offshore banking unit (OBU) facility to six more private commercial banks (PCBs), taking the tally to 17, according to latest data.

“BB wants to utilise part of its huge foreign exchange reserve -- now $10 billion -- through OBUs,” said Anis A Khan, managing director of Mutual Trust Bank that received the OBU licence last week.

BB has already allowed Eastern Bank to give fund worth $117 million to Biman Bangladesh Airlines to purchase carriers under the offshore banking business. BB will lend Eastern Bank the foreign currency from its reserve funds.

It is mandatory that an OBU transacts in foreign currencies. So local PCBs previously could not go outside export processing zones to lend to intended borrowers. The restriction is no longer in force. The central bank has recently allowed offshore banking outside the EPZs, which means local companies can now take foreign currency loans.

Six PCBs -- AB, BRAC, The City, IFIC, Mutual Trust and Premier -- have been given the OBU licence over the past couple of months. Six more PCBs -- Bank Asia, Dhaka Bank, Eastern, Prime, National and Southeast -- are already on the scene.

Some other PCBs are planning to launch OBUs next year.

Five foreign banks -- Citi, Bank of Ceylon, HSBC, Standard Chartered and Woori -- started offshore banking in Bangladesh about a decade or so ago.

“The offshore banking opportunity in Bangladesh is good as the market is rising constantly,” said Abdul Wadud, senior vice president and head of Structured Finance Unit, Eastern Bank.

A senior HSBC official welcomed the move cautiously. “It is encouraging that more banks are entering offshore banking,” said Mahbub-ur-Rahman, corporate banking head of HSBC.

But Rahman questioned the source of foreign currencies that should come from sustainable sources.

A foreign bank can obtain foreign currency from its parent organisation easily, which a local bank cannot.

But the Mutual Trust managing director observes no problems with the source of foreign currencies.

Khan identified several sources, including remittance, borrowing from foreign banks, deposits of foreign banks and EPZs, and the foreign exchange reserve.

The financial statements of OBUs are prepared in foreign currencies and separately, in accordance with BB regulations.

Transactions in foreign currencies are recorded in the functional currency, at the rate of exchange prevailing on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the rate of exchange ruling at the balance sheet date.