BB mounts watch on offshore banking

The central bank has expedited monitoring and supervision on offshore banking units (OBUs) of the commercial banks for limiting risks in free trans-boundary transactions, officials said Wednesday.
As part of the move, the Bangladesh Bank (BB) is now collecting information on assets and liabilities of each OBU on weekly basis for assessing their financial risks, if any, especially with transactions in terms of foreign currencies.
Besides, the central bank has started preparation to bring the functions of OBUs under regular monitoring by amending the existing provisions on operation and establishment of the OBUs operations in Bangladesh.
The BB's latest moves-meant for averting any bubble-came against the backdrop of a rising trend in loans and advances provided by the OBUs in recent years.
After the opening up of private-sector credits allowing entrepreneurs to borrow from overseas sources, the demand for foreign-currency loans from OBUs has been on a gradual increase, a BB senior official explained.
"The OBUs are now playing a significant role in the credit market following the higher demand for foreign loans, mainly due to lower interest rates on such lending," the central banker noted.
The BB has already started compiling and seeking more data from the OBUs to determine their actual exposure, which may be a 'considerable amount', he hinted.
Earlier, the central bank had formed a six-member high powered committee, headed by Chowdhury Md. Feroz Bin Alam, general manager of the Banking Regulation and Policy Department (BRPD) of BB, to submit a detailed report on OBU activities with their recommendations.
The committee has already finalised its initial report with recommendations after consultation with seven leading private commercial banks (PCBs).
"We've discussed the matters with senior officials of the PCBs to know actual situation of their OBU operations," a member of the committee told the FE, without elaborating.
The BB is going to form two committees to examine possible liquidity risks of the banks for taking foreign currencies' liability with their OBUs and to bring necessary changes or amend the existing provisions, including reporting requirements.
Currently, 33 commercial banks out of 56 are running their 50 OBUs across the country as per a directive issued by the Banking Control Department of BB on December 17, 1985.
Two more private commercial banks (PCBs) have submitted applications to the central bank for OBU licences, according to another BB official.  
Under the directive, the OBUs have been allowed exemption from the purview of certain provisions of the Banking Companies Ordinance 1962 as per the government notification.
The Banking Companies Ordinance 1962 was superseded by the Banking Companies Act 1991.
Besides, the OBUs will also be considered for exemption from Article 36(1) of the Bangladesh Bank Order 1972 on such terms and for such period as may be deemed fit by the government.
It means the OBUs are exempt for maintaining CRR (cash reserve requirement) with the BB against their liabilities.   
The OBUs are free to accept deposits from outside Bangladesh and borrow from abroad. They are also free to make advances/investments abroad and also make permissible transactions with industries in the export processing zones (EPZs).
Currently, the OBUs are allowed to carry on transactions in specified foreign currencies. The suggested currencies are the US dollar, Great Britain pound, Canadian dollar, Deutsche mark, Japanese yen, Swiss franc, the Netherlands guilder, French franc, Swedish kroner and the Singaporean dollar.
"There will not be any restriction on the physical location of the OBUs. These may be located both in the EPZs or any other convenient location outside-even existing branches of banks may be allowed to operate such units through a completely separate counter," the governing bank had said in the directive.
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