Bangladesh’s Banking Sector in  Severe US Dollar Shortage

Bangladesh Banking System

Many Bangladesh banks cannot pay the LC liabilities on the due date. There is a delay of one month in the payment of some liabilities. In this situation, Bangladesh’s image of the banking sector is being undermined by the foreign banks that have guaranteed LC. Many foreign banks have now started reducing their credit lines for Bangladesh.

Bank executives say that the existing dollar crisis situation is dire. But the policy makers do not understand the gravity of the situation. Every day some bank defaults on LC liabilities. Banks’ dollar deficit is also increasing. As export earnings and remittance flows decline, the dollar crunch will intensify. Foreign banks may stop taking Bangladesh LCs as the banks fail to repay LC liabilities. Top executives of at least five banks in the country have said almost the same thing. However, none of them agreed to speak by name .

According to the relevant sources, recently several banks of Bangladesh multinational Standard Chartered Bank, Middle East based Mashreq Bank, Abu Dhabi Commercial Bank (ADCB), Germany based Commerz Bank, Axis Bank of India have failed to pay several LC liabilities on time. Apart from the state-owned banks, private sector banks are also in the list of failures. Even the country’s largest bank like Islami Bank Bangladesh Limited could not pay the LC liability on time.

About 30 percent of the country’s total remittance flow comes through Islami banks. Again, in terms of export income, the position of the bank is at the top. Despite that, the country’s largest bank is in danger of paying its import debt. Recently, Islami Bank could not pay several LC liabilities of Standard Chartered, Mashreq, ADCB, Axis Bank on time. According to the concerned bank sources, there has been a delay of up to 30 days in the payment of some LC liabilities. However, the bank still has a surplus of about $88 million.

In this regard, an important official of Bangladesh Bank said that Islami Bank has invested by transferring several dollars from onshore banking to offshore banking. Because of this, even though the net exchange position shows a surplus of 88 million dollars, the bank actually does not have dollars in hand. Due to this, Islami Bank is failing to pay LC liabilities on time.

Apart from Islami Bank, state-owned Sonali, Agrani, Janata and Rupali banks have already delayed many LC liabilities. Apart from Standard Chartered, state-owned banks have also delayed payment of LC liabilities of one of Europe’s largest Commerz banks. A dozen banks including Social Islami Bank, Exim Bank have been accused of late payment of LC liabilities.

According to the existing policy of Bangladesh Bank, the country’s banks can reserve foreign currency equivalent to 15 percent of their regulatory capital. Accordingly, Dhaka Bank’s dollar reserve limit is 30 million. But the bank is running a deficit of about $68 million. If a bank has a deficit equal to the permissible limit of dollar reserves, the central bank sees it as normal. However, there is a provision of penalty to the concerned bank if it falls below the permitted limit.

The top executives of the bank had a meeting with the two deputy governors of Bangladesh Bank last Monday to inform about their crisis. In the meeting, the bank executives in charge of ABB and Buffeta asked for dollar support from the central bank by showing the true picture of the dollar crisis. The MDs said that many banks in the country will not be able to pay the LC liabilities unless dollar support is given from Bangladesh Bank. Bank MDs requested to at least give opportunity to swap dollars from central bank if dollar is not given from reserve. Although in the meeting Bangladesh Bank Deputy Governor Kazi Chaidur Rahman directly rejected the demand of bank MDs.

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