BB withdraws policy on banks’ fund transfer to offshore units

The Bangladesh Bank on Tuesday barred banks from transferring additional foreign currency funds from their domestic operations to offshore banking units to boost foreign currency reserves.

It also asked via a circular to reduce banks' foreign currency funds transferred from domestic banking phase by phase and completely adjust it by December 31, 2024.

The circular also said that the central bank made the decision in a bid to speed up foreign currency inflow and reduce dependency of banks’ offshore banking operation on domestic banking.

An OBU is a specific type of banking facility that operates as a branch or subsidiary of a bank in a foreign country, dealing primarily in foreign currency.

OBUs are commonly used by banks to facilitate international trade and finance and to serve international clients requiring offshore banking services.

In February 2019, Bangladesh Bank allowed banks to transfer funds from domestic banking operations to OBUs with a limit not exceeding 20% of its total regulatory capital for offshore units.

In the following month, the central bank allowed local industrial enterprises to take foreign currency loans from OBUs as a concessionary move towards banks

Before, there was no limit on transferring or mobilizing funds in the offshore banking units from onshore banking units.

However, the central bank extended the fund transfer limit to 30% from the 20% in June 2020.

The gross foreign exchange reserve in Bangladesh, according to International Monetary Fund guidelines, dropped to $20.18 billion on January 10, which was $48 billion in August 2021.

The devaluation of the local currency against the US dollar has made interest payments on foreign loans more expensive.

In July 2021, the exchange rate per dollar in the country was Tk84.80, which increased to Tk110 after the central bank allowed a floating rate.