Banks' insatiable appetite drives incessant BB dollar sale

Commercial banks' insatiable demand for dollar despite gradual increase in their portfolios drives the central bank to unremittingly sell the greenback to them from limited reserves, officials say.
The nation's falling foreign-exchange reserves bear further pressure for such continuous feeding of the US currency by the Bangladesh Bank to the banks-in what remains a riddle to some bankers and economists.
Shortly after the Russia-Ukraine war broke out, Bangladesh came under immense pressure so far as its forex reserves are concerned from early last fiscal year (FY'23) because of quick fall of forex holding with the commercial banks in the wake of significant rise in import costs globally and less-than-expected levels of earnings from remittance and export receivables.
Since then, the central bank, as part of its market intervention, intensified the sale of the greenback from its reserves to the banks to help them meet their foreign-currency obligations amid forex dearth, sources at the BB said.
But since January last, riding on various dollar-saving moves on part of the central bank, the foreign-exchange balances held by commercial banks have kept increasing.
In October 2022, the forex situation in the banks dropped to $4.50 billion. The forex balances in the banks in the following months in November, December, January, February, March, April, May and June were on a crescendo with $ 4.71 billion, $4.79 billion, $4,85 billion, $5.20 billion, $5.34 billion, $ 5.50 billion, $5.12 billion and $5.53 billion respectively.
Their dollar holdings had reached around US$ 6.0 billion until July 20, 2023, according to the statistics of the BB--the country's central bank.
Seeking anonymity, a BB official says the foreign-currency stock with the commercial banks keeps improving in recent times because of factors like import restrictions, rise in remittance and submission of growing export proceeds. This rebound was supposed to give some respite to the country's forex-reserve situation in this challenging period of time.
"But it was not happening as the rising trend in sale of dollars by the BB from its reserves to the banks continues and it is putting more pressure on the reserves," says the central banker about seemingly remains a riddle.
According to the BB's dollar sale-related statistics, the central bank on average had sold $1.13 billion per month in the immediate-past fiscal year as it handed out a total of $13.58 billion to the banks in the FY'23.
In the first 20 days of the running month of July, it sold $782 million. The central bank sources said the volume of dollar sales could cross the monthly average figure in this month as there are still some more days left to take into account.
Another BB official, also preferring anonymity, says they have been supporting state-owned commercial banks, in particular, with the required greenback to enable them to clear government import bills on items like fertiliser, food, petroleum and mineral products.
When contacted, managing director and chief executive officer of Pubali Bank Limited Mohammad Ali told the FE that the forex-holding situation in the banks continues improving, which is a "good sign".
"The NOP (net opening position) of my bank was $110 million negative. It is now $20 million positive," he said.
Explaining reasons for the improvement, the top executive of the scheduled bank said the inflow of remittance is on an upturn while exporters are placing growing numbers of proceeds in recent times to pay salaries of their workers ahead of recently-observed two Eids.
Managing Director and Chief Executive Officer (CEO) of BRAC Bank Limited Selim R. F. Hussain feels that the growing forex balance held by the banks is bringing some sort of relief to the banking sector.
"We need to see data of at least nine months to properly understand the trend. But it is becoming comfortable," Mr Hussain, also chairman of the Association of Bankers, Bangladesh (ABB), told the FE.
According to the BB data, the gross volume of forex reserves remained on a slide, amounting to $29.85 billion as of July 19, 2023 by official count, but the net volume of reserves under the IMF's BPM6 manual is equivalent to $23.45 billion.
The second figure looked little lower than the International Monetary Fund (IMF) earmark set in a $4.7-billion loan package the government accepted as part of measures for replenishing the forex reserves.

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