Forex crisis eased but banking sector still in trouble: ABB

The crisis in the foreign exchange market has slightly eased compared to the previous year but the banking sector is still passing through a challenging time, says Selim RF Hussain, chairman of the Association of Bankers, Bangladesh Ltd (ABB).

Negative financial accounts are a major challenge now, he said at a press conference, held by ABB at the BRAC Bank head office in Dhaka, to release the “Bangladesh Banking Sector Outlook 2023” on Monday.

A financial account is a component of a country's balance of payments that covers claims on or liabilities to non-residents concerning financial assets. Financial account components include direct investment, portfolio investment and reserve assets.

From now, the ABB will arrange a press conference every four months to share the banking sector outlook.

The financial account was negative $2.21 billion during the July-March period of FY2022-23, as per Bangladesh Bank (BB) data. But it was at a positive $11.92 billion during the same period in FY2021-22.

“Almost all the banks are now making foreign payments regularly. There are two or three banks that are facing problems,” said Selim.

“This is a very unusual situation where we have seen the highest depreciation of the local currency against the US dollar in history,” he said. The taka depreciated 25 per cent against the dollar last year.

Replying to a question, he said that the single-digit lending rate was so relevant at that time when it was introduced. It was a big reason the economy recovered from the crisis created by the Covid-19 pandemic.

“Though the new interest rate regime is not market-based, the development is positive and we welcome the central bank’s move,” the ABB chairman said.

“Inflation in our country is fully import-based. There are different solutions. But we doubt that raising the interest rate will help control the inflation rate,” said Selim, also the managing director (MD) of BRAC Bank.

ABB Vice-Chairman (VC) and City Bank MD Mashrur Arefin said that there is pressure on the financial account but it will ease soon as around $8.5 billion from World Bank, International Monetary Fund and Asian Development Bank will add to the account.

The net opening dollar holding position of banks went to negative $600 million last year but it’s now at $38 million positive, he said.

He said, “Now the US dollar rate for remittance collection is at Tk 110.70 per dollar including incentives but the informal rate is lower than the rate for the first time.”

Mashrur also said that the foreign banks that withdrew the credit limit last year are now coming back as they are satisfied with the current situation of Bangladesh’s economy.

Mentioning the banking sector’s liquidity situation, he said that now the banking sector has Tk 1,036,00 crore excess liquidity. “The surplus fund has come down because BB withdrew around Tk 1,00,000 crore against pumping US dollars to the banking sector.

“At the same time, BB also provided Tk 2,14,000 crore in the banking industry through several stimulus packages. So, we are not facing any taka liquidity shortage now,” he added.

“But the forex market is still under pressure as we cannot open letters of credit for small and medium companies because of the dollar shortage,” said Mashrur.

Replying to a question on the falling trend of remittance, ABB Chairman Selim said, “We have to do something for our remittance earners. This is the right time to think about what we do for Bangladeshi expatriates and their relatives. They deserve proper respect from the country.”

“Remittance is a big foundation of the economy but we are not doing anything for the remitters,” he said.

He said that trade-based money laundering has decreased due to the pricing control of imported goods by the central bank. The over-invoicing and under-invoicing of values have also decreased due to the strict monitoring system by the banks and BB.

Overall imports have declined to around $4.5 billion per month now from around $7 billion earlier due to BB’s monitoring system, Selim said.

“The last two years were a big learning period for us about trade-based money laundering because we didn’t know much about it earlier,” he added.

Replying to a question, ABB VC and First Security Islami Bank MD Syed Waseque Md Ali said that they are not facing any pressure from the Board of Directors to run their bank.

ABB VC and Dutch Bangla Bank Ltd MD Abul Kashem Md Shirin and ABB Treasurer Md Ahsan-uz Zaman were also present at the press briefing.