Banks out of ‘severe stress’, forex market eases a bit

The country’s banking sector has started coming out of a ‘severe stress’ it has been witnessing since July last year mainly due to short supply of foreign currencies on the local money market.

The forex-supply situation has started easing by now, leaders of the Association of Bankers, Bangladesh (ABB) claimed at a press conference at BRAC Bank headquarters in the city on Monday, unveiling the ‘Bangladesh Banking Sector Outlook 2023’.

They explained that prudent policy support by the central bank, resumption of transactions by the overseas corresponding banks with their Bangladeshi counterparts and other relevant factors have contributed to help salvage the local banking sector.

“The country’s banking sector came under abnormal pressure from July last year due mainly to the forex dearth,” said Selim R. F. Hussain, chairman of the association of top executives of local banks.

As a result, he pointed out, the banks faced immense difficulties to settle import bills and were forced to go for deferrals while the corresponding banks withdrew their limits and a pressure continued ballooning while opening new letter of credits (LCs).

“We’re in a much better situation today than what we were last year. Is it perfect, fully stable or very normal? Certainly not, there is still a lot of stress, but we’re much better than what we were eight to nine months ago,” he said.        Majority of the banks, the private commercial banks in particular, are now regular in foreign payments while there could be some problems with only 2-3 banks, said Mr Hussain, also managing director and chief executive officer of BRAC Bank Limited.

He informed that the foreign correspondent banks have started coming back as they are satisfied with the current state of affairs.

Regarding the benchmark reference rate under which the banks would be allowed to fix their lending rate, the ABB chairman said the Bangladesh Bank (BB) imposed a lending cap of 9.0 per cent in 2020 which was relevant to the market situation at that time.

He said he was informed about a possibility that the reference rate would be fixed based on a six-month moving average of treasury bills, which is a market mechanism.

“But the market rate should be allowed to function properly. It is an important move towards a market-based interest rate regime,” he said, adding that the market is yet to be perfect.

On the allegations of trade-based money laundering, he said that it has come down significantly in recent months following the intensified monitoring over-and under-invoicing of external trade by the central bank as well as the commercial banks.

The ABB chairman said the bankers had little idea about the trade-based money laundering even a few years ago, but now they are aware about the misdeeds following regular training conducted by the BB.

“Now we think that many big conglomerates might have been involved in trade-based money laundering,” he added.

Mashrur Arefin, vice chairman of the ABB, said the net open position of dollar holdings of banks turned positive from the negative trajectory as both remittance inflows and deposits are rising.

On the other hand, the difference of exchange rates between the formal and informal markets is narrowing down fast, reflecting signs that the banks are turning around from the sorry state.

Hailing the central bank’s intervention to help stabilise the forex market, he said the rate gap between the formal and informal market has come down to a maximum of Tk 1.0 per US dollar.

He said the net open position of US dollar holding by banks was negative by around US$600 million last year, but it is by now positive at US$38 million with a rising trend.

“So, we’re coming out of the pressure,” said Mr Arefin, also managing director and chief executive officer of City Bank Limited, informing that the volume of excess liquidity in the banks started rising to reach Tk1.35 trillion.

Terming the growing NPL (non-performing loan) another challenge for the banking sector, ABB vice-chairman Syed Waseque Md. Ali said whenever the banks move to recover the bad loans, the defaulters go to the court and secure stay orders, creating a hurdle in their efforts to bring it down.

He also hailed the BB’s policy support that helped some banks that were in trouble due to the recent mass withdrawal of cash. 

ABB vice chairman and managing director of Dutch Bangla Bank Limited Abul Kashem Md. Shirin and ABB treasurer and managing director of Midland Bank Limited Md. Ahsan-uz Zaman Ali also spoke at the event.

[email protected]