BB board to examine treasury heads' review appeal today

FE REPORT | Published: October 21, 2023 22:45:50

The board of directors of the Bangladesh Bank (BB) is likely to review and take a decision today (Sunday) on the appeals made by the senior treasury officials of 10 private commercial banks seeking waiver of the fines imposed on them by the BB for their alleged involvement in exchange rate manipulation, according to sources.
The BB board is scheduled to meet today.
"We'll initiate action on the matter in line with our board decision," a senior official of the central bank told the FE without elaborating.
Some industry insiders feel that the treasury heads facing the BB action deserve a fair review since most of the treasury heads are not empowered officially to look after the remittance business and offshore banking liquidity management mainly due to the absence of a uniform organogram of the country's banking industry.
As per the organograms, the Foreign Remittance Departments (FRDs) in most banks are not under the Treasury Department. The FRDs or International Departments (IDs) collect wage earners remittances from overseas exchange houses as well as aggregators through offering rates to meet their volume targets.
However, under the existing foreign exchange risk management guidelines of the BB, Treasury Front Office is responsible for quotation of various foreign exchange and interest rates to customers. But it is found that most banks do not follow the guideline properly.
Actually, there exists an anomaly in rate-fixing mechanism due to the lack of proper job allocation, line of reporting, monitoring and supervision of the regulator, according to the insiders in banks.
They also said though rates for inward remittances are fixed by the remittances department, the treasury heads are being accused of manipulating exchange rates. It is the responsibility of the FRD or ID to achieve the remittance target, which is fixed by the top management or the boards of banks.
Considering the overall unhealthy competition among the banks to attract deposits and remittances, which makes the market volatile, top management as well as the board of directors of banks cannot skip their responsibilities, the insiders explained.
"We're deeply embarrassed following regulatory moves taken one after another against us for alleged the rate manipulation where we do not have any control mechanism," a senior treasury head of a leading PCB told the FE while expressing his reactions on the issue.
Despite rising pressure on forex reserves since 2022, some banks opened letters of credit (LCs) beyond their capacity bypassing treasury clearance, the treasury official said, adding that those banks had failed to make payments in due date, which creates extra pressure on these banks as well as the market.
Actually, the treasury heads are responsible for managing liquidity, exchange and interest rate risks as per the BB's guidelines as well as Basel-III accord.
Besides, the treasury heads are also responsible for complying with different regulatory requirements including various ALM (Asset-liability management) indicators and ratios. And the central bank has also given directives in its guidelines for two - forex and ALM - out of six core risks which are applicable for the treasury department.
The central bank had earlier issued the guidelines to manage the risks properly. The core risks are: credit, asset and liability, foreign exchange, information technology, internal control and compliance and money laundering.
However, the functions of treasury heads came into the spotlight since May 2022 when the volatility in the country's forex market started to intensify because of greenback inflow and outflow mismatch.
Monitoring as well as supervision of the central bank have already been intensified to identify main players, who are directly or indirectly involved in creating volatility of the market, which again puts pressure on the external front.
In August 2023, the central bank launched a special probe into more than 20 commercial banks to find out alleged 'distortion' in foreign-exchange rate by the banks concerned.
Rate distortion means banks apply higher or lower prices of the foreign exchange to the customers other than their announced prescribed rates in their daily rate sheets while the banks can quote other than prescribed rate in some cases as per the BB guidelines.
About the rates fixing process, the central bank has said in its guideline on Foreign Exchange Risk Management "….both buy and sell transactions of large size and /or special nature and transactions under special circumstances may be dealt at rates outside these published rates which may be either over or under the published rates for that day by ensuring rates appropriateness."
Initially, the BB probe teams found that 10 scheduled banks were involved in alleged rate 'distortion' through charging higher exchange rate on the greenback to the importers than that of their announced rates.
The banks are Social Islami Bank, Al-Arafah Islami, Mercantile Bank, Modhumoti Bank, Midland Bank, BRAC Bank, Exim Bank, Premier Bank, Shahjalal Islami Bank and Trust Bank.
On 26 September 2023, the central bank imposed penalty worth Tk.10 million each on treasury heads of the PCBs due to their alleged involvement in the rate manipulation.
The central bank also had taken action against treasury heads of the six banks -five PCBs and one foreign commercial bank (FCB) -for their alleged involvement in gaining excessive profit through unethical practices in foreign-currency deals.
In August last year, the central bank asked managing directors (MDs) and chief executive officers (CEOs) of the same banks to depute their treasury heads to human resources (HR) department immediately as punishment on allegation of fuelling up the foreign-exchange mark recently through quoting 'unusual' higher prices of the greenback.
Just two week after, the central bank allowed the treasury heads to return to their lost positions through withdrawing its previous order following their apologies to the BB.