A fresh channel of feeding into depleting forex purse

A refurbished framework of offshore banking raises hope for repleting Bangladesh's depleting foreign-exchange reserves as commercial banks started enjoying good response, especially from the countries with significant expatriate population, to the baits staked out for foreign-currency account-holders.

The new window of opportunities for both-way transactions opened with the enactment in parliament the Offshore Banking Act 2024 in March. Shortly afterwards, the commercial banks concerned, mostly in private sector, began witnessing a spike in inquiries both from foreigners and diasporas about opening offshore accounts, bankers said.

Many of them didn't waste time--they have already opened offshore banking accounts being attracted by the lucrative offers made available through the laws.

Citizens of many countries are now free to open such accounts for depositing foreign currencies for an around 9.0-percent rate of interest and the capital gains from deposits are immune from any kind of taxes.

The offshore banking units (OBU) of local banks also give several other facilities to the depositors such as withdrawal of their deposits whenever they want, sans any lock-in obligation.

The local banks, for the time being, are now opening accounts in nine international currencies: the US dollar, the British Pound, Euro, Japanese Yen, Chinese Yuan, Australian dollar, Canadian dollar, Singapore dollar, and Swiss Franc.

However, commercial lenders mostly encourage three globally influential currencies: the US greenback, the 27-member economic-bloc currency euro, and the UK pound sterling. Demands for this trip are comparatively higher in terms of LC (letter of credit) payment.

In Bangladesh, offshore banking dates back to the mid-1980s, when the target was to serve foreign-owned enterprises in Export Processing Zones (EPZs) initially. Over time, the sector has expanded its service range. As the country's forex reserves are depleting fast because of growing overseas payments and lower incomes, the government enacted the law providing more facilities to attract investors to raise stock of forex.

Banks can also borrow foreign exchange from overseas markets but they do not stay for longer period as repayment volume also gets bigger. Such foreign currencies are very crucial for the banks to settle LC liabilities.

A SWOT analysis effectively provides insights into the strengths, weaknesses, opportunities, and threats concerning offshore banking in Bangladesh.

Given below is a detailed SWOT analysis.

Strengths: Bangladesh's economic growth remained stable for more than two decades with a GDP growth of around 6.0 per cent. The country's manufacturing sector, especially the export-oriented clothing industry, remained vibrant. The services sector is booming. So robust manufacturing and expanding-sector activities may attract clients for offshore banking.

Bangladesh's more than 60 banks, both conventional and Shariah-based, offer diversified products for the clients with different tenures and rates of interest. The rate of interest in the banking sector remained much higher than in the many emerging and advanced economies. This may attract the customers.

The country has a burgeoning educated population working in banks and other sectors who can support the financial sector with modern facilities.

Bangladesh's location is strategic between two regional powers ---China and India ---and has huge potential to grab some business from them, especially for industries like value chains.

Importantly, the government of Bangladesh is promoting FDI and joint- venture investment which can support the offshore banks.

Furthermore, Bangladesh's capital market has huge opportunities for overseas investors as many stocks remain at par value. In addition to this, there is a secondary exchange for trading in government bonds. Foreign investors can also invest the treasury bills and bonds from primary auctions.

Weaknesses: Despite the economic growth and huge youth working force, Bangladesh's brand value abroad remained much less than expected. This is a key weakness for the country. There is a need to improve the image of the country.

The IT infrastructure is a barrier and recent internet blackout is a major threat to banking activities and needed to be improved in the interest of the economy.

Opportunities: The takeaways from investments abound. Offshore banking has huge potential to attract significant foreign direct investment (FDI) and such capital inflows can give a boost to economic growth.

The banking sector may develop new and diversified financial products and services keeping in mind the international customers to attract the clients.

It is believed that this may increase international business and financial transactions tremendously.

Banks' availability of foreign exchange may pace up LC opening for both the manufacturing and services sector, which in return will enhance the bankers' profitability.

The depositors will benefit hugely as profits will be tax-exempted and anytime they can withdraw the funds anywhere.

This may enhance the adoption of advanced financial technologies (fintech) to support offshore banking.

Threat: Bangladesh has a strong financial-intelligence unit working against money laundering. So there is no threat. However, cyber-security needs to be strengthened more for future risks.

In conclusion, it can be stated that banks' foreign-exchange standing is up.

In the meantime, foreign-exchange holdings by commercial banks got a record boost, as of June last, for which many believe the offshore banking act is the key. Robust remittance receipts against lower import payments is another reason behind the boost.

Such rise in foreign currencies, the greenback in particular, gives some respite to the $460-billion-plus economy having faced multipronged macroeconomic strains in recent times because of quick depletion of forex reserves.

At the end of June 2024, gross foreign exchange held by commercial banks stood at $6.10 billion, up 21 per cent from $5.05 billion a month before.

The June count of outstanding forex holdings in banks is the second- highest in the banking history after $6.17 billion recorded in September 2023, according to the latest statistics available with Bangladesh Bank.

The central-bank data show that the country's gross foreign reserves rose to $21.79 billion by the end of June from $18.65 billion a month back as per IMF's BPM6 arithmetic.

City Bank becomes top performer in terms of bringing forex in the offshore banking accounts as the bank has already bagged $23 million in less than four months while Dutch-Bangla, BRAC and Dhaka Bank are also performing well to this effect, according to the Bangladesh Bank.

A City Bank executive, who preferred not to be quoted by name, said they managed to collect deposits under the offshore banking operations amounting to $23 million, which is probably the highest in the banking industry after the enactment of the law which provides for the attractive rate they offered to their clients.

"We're not charging any fee from the clients on such deposits and it is easily transferrable," the official said, adding that they also assigned a dedicated relationship manager to facilitate high-net individuals to boost forex stock. The number of such account-holders rose to around 600, and it is increasing.

Contacted, managing director and chief executive officer (CEO) of BRAC Bank PLC Selim R. F. Hussain said as the customers are depositing foreign currencies, this offshore banking unit (OBU) foreign-currency-account balance can add a strong boost to the forex liquidity of the banks, consequently facilitating a wider range of foreign- trade financing, especially during this time of forex -reserve challenge.

"It will make the foreign trade more efficient and cost-effective. By offering tax benefits and a more favourable regulatory environment, offshore banking can attract more individual savings and investment in foreign currencies, which will be able to support larger volume of foreign trade," he told the FE.

Regarding the BRAC Bank's response from its targeted groups for OBU foreign -currency accounts, he said, the bank receives good responses, especially from countries with significant expatriate population. These groups seek reliable banking services to manage their foreign-currency earnings and savings efficiently.

"Currently, we're offering the best interest rates for offshore banking fixed- deposit products, catering to expatriates and foreign investors looking for reliable and profitable banking options. We're offering 8.59 per cent in US dollar, which is the highest interest rate in the market," the experienced banker said.

Apart from the high rate, Mr Hussain goes on listing the benefits, offshore banking at BRAC Bank ensures high-level security and privacy, which are significant draws for high-net-worth individuals and businesses looking to protect their assets. Simultaneously, initiatives have been taken for the development of Ekyc for the NRBS (non-resident Bangladeshis).

"I think collaborative efforts can play a vital role in bringing in more foreign currencies and stabilising the forex market. We need to conduct webinars, workshops and international campaigns aimed at educating potential clients about the benefits of such banking and how it can be a strategic partner of their financial planning," he suggests.

Managing director and CEO of Dhaka Bank Emranul Huq says recent reforms under the Offshore Banking Act 2024 and Bangladesh Bank's FE Circular 19 aim to attract deposits and investment from non-residents (including NRBs) by offering high interest rates and tax exemptions on interest income. These changes aim to address the country's recent foreign-currency crunch. Even residents can now open accounts on behalf of non-residents. Balance in offshore accounts can be transferred into onshore accounts for necessary payments and investments.

"This strategic move could alleviate foreign-currency challenges, stimulate economic growth and boost GDP, but requires careful management of risks like money laundering and tax evasion. Effective planning, robust regulation and adherence to international standards are critical for success," he said.

Regarding the new regulations in such banking, he says the bank has realigned its offshore banking deposit-product lineup, now offering products like OBU Savings Account, OBU Term Deposit Account and OBU International Banking Account. These products not only offer competitive interest rates tied to benchmark reference rates but also accrue additional benefits which will attract customers.

At the same time, the banks' digital platform facilitates easy account- opening procedures, enabling global accessibility. "We are promoting our products through various mediums to attract potential customers with our reputation and service excellence, and we started receiving good response from the targeted group," Mr Huq adds.

He says they have, so far, received positive responses from different ends, with many non-resident Bangladeshis expressing interest in learning more about facilities and showing enthusiasm for placing their savings in Dhaka Bank's offshore-banking account.

"Few foreign investors have shown interest in investing in our bank. Several accounts have already been opened, and more are expected shortly, reflecting momentum in deposit collection."

But to achieve global success, all banks in Bangladesh need to collaborate. Extensive promotion inside and outside the country is crucial, with road shows in potential countries. Bangladesh's embassies in different countries may play an important role by promoting Bangladesh as a new offshore-banking destination, according to the experienced banker.

One French citizen has already contacted a leading private commercial bank to open accounts, and the bank will just open account after completing due diligence, for example, eKYC.

The Offshore Banking Act 2024 was passed in Parliament on 5 March, just after getting the final approval from the cabinet on 28 February, aiming to build up foreign exchange amidst the fastest depletion of foreign-exchange reserves.

Soon after the law was passed, the Bangladesh Bank started pursuing banks to promote offshore banking to hunt foreign deposits.

They are offering a maximum of 8.57- percent interest against offshore deposits in dollar and above 7.0 per cent in euro.

However, City Bank, BRAC Bank, Dutch-Bangla Bank and some others have built up deposits so far, according to industry insiders.

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