New banks facing trouble in foreign trade
Nine new banks, which began business more than two years ago, are still facing difficulties in opening their nostro accounts with foreign banks, an issue which hampers their foreign exchange business and trade transactions.
Officials of these banks said it also creates problems in opening letters of credit (LC) for imports.
“We have tried to open nostro accounts with foreign banks operating in Bangladesh. But they have declined to open the accounts,” said Rafiqul Islam, managing director of South Bangla Agriculture and Commerce Bank, one of the new banks.
South Bangla is now collaborating with other local banks that already have nostro accounts to settle their LCs.
Nostro account is a bank account held in a foreign country by a domestic bank, denominated in the currency of that country. Nostro accounts are used to facilitate settlement of foreign exchange and trade transactions. This account also gives a bank a line of credit and overdraft protection when needed.
Fifty-six banks operate in Bangladesh now, of which 47 are local, including eight state banks, and nine are foreign banks.
Most of the local banks, except the nine new ones, have their own nostro accounts either with Standard Chartered, HSBC or Citibank NA. These three foreign banks, which have their operations across the world, have declined to open nostro accounts for the nine new banks due to strict rules.
Officials said banks in America and Europe have been forced to exercise extreme caution and ensure strong compliance set by their respective governments. JP Morgan, which has a representative office in Bangladesh, has also refused to open nostro accounts for the new banks.
Only UAE-based Mashreq Bank is helping these new banks run their international trade transaction business. At least four of the nine banks have opened nostro accounts with Mashreq.
“They (the new banks) are really in trouble as foreign banks do not accept their LCs,” said the managing director of a large private bank. He said his bank was accepting LCs of a new bank, but a foreign bank has recently asked him not to do so. The Daily Star talked to officials of foreign banks to know the reason behind their stance.
Increasingly strict banking regulations in the United States, and the political motivation behind giving licences to the new banks are two major reasons, they said.
“Also, these new banks are yet to make their balance sheets, and are very small in size,” said a senior official of a foreign bank, asking not to be named.
“We are comfortable with the existing old banks, and do not want to make the new banks our clients as we are yet to know about them,” the official said.
Compliance issues in banks have become so important in the US that a Bangladeshi bank has to submit all its information, including profile and history of their directors, to open a nostro account with them.
“We all know that politically-exposed persons are in the boards of these new banks. We are cautioned by our headquarters not to do business with this type of banks,” said an official of another foreign bank.
“All banks face this situation at the initial stage,” said Muklesur Rahman, managing director of NRB Bank, a new one, which has a nostro account. Even before getting the nostro account, NRB Bank had opened 300 LCs through local banks to bolster business.
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