BB eases offshore banking rules

The central bank yesterday revised its policy to allow local industrial enterprises to take foreign currency loans from offshore banking units (OBUs) as a concessionary move towards banks.

An offshore banking unit is a bank’s shell branch that conducts regular banking activities but in foreign currency.

With a view to bringing discipline to the offshore banking programme, the Bangladesh Bank on February 25 issued a full-fledged policy for it. But the policy did not go down well with banks.

Later on April 24, the Association of Bankers, Bangladesh (ABB), a platform of private banks’ managing directors, called upon the central bank to revise the policy, which has made running their OBUs rather difficult.

As a conciliatory move, the BB has revised the policy to allow local companies to take loans from OBUs at LIBOR plus 3.5 percent, a much cheaper rate.

LIBOR is the rate at what banks charge each other for short-term loans in the London interbank market. It also serves as a global benchmark for short-term interest rates. The LIBOR will be followed because the loans will be given in foreign currency.

The OBUs, however, will have to take prior approval from the central bank to provide financing to them.

The joint venture companies housed in export processing and economic zones and hi-tech parks can also take short-term loans from OBU without any prior approval from the BB.

Exporters are also allowed to take funds in advance from the OBUs against their shipments, which is widely known as bill discounting, according to the latest central bank notice.

In the revised policy, banks are also allowed to transfer funds in the form of placement from one OBU to another.

This will help the OBUs ease their liquidity crunch instantly as they can borrow from their peers, said a BB official who worked on the revised policy.

The central bank, however, did not entertain the ABB’s demand to scrap the clause of keeping statutory liquidity ratio (SLR) and cash reserve ratio (CRR) for the OBUs.

Banks have to keep 13 percent of their OBUs’ total liabilities as SLR and 5.50 percent as CRR from July 1.

The OBUs do not have to maintain separate nostro accounts with their foreign correspondent banks as well; their mother banks’ accounts will suffice.  

A nostro account is an account that a bank holds in a foreign currency in a foreign bank.