The amount of offshore banking loan reduced by Tk 318 crore or 0.52 percent in three months (January-March) as the economy has been badly affected by coronavirus.
Distribution of loan through the offshore banking units of the commercial banks registered a downtrend.
The rate in increase of availing loans from internal sources has reduced by manifolds due to the absence of import-export, new investment and trade activities. The situation is even for worse as far as offshore banking is concerned.
Moreover, incidents of default have also tainted loans with lower interest. According to the persons concerned, foreign trade has been reduced due to coronavirus causing a reduction in the demand for loans. Moreover, few banks have lost capacities to provide loan facilities through offshore banking.
According to the updated information of Bangladesh Bank, the amount of loan distributed through offshore banking units of the commercial banks was 60 thousand 310 crore taka at the end of March 2019 which was Tk 60 thousand 628 crore in last December. There has been a decrease in the rate of loan distribution for the first time since the inception of offshore banking.
Offshore banking refers to a separate unit of the banks constituted for providing loans in foreign currency. Offshore banking unit started its journey in 1985 for collecting funds from abroad and providing loans to export-oriented firms. Currently, 35 banks have constituted offshore banking units and distributing loans. The banks who are leading offshore loan disbursement include: HSBC, Standard Chartered, Islami Bank, Eastern, UCB, The City, Prime, Bank Asia, Brac, Southeast.
As per statistics of Bangladesh Bank in March 2016 the amount of offshore banking loan was Tk 33 thousand 311 crore which was 24 percent greater than previous year. In March of subsequent year the amount of loan increased by 26 percent to Tk 41 thousand 978 crore. In March 2018, the banks distributed loans of Tk 54 thousand 113 crore. A downward trend started in the rate of loan distribution through offshore banking in the same year. In March 2019, the amount of loan increased by only 7.68 percent. The growth was almost 29 percent in the previous year. At the end of December 2019, the amount of loan was Tk 60 thousand 628 crore which was only 2.36 percent greater than the previous year.
Former President of Association of Bankers Bangladesh (ABB) and the Managing Director of Mutual Trust Bank Syed Mahbubur Rahman said that income of foreign currency has been decreased due to a downward trend in the foreign trade triggered by coronavirus. As a result, it has become difficult to constitute foreign currency funds at a lower interest and there is not enough funds to render loan facilities. Besides, the distribution of loans through offshore units of the banks has decreased due to a reduction in the demand for loan.
He further added that due to relaxation in the concerned legislative provisions which was stringent earlier, it will be easier for the banks to distribute loans.
On 25 February of last year, Bangladesh Bank issued policy guidelines concerning operation of offshore banking for the first time. Now it is mandatory to invest at least 75 percent of the loans distributed through offshore banking unit in the companies operating in Bangladesh, causing reduction in the capacity of the banks to provide loans. On 18 June, few amendments have been made to the concerned provisions aiming to increasing opportunities for obtaining funds, ensuring utilisation of the foreign funds, increasing capacity of offshore trading by proper management of the funds and proliferation of the offshore banking activities. As per amendments in the Cash Reserve Ratio (CRR) has been reduced from 4.5 percent to only 2 percent and enabling banks to collect funds up to 30 percent of their capital instead of 20 percent from internal sources. These amendments will increase capacity of offshore banking.
Managing Director (MD) of Prime Bank Rahel Ahmed said that corona has adverse effects on everything. Due to newly-introduced guidelines on offshore banking, the banks had lower capacities of distributing loans. The interest corresponding these loans was high. For this reason, there was not much demand from the customers and distribution of loan through offshore banking also decreased.
In last March, distribution of loans in local currencies in private sectors increased by 8.02 percent to Tk 10 lakh 24 thousand and 418 crore. As per Bangladesh Bank, amount of loan defaulted was Tk 92 thousand and 510 crore amidst loans from local sources. Default of loan has not spared foreign currency loans with high interest. Total amount of loan defaulted within offshore banking is Tk 451 crore. The amount of defaulted loan has decreased like loans from local sources. Most of the loans defaulted are from AB, Dhaka, Brac, Prime and UCB bank. Half of the loans provided by AB Bank in offshore banking has been rendered defaulted.
