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Offshore banking units credit exceeded $6bn in 2016

  • Published at 12:09 am July 28th, 2017
Offshore banking units credit exceeded $6bn in 2016
Bangladesh’s private sector borrowing from foreign banks through the country’s private commercial banks’ offshore units jumped to $6.26bn in 2016 rising 31% from $4.7bn in 2015, said a report released by the Bangladesh Institute of Bank Management (BIBM) on Thursday. According to the report, the country’s foreign borrowing totalled $1.58bn in 2012, which increased to $2.03bn in 2013 and $3.78bn in 2014. A six-member team led by BIBM Research Director Shah Md Ahsan Habib presented the  report titled “Prospects and Challenges of Short-term Foreign Currency Financing of Bank” at a workshop organised at the BIBM premises. Individuals or institutions can take short-term foreign loans through offshore units of commercial banks. Usually, the loan is taken deferring the payment against letters of credit. The tenure of the loans tends to be one year and the rate of interest a maximum of 6%. The multinational companies and garment factories take most of the foreign loans through the offshore units, said the report. Expressing concerns over the rising trend of offshore loans the experts and banking analysts who attended the workshop said the increased offshore loans would destabilise the foreign currency market in Bangladesh. Deputy Governor of Bangladesh Bank Abu Hena Mohammed Razee Hassan addressed the event as the chief guest. He said: “The finance of potential sector is the key driver of sustainable development. In Bangladesh, there is a huge demand of foreign currency financing due to low interest rate.” “Though financing in foreign currency creates loan burden for other countries, yet if foreign currency is not paid regularly, it creates a crisis of reputation not only for borrowers but also for the country.” Abu Hena said: “In Bangladesh foreign currency financing facilities are permitted to support investment involving lower cost, but at the same time we should keep in mind that the foreign liability is exposed to exchange rate risk. Considering the risk and importance of short term foreign currency financing, Bangladesh Bank has introduced a number of measures.” “But still there are some grey areas in the industry in addressing proper need and challenges of short term foreign currency financing. The misuse of facilities makes the short term transaction more vulnerable for country in some instances,” he added. BIBM Director General Dr Toufic Ahmed Choudhury said the short-term foreign loan carries some risks as well as some of its good sides. “If is viewed upon a global perspective, all earlier financial crises that took place did have its root in short-term foreign credit, which gets bigger in size in course of time.” Choudhury said Bangladesh Bank should always monitor the sources of fund when it comes to offshore banking. “We should build a strong monitoring cell to prevent any possible crisis originating from foreign currency debt.” BIBM Supernumerary Prof Yeasin Ali said Malaysia has faced crisis by taking foreign credit as some challenges lie ahead with regards to such credit. He urged the Bangladesh Bank to take steps beforehand that could withstand risks from foreign loans.
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