The growing cost of fund in the offshore banking operations emerged as a major hurdle to the facilitation of formal finance in the special economic zones (SEZs), bankers observed at a workshop on Monday.
Citing the Bangladesh Bank's recent notification asking the banks to maintain cash reserve ratio (CRR) and statutory liquidity ratio (SLR) rules concerning their offshore banking operations, they said it would further enhance the cost of finance in offshore banking units (OBUs).
They also identified some other complications such as insufficient security against facility, difficulty in obtaining client credit information and non-availability of borrowers' international credit exposure.
As a measure to overcome these difficulties, the bankers recommended regulatory interventions so that the banks can contribute more to the government's higher development plan riding on the concept of special economic zones.
Experts in the relevant field also called upon the bank management to deploy highly skilled manpower having sound knowledge of exchange control regulations in the OBUs.
The suggestions came at the workshop on 'Business Facilitation in Special Economic Zones by Banks in Bangladesh' hosted by the Bangladesh Institute of Bank Management (BIBM) at its office in the city.
Dr. Muzaffer Ahmed Chair Professor of BIBM Dr Barkat-e-Khuda moderated it.
Presenting a study paper, BIBM professor and director (training) Dr Shah Md Ahsan Habib said the central bank introduced OBU licences to the banks in 1985 to facilitate formal credit to export processing zones (EPZs).
Some 65 per cent of the requirements of the SEZ companies are being served by the authorised dealer branches (ADs) while the rest met by the OBUs, he said citing the study.
He also said multiple public agencies with sometimes overlapping mandates might offer choices but they could prove to be complex to the investors. "A coordinated standard requirements and incentive structures are needed to attract investors and banks."
Senior executive vice president of Bank Asia Md Zia Arfin said maintaining the CRR and SLR on the foreign borrowing as instructed by the central bank added extra costs to their offshore operations.
"It has created a hurdle to the business facilitation in the SEZs. We need to work out a way out of it," he said.
Giving a possible option to overcome the situation, he said the BB could reduce CRR and SLR on offshore borrowing.
Muhammad Shohiduzzaman, country head of global trade and receivable finance, HSBC Bank, said the CRR and SLR will increase the costs by 18.50 per cent. "So, it needs to be well considered that how much it will affect the liquidity availability."
Citing a 1985 circular of BB for establishment of the OBUs, he said it was clearly mentioned in the circular that the banks do not need to pay any tax on the interest payment for its offshore borrowing.
But there is no such clear massage in the latest notification, which might create serious problem for the OBUs by way of further expanding the costs of fund, he said.
Former BIBM supernumerary professor Yasin Ali said the banks should engaged its highly skilled labour force in the OBUs, which is dedicated to attracting foreign deposits and loans.
"You (OBU officials) need to have enough knowledge on exchange control regulations, as any external shock and affair might affect your business," he said.
BIBM supernumerary professor Helal Ahmed Chowdhury said the country will be eligible for a 'middle-income country' status by 2024. With this transition, the low-cost foreign loan that the country now enjoys as a least developing country will not be available.
"So, what will happen then? How would the country meet its required foreign reserves. It is you (OBUs) who can give the economy enough impetus," he said.
Speaking as the chief guest, BB deputy governor SM Moniruzzaman said the government has taken the initiative to develop 100 special economic zones across the country in order to become a developed nation by 2041.
The main objective is to encourage rapid economic development through increase and diversification of industry, employment, production and export, he said.
"So, effective business facilitation by banks and financial institutions in the Special Economic Zones are crucial for their sustainability," he added.
Moderating the event, Mr Barkat-e-Khuda highlighted the importance of SEZs in the country's future higher growth trajectory and suggested the banks to carefully monitor the trade-based money laundering.
He also suggested addressing the issues of non-bank obstacles for the rapid expansion of industrialisation riding on the SEZs.
Senior officials of Bangladesh Bank and commercial banks attended the workshop.
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