The central bank has turned down banks’ request to grant them waiver on maintaining statutory liquidity ratio and cash reserve ratio for offshore banking operations as it remains steadfast in its intent to impose discipline on this elusive branch.
An offshore banking unit (OBU) is a bank shell branch that conducts regular banking activities but in foreign currency.
With a view to bringing discipline to this branch of banking, the Bangladesh Bank on February 25 issued a full-fledged policy for it.
In it, it directed banks to keep 13 percent of their total liabilities as SLR and 5.50 percent as CRR from July 1.
CRR and SLR are regulatory tools deployed to ensure liquidity and solvency of banks.
SLR is the money a bank needs to preserve in the form of cash, gold or government-authorised securities before providing credit to customers, while CRR is a certain amount of deposit that it must hold as reserves with the central bank.
Before the policy came along, banks did not put aside any fund as SLR or CRR.
Some 36 banks, both local and foreign, now run offshore banking operations and disbursed loans amounting to Tk 59,227 crore as of December last year.
The new BB move did not go down well with banks, and earlier this month the Association of Bankers, Bangladesh, a platform of private banks’ managing directors, sought waiver of the requirement using the crutch of ongoing liquidity crunch.
The ABB also requested the central bank to keep their OBUs free from maintaining loan-deposit ratio.
But the central bank did not meet the demand at a meeting with the ABB at its headquarters in the capital on Wednesday.
The BB, however, assured banks it would revise its latest policy slightly for OBUs to allow local companies to take loans from the operation. But prior approval from the BB must be taken.
As per the policy, foreign entities with presence in Bangladesh and abroad are eligible to borrow foreign currency loans from the OBUs.
Local enterprises located in economic zones, export processing zones, private export processing zones and hi-tech parks can also take loans.
At the meeting, the central bank also decided to allow exporters to take funds in advance from the OBUs against their shipments, which is widely known as bill discounting.
“The meeting was successful as the central bank assured banks of revisiting the policy,” said Syed Mahbubur Rahman, chairman of the ABB.
The central bank would issue a revised policy for OBUs shortly, said a BB official.