First Security Islami Bank's plan to purchase floor space in Italy for its exchange house has collapsed after the central bank turned down its request to transfer funds.

The bank applied to the Bangladesh Bank in May to purchase about 972 square feet floor space in Rome for €3.6 lakh (equivalent to Tk 3.20 crore).

After assessing the proposal, the BB on September 20 in a letter told the 18-year-old bank that it would not be a good business move on its part as its income from sending in remittance is on the wane.

In fiscal 2016-17, $511 million of remittance flew in to the country from Italy, up 45.58 percent year-on-year, according to data from the central bank.

First Security channelled only 6.80 percent of the sum, down 1.44 percentage points from a year earlier.

As per its application to the BB, the bank has to count €24,552 as rent every year to operate its exchange house in the Italian capital. The rent would come down to €15,552 per year if it is able to purchase the floor space.

But the central bank argued that the rent would not decline; rather, it would shoot up to €33,156 if the cost of fund is taken into account. First Security's cost of fund last year was 9.21 percent.

The bank got the approval in 2009 to transfer €6 lakh (Tk 5.31 crore) in the form of capital to open the exchange house. The bank later transferred another €8 lakh in two phases. The exchange house is yet to step into the black.

"There is no need to transfer capital further to Italy," said the BB letter.

First Security is yet to take a call on whether to reapply to the BB for the fund transfer, said Moniruzzaman Chowdhury, an official of its public affairs and brand communication department.

The BB has so far allowed banks to open 67 exchange houses overseas to facilitate remittance. Of them, 35 are now in operation, 10 closed and 22 did not set up shop at all.

State-owned Agrani Bank closed its exchange house in Canada this year and in Australia last year.