Volatility on the foreign-exchange market is pushing Bangladesh's banking sector into jitters for exchange-rate risks, and the fears prolong for majority of the scheduled banks.
Some 33 out of 61 scheduled banks are possessed with three-fourths of the industry's total foreign-exchange-rate risks, according to the latest financial stability report released by the central bank.
It says the banks under Groups 1 (21 banks) and 2 (11 banks) accounted for 75.12 per cent of the sector's total forex-exchange-rate risks, in a notable increase from 62.0 percent in the preceding year.
Besides, banks under Group 3 (nine banks comprising full-fledged Islamic banking) possessed 18.85 per cent of the exchange risks in 2022, indicating an increasing trend from 18.4 per cent in 2021.
Simultaneously, the banks under Groups 4 (foreign commercial banks) and 5 (fourth-generation commercial banks), containing less than 10-percent share of total assets, were found less exposed to market risks in the banking system.
Spokesperson for the Bangladesh Bank Md Mezbaul Haque says banks which have higher foreign-currency-payment obligations than the forex earnings are in the category of short positioning.
For example he cites any bank that opened LCs (letter of credit) amounting to US$ 10 million but can earn maximum US$ 8.0 million from exports and remittance.
"The bank has $2.0-million shortfall and it has to be met through buying the greenback. But the ongoing volatility on the forex market has been posing great risk to those banks," says Mr Haque, also an executive director of the central bank, about the forex risks these bankers are.
On the other hand, the official says, there are some banks which have more foreign earnings than the spending to clear overseas transactions. They are in the category of long positioning. It means the banks have surplus in foreign exchange.
"There is risk for banks in long positioning as well. If the exchange rate against local currency depreciates, they will have to face the music. Normally, top banks having more concentration on imports are in short positioning," the central banker says.
Contacted over dollar delirium, managing director and chief executive officer of Mutual Trust Bank (MTB) Limited Syed Mahbubur Rahman admitted growing foreign-exchange-rate risks in the country's banking industry, mainly because of forex mismatch in balance sheet.
He points out that some banks make short-term commitment to clearing import payments in short term and make long-term investment. "As the banks don't have the supply of adequate American dollars to pay, they need to buy the costly greenback from other sources under the current context of the market to overcome the mismatch."
"This is hiking the exchange-rate risk," he says.
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