BB pulls out of risky foreign ventures

The unofficial 'National Debt Clock' advertises the debt of the United States in midtown in New York City. Morgan Stanley and Wachovia Corp are reportedly discussing a possible merger following the collapse of Lehman Brothers Holdings. Bangladesh Bank has investment in Wachovia and a few mortgage companies in the US, but not in any problem-ridden company like Lehman Brothers.Photo: AFP

Bangladesh Bank (BB) has pulled its foreign currency investment out of different risky ventures in the face of a financial crisis in the US and some other parts of the world.
A high-profile forex investment committee of the central bank monitors the situation every day and, accordingly, changes the investment pattern with its foreign currency, said a senior official of the BB.
Apparently alarmed by the snowballing crisis, the committee headed by a deputy governor of the BB started monitoring the situation on a daily basis instead of every 15 days.
But a senior World Bank (WB) economist thinks Bangladesh should not be panicked by the economic fallout from the US credit crisis.
Zahid Hussain, a senior economist for the multilateral lending agency's Dhaka office, said the crisis would help Bangladesh benefit from a falling oil price that went down under $100 a barrel from $140 a couple of weeks ago.
The central bank's forex investment is estimated at around $5 billion, Yasin Ali, executive director of BB, told The Daily Star. "There is no risk as the investment has been made cautiously."
“We have already withdrawn investments from a few institutions affected by the US recession,” Ali said. The BB has investments in some institutions such as Wachovia Corp and a few mortgage companies in the US.
The BB also has an investment worth $5 million in Bear Stearns that was purchased by JP Morgan, another central official said, adding that it has no investment in badly-affected Lehman Brothers.
Zahid Hussain of WB said Bangladesh does not need to worry too much about the financial crisis in the US.
“I don't see any major impact on Bangladesh's economy,” Hussain said.
Even he finds some benefits for Bangladesh from the US meltdown.
“Bangladesh is already benefiting from a significant reduction in oil prices."
The price of oil that reached over $140 a barrel, now has come down to around $100 because of sluggish demand in the US, the largest economy in the world.
Bangladesh is saved, at least temporarily, from losses for financing pricey oil, he added.
Hussain rules out any negative impact on Bangladesh's exports as the country sells mainly low-end basic products to the US market. Most of Bangladesh's remittances come from the Middle East countries that are not affected by the US turmoil, he added.
“As far as I know the BB does not invest in risky ventures such as Lehman Brothers. BB invests in zero-risk US government treasury bonds,” Hussain noted.
But he said he was not aware of whether any private commercial bank had invested in any problem-ridden US venture.
Yasin Ali of BB said local commercial banks have no risks of loss as transactions for forward booking are made under strict scrutinisation of the regulator. There is little demand for hedging at the moment as prices of oil and other commodities are falling down, he said.
Although the US economy is sliding, its currency is becoming stronger than the euro and the pound sterling, BB officials said.
The central bank has invested 45 percent of its forex holdings in the US dollar, which was 26 percent a couple of months ago, another BB official said, asking not to be named.
However, the WB economist urged the BB and Bangladesh embassies in different countries to stay vigilant although the current US crisis is not as severe as it was in the 1930s, as so many safeguard measures have been taken to absorb shocks.
The current financial turmoil is rooted in the subprime crisis. During boom years, mortgage brokers enticed by the lure of big commissions, talked buyers with poor credit into accepting housing mortgages with little or no down payment and without credit checks.
Banks and financial institutions often repackaged debts with other high-risk debts and sold them to worldwide investors creating financial instruments called CDOs or collateralised debt obligations. The serious subprime mortgage crisis began in June 2007 when two Bear Stearns hedge funds collapsed.
The Federal Reserve Bank and European Central Bank have already pumped $100 billion in liquidity into the system that calmed the market for a short period.