'Mercantile Bank expects to raise OBU deposit balance to US$ 10m by year-end'

Offshore Banking refers rendering separate banking services in foreign currencies within the bank following separate laws and regulations of the Regulatory bodies. Offshore Banking is not new in Bangladesh. It started its journey in 1985 as per Central Bank's instructions. Mercantile Bank PLC commenced its operations of Offshore Banking business on July 04, 2010 in compliance with the Rules and Guidelines of Bangladesh Bank under their permission through opening two (02) Offshore Banking Units named as (i) Principal Offshore Banking Unit at Head Office, Dhaka and (ii) Agrabad Offshore Banking Unit at Agrabad, Chattogram. Both the units are operated under supervision of Offshore Banking Division at Head Office as per directives of Bangladesh Bank.

To stabilize and strengthen the foreign exchange market of the country, the government has been given more attention to open multiple windows for increasing foreign currency inflow. In this connection the parliament passed the Offshore Banking Act-2024 in March of this year to boost the foreign currency supply.

In compliance with the law, Bangladesh Bank has also relaxed rules and policies to escalate offshore banking services in our country. Definitely, a notable success has spread out in our economy for the above move. Now almost 40 banks are offering offshore banking products. Individuals and entities residing outside the country, resident & non-resident Bangladeshis, persons of Bangladesh origin, foreign nationals, companies registered and operating abroad and external institutional investors now under the coverage of offshore banking services in addition to the existing. All the parties are now showing their interest to maximize their return.

The Offshore Banking Act has some ample of advantages that is more customer friendly than offshore banking of other countries offers to their clients. The law states that offshore banking operation can be executed with the approved nine foreign currencies-the US Dollar, Pound, Euro, Yen, Yuan, AUD, CAD, Singapore Dollar, Swiss Franc.

Moreover, no income tax or any direct or indirect charges will be imposed on the interest or profit earned by the depositors through OBUs, and no fees or levies will be imposed on the accounts of depositors or foreign lenders.

A Bangladeshi individual can open an International Banking (IB) accounts on behalf of a foreigners. The depositors can use their funds along with interest for their personal payments, invest or transfer to other bank worldwide any time.

The most important advantage of law is that from now on, the regulatory body cannot change the offshore banking provisions abruptly. Without amending the act, no abrupt change will happen.

The investors need confidence in investing in foreign currencies. In case of uncertainty due to abrupt changes in policies, do they feel confident? No. A law can be amended, but it takes a specific parliamentary process. So investors can have a wider planning horizon.

Though the Offshore Banking Act 2024 law made deposits and lending tax free, but the investors requires confidentiality in investing in foreign currencies. They prefer privacy of their information. They are mostly privacy sensitive rather than interest rate. In history, Offshore Banking operations flourish widely in the economy where secrecy of the information is very strong. In our country, as per act scheduled banks are allowed to operate offshore Banking and they are bound to provide information as required by the regulators.

Credit rating indicate the general creditworthiness of an entity (such as a bank, corporate or sovereign) the likelihood that it will meet its financial obligations in a timely manner. Country ratings refer to a country's ability and willingness to meet its internal and external financial obligation as they come due.

Offshore banking mostly depends on international institutions and foreign correspondent banks for their fund mobilization at competitive price/interest rate. Now it is harder to mobilize fund as per our demand from foreign source due to downgrade of country rating. Though we generate some funds from foreign source, the price is much higher compared with last two years earlier as foreign institution firstly consider country's rating in case of lending rather than other consideration

As per Moody's and Fitch, Bangladesh has been rated as B1 and B+ respectively which demonstrate outlook stable. Both Moody's and Fitch have downgraded country rating of Bangladesh in this year. Such rating has critical impact for foreign currency deposit collection. Up to 2021, total value of assets of offshore banking is USD 11.00 billion which is now reduced to USD 8.00 billion due to downgrade of our country rating. Only Government has the vital rule for improvement of the country's rating and they should act dedicatedly in this regard.

The recent policies and initiatives taken by the government as well as Bangladesh Bank have unlocked the various opportunities to attract deposit from probable offshore customers and simultaneously widen the scope to facilitate investment and international trade through Offshore Banking. Following the recent easing of Offshore Banking, Mercantile Bank has already taken variety of steps like issuing brochure & distributing them among the branches, sub-branches, agents, Mercantile Exchange House UK, exchange houses in different countries etc. OBU Deposit products offering attractive interest are being circulated through our bank's website as well as through different national Bengali and English daily newspapers on regular basis. We have arranged to display our OBU Deposit Products in the billboards of various exchange houses in abroad. A master plan has already been chalked out to promote the offshore products and explore the potential customers in the major remittance sending countries in Europe, America, and Middle East.

Following the initiatives, we are getting positive responses over telephone, email from the prospective customers worldwide regarding opening offshore deposit accounts regularly. Already 10 OBU foreign currency deposit accounts have been opened and present outstanding balance is 0.50 million US Dollar. We are hopeful to lift the balance up to USD 10 million by the end of this year.

Bangladesh's offshore banks are offering variety of flexibilities in account usage. Some banks are offering to open offshore deposit account through online without visiting the bank premises physically. At present cash withdrawal, ATM withdrawal is not allowed from OBU account. The accounts can be operated on the basis of transfer instructions from the account holder to the bank in proper channel. In line with the policy flexibility of the government in future, we are quite confident to extend all sorts of digital banking facilities like internet banking, smart phone apps to the offshore customers.