On Tuesday, the country’s foreign exchange market experienced volatility again as currency exchange offices offered remittance rates between Taka 123 and Taka 124 per dollar, significantly higher than the officially set rate of Taka 110.50.
This was the highest remittance rate since October 22, when restrictions on additional incentives offered in the official remittance rate were lifted.
Most banks did not allow remittances on Tuesday as the gap between the remittance rate and the import rate widened to Tk113 per dollar when the Association of Bangladesh Banks (ABB) set the dollar selling rate to importers at up to Tk111. I didn’t buy it.
ABB and Bangladesh Foreign Exchange Dealers Association (Bafeda) will hold a meeting on Wednesday to adjust import rates in line with remittance rates to minimize the gap and stabilize the foreign exchange market, industry sources said. .
The remittance rate, which was Tk120 last month, has been on an upward trend since the beginning of this month.
A managing director of a private commercial bank, who requested anonymity, told The Business Standard that the wide disparity between buying and selling interest rates was encouraging corruption.
“If you buy remittances at Tk 124 per dollar and sell them to importers at Tk 111, you will have to incur a loss of at least Tk 130 million in a month,” he said, adding that such losses would be He added that banks need to be closed to avoid this. Selling dollars at the remittance rate for backroom deals with importers. However, this requires bank staff to handle large amounts of cash.
He claimed that most banks are involved in underhand transactions due to the widening gap between remittance rates and import rates, which used to be around a manageable Tk1-2 per dollar. However, it has now increased to an astonishing 13 taka. The difference becomes even larger when additional incentives are taken into account.
Before October 22, senders received incentives of up to 5%, of which 2.5% were government incentives and 2.5% were bank-funded incentives.
ABB has since removed the 2.5% cap on incentives that banks can offer on remittance income. This means that banks have the autonomy to determine their own incentive rates for remittances. However, each bank’s board of directors must approve the proposed incentive rate before implementation.
In a key decision, the Banking Association has made it mandatory to purchase all foreign currency inflows at a fixed exchange rate of Tk 110.50 applicable to both remitters and exporters.
This change could make the transfer rates offered by banks more competitive and encourage more individuals to transfer funds through formal banking channels.
After removing the incentive cap, some banks’ boards have approved an incentive cap of 2.5%, which means they will offer incentives of up to 5%, including the government’s proposal.
According to a private commercial bank official, the 5% incentive will require banks to spend 130 taka per dollar on remittances.
Meanwhile, exporters are involved in foreign exchange trading to sell their profits directly to importers at higher rates, which is illegal, said another private bank executive.
He said the bank has obtained official dealer license from Bangladesh Bank to handle foreign currency. Individuals cannot handle foreign currencies.
State-owned banks are concerned about remittances
The head of finance at a state-owned bank told TBS that in addition to the government’s 2.5% incentive on remittances, banks can also offer an additional 2.5% incentive. Banks show this additional cost as Corporate Social Responsibility (CSR) expenditure. As a result of such decisions, remittance collection by state-owned banks will be further disrupted.
He said that as per the guidelines, if a bank has net profit, it can spend on CSR. However, most state-owned banks do not make a net profit. If so, how is this expense represented?
Expenditures for the CSR department are also specified in the guidelines. Indicating additional spending on remittance incentives is not permitted in this area. He said the central bank should clarify this issue through a circular.
The finance director of another private bank told TBS that banks are currently required to sell 10% of the remittance dollars they receive across the market. The highest intermarket rate is Taka 114. However, banks can buy dollars at up to Tk 111 and open import LCs, which will further increase volatility in the market.
He also said forcing banks to sell 10% of dollars between markets is not a good feature of the market. Even if some banks sell, they will only do it as eye candy.