Eastern Bank Ltd (EBL) has decided to purchase an exchange house in Dubai to boost forex inflow through its banking channel.
The bank's board has already approved the purchase considering what Ali Reza Iftekhar, managing director of the lender, said is the large number of Bangladeshi expatriates living in the UAE. The Middle Eastern nation is the second highest remittance sender to Bangladesh.
Bangladeshis are the third largest expatriate group in the UAE, after Indians and Pakistanis. Of the expats are half a million workers and professionals, including doctors, engineers, professors, accountants, and IT experts.
"The bank chose Dubai also because it is becoming a regional financial and business hub," said Mr Iftekhar.
The purchase is subject to approval of the regulatory authorities involved -- at home and abroad.
Mr Iftekhar said EBL would shortly seek permission of the Bangladesh Bank and the central bank of the United Arab Emirates.
He believes the cost of bringing remittance to Bangladesh will be reduced when the bank will have its own exchange house in Dubai.
EBL has taken the move when falling remittance inflow through the banking channel has mounted pressure on the Bangladesh Bank to stop depletion of the country's foreign exchange reserves.
In the latest monetary policy, the BB also declared that it would stop selling dollars at a discounted rate to banks in the first half of FY24.
"Opening exchange houses may be primarily motivated by bank's interest to increase their own foreign exchange availability to mitigate the FX crisis they are facing," said Professor Dr. Subarna Barua, of the international business department at the University of Dhaka.
Remittance to Bangladesh dropped 10.27 per cent year-on-year to $1.69 billion in May this year despite a surge in the outflow of migrant workers.
However, in June remittance flow to Bangladesh rose to a three-month high as expatriates sent home $1.79 billion in the first 23 days of the month to help their families celebrate Eid-ul-Azha.
EBL brought home only $22.37 million of the whole amount in the 23 days. So, an exchange house in Dubai may help the lender increase its share of the remittance sent through the banking channel.
EBL managed its portfolio better than most of its competitors in the sector in 2022. Its non-performing loans accounted for 2.78 per cent of total loans, which is significantly lower than the industry average of 8.16 per cent for the year.
The bank declared 12.5 per cent cash and 12.5 per cent stock dividend for 2022 after it gained a 10 per cent profit growth to Tk 5.10 billion in the year.
Its strong financial performance has reflected in the key profitability ratios, including ROA (return on asset) and ROE (return on equity) of 1.21 per cent and 15.46 per cent respectively.
To maximize benefits from an overseas exchange house, the bank will have to go for massive promotion and incentives for attracting a significant number of migrants, said Prof Barua.
The best action would be to deploy "remittance agents" to places where Hundi agents are active. "I will strongly urge the central bank to allow appointment of remittance agents by banks as in the case of agent banking, in Bangladesh to truly divert forex inflow from Hundi to banking channels," added Prof Barua.
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