Published: November 7, 2023, 11:53 pm
- Private banks are competing with Hundi
- Collapse in remittances to government banks, settlement of LCs with dollars from reserves
- Importing luxury goods with remittance money is a booming trade in dollars
- In October, the desired remittance did not come even with additional incentives
- In the current financial year, sales from reserves are four and a half billion dollars
In the month of October, four private sector banks Southeast, Prime, Dhaka and City Bank have seen an unusual rise in remittances. And Islamic banks and public sector banks, which are at the top in remittance collection, have collapsed. Because, apart from the two and a half percent incentive provided by the government, the banks can now give their own incentives. As a result of such an opportunity, the bank can collect remittances at the same price as the hundi. This has increased the flow of remittances through legitimate channels. However, the pressure on the reserve is increasing instead of decreasing. Because the remittances to the government banks are reduced, the support has to be given from the reserve. It is known that private banks are collecting remittances at higher prices. But due to legal complications, government banks are not able to buy remittances at extra cost. As a result, the dollar income has decreased, Bangladesh Bank has to resort to LC settlement. And the central bank is forced to sell dollars from the reserve in order to settle the LC of essential products. In this, the stock of reserves is decreasing further.
Bankers say there is no scope to sell dollars at a loss as per the law. If one buys a dollar at a higher price, one must sell at a higher price. But the selling price is fixed at 111 rupees. In this case banks are charging higher prices in the name of corporate dealings or advance dollar booking. Bangladesh Bank is reporting 111 Tk. With this, the dollar is being sold up to 123 taka with an additional premium of 10 percent. So the banks can spend up to 122 rupees to collect dollars. Although in case of purchase Bangladesh Bank is reporting 110 taka 50 paisa. Banks are collecting remittances at extra cost sometimes by using dual account, sometimes by third currency or currency conversion. As there is no shortage of buyers, private banks are easily resorting to this strategy.
The condition for giving additional incentives announced by Bafeda is the approval of the bank’s board. This process is easy in private banks but it is complicated in case of government banks. Besides, it is not possible to sell dollars at higher prices by showing advance bookings in government banks. Because here most LCs are opened for purchase of government essential goods. And at present government banks do not have such an opportunity due to the pressure of paying a huge amount of deferred or arrears. So Government Bank Bafeda is collecting remittance at fixed price of 110 taka 50 paisa. Due to the gap of 8-10 rupees per dollar, remittances in government banks have collapsed. The desired amount of dollars is not available even after seeking dollars from Bangladesh Bank to pay the outstanding liabilities. So the state-owned banks are in trouble.
It is known that 400 million dollars was requested from Bangladesh Bank last Thursday to pay the 600 million dollar outstanding liability of Sonali Bank. But as reserves are under pressure, only $22 million has been given. Agrani Bank, the largest remittance collector in the public sector, is also not doing well. The bank’s remittance flow has collapsed since the introduction of additional incentives last month. Agrani Bank has been able to collect only five million dollars of expatriate income in the whole month. In the previous months, two to three times more remittances were coming to the state-owned bank.
According to Agrani Bank sources, due to collapse in remittances, outstanding LCs are increasing in the bank. There are currently about $500 million worth of LCs outstanding. Due to insufficient dollar collection, the bank is facing difficulty in settling the LC at certain times. In this case some dollars are being taken from Bangladesh Bank. The rest is being settled by borrowing from interbanks or through swap (settlement) LCs.
Talking to officials of remittance department of government banks, it is known that private banks are using dual accounts (secret accounts) to buy remittances at high prices. Banks which never used to collect remittances are now buying remittances. Later selling at higher prices in the black market or opening LCs for luxury goods. Bank officials said that the crisis will not decrease only if the flow of remittances increases. Because private banks do not open LCs for urgent products. If they have dollars in their hands, they will spend dollars buying unnecessary goods. But dollar support from reserves should continue for essential commodities. In this case, if remittances in the hands of government banks increase, the pressure on reserves will decrease. They feel that the competition that has started to reduce the impact of hundi will not help to solve the ongoing crisis except to fill the pockets of some people.
In this regard, Agrani Bank Managing Director and Chief Executive Officer Murshedul Kabir told Amar Sangamb that whatever the situation, we are complying with the price set by Bafeda. This is causing us a lot of problems; But because of rules there is no opportunity to collect dollars at high prices. Those who are buying at higher prices must be resorting to different strategies. We are doing foreign trade with 100% transparency.
According to a review of Central Bank data, remittances came at an unusual rate in several private banks in the month of October. In this case, my news is based on the remittance figures of the last few months. Huge remittances came in the country due to Eid al-Adha in last June. And last September, as the hundi’s power increased, remittances came to the lowest level in 41 months. Remittances to the bank started to increase again as additional incentives were introduced last October. According to that, in the last month of July and October, an amount of remittances of 197 million dollars came. By comparing the figures of these two months, it can be seen that the remittances of the government banks have collapsed and there has been an unusual rise in the remittances of some private banks.
Last July, total remittances to five state-owned banks, excluding BDBL, were $244 million. And last month (October) came only 154 million dollars. Agrani Bank, the leading remittance collector, saw a 40 percent drop in remittances. 123 million dollars came into the bank in July and only 50 million came in October. As a result, the bank, which was ranked second in collecting expatriate income, fell to the 13th position. On the other hand, less than half of the remittances received by Elsami Bank, which is at the top, came to Bangladesh. 672 million dollars came to this private sector bank last July. But only $316 million came in October. Apart from this, expatriate income in Asia, which is ahead in terms of capacity, has fallen by half.
Only $21 million came into the bank in October. But in the last financial year, the bank received 614 million dollars.
Meanwhile, there has been an unusual rise in the remittances of Southeast, Prime, Dhaka and City Bank. Compared to last July, 10 times more remittances have come to Southeast Bank. Only four million dollars came into the bank in July. And in October it increased to 40 million. However, only seven million dollars came in the month of Qurbani Eid in June. Prime Bank received $29 million in October. This number is six times compared to last July. The average remittance of the bank in the last financial year was only 10 million dollars. Dhaka Bank received $44 million in remittances in October, which is five times more than last July. The City Bank’s remittance flow suddenly increased sevenfold in October. Only $14 million came into the bank last July. It rose to 110 million in October. After announcing the incentives, the bank received $68 million in the last 10 days of last month. That is, the bank has made full use of the opportunity of additional incentives. Only 28 million dollars came to the bank during the last Eid al-Adha month. Despite efforts through various channels, the management authorities of the four banks could not get comments.
Apart from this, double remittances have come to AB, Bengal, Eastern, First Security Islami, Madhumoti, Standard and Trust Bank than last July. Taking advantage of the additional incentive, Trust Bank has risen to the second position in the collection of remittances in the month of October. $114 million came into the bank in October. However, during the last financial year, the average remittance received by the bank was only 65 million dollars.
Incidentally, last month, along with the government’s two and a half percent incentive, an additional two and a half percent incentive was announced by the bank. As a result expatriates get a total incentive of five percent. It has also benefited. Expatriate income was $640 million more in October than in September. It is known that banks collected remittances by spending more than 8-10 taka per dollar even though there was an opportunity of 2.5 percent incentive on paper. Because there was customer demand and additional income opportunities. After a record fall in September, commercial banks announced additional incentives to collect remittances. However, some banks compete with Hundi by spending up to 120 taka to collect remittances. Due to these activities, the remittance flow increased slightly in October. In the month just ended, remittances of 197 million dollars have arrived. This amount is about 40 million dollars more than in October of the previous year. However, this figure is not desirable when compared with the export of manpower. Because 219 million dollar remittance came in last June as well. That is, despite a large number of workers going abroad in the last three months, the expatriate income in October is 220 million dollars less than in June. Economists say incentives on remittances will not yield long-term benefits. Besides, the Middle Eastern country Oman has given a visa policy saying that it will not take workers from Bangladesh. Such visa policy may come from some other countries due to several reasons including political crisis. As a result, there is a fear that this positive trend of expatriate income will not continue in the future.
The executive director of private research institute South Asian Network on Economic Modeling (SANEM). Salim Raihan said that the bank’s additional incentives will increase remittances for a temporary period. But there will be no long-term solution. He thinks that if remittances are to be increased, handi should be stopped. And if you want to stop hundi, you have to stop money laundering. Now a lot of money is being smuggled abroad. It must be controlled by any means.
Sale of four and a half billion dollars in four months: In the context of mismanagement of the dollar market and hundi activity, the central bank is consistently selling dollars from the reserve to settle the LC of essential products. In the first four months of the current financial year, the sales were about four and a half billion dollars. That is, if the sale of dollars was stopped, the reserves would have risen by four and a half billion, which was enough to meet the conditions of the IMF. According to the data of Bangladesh Bank, 4.53 billion dollars were sold from the beginning of the current financial year till last Thursday, which is 5.14 billion dollars in the same period of the previous year. And during the entire period of the last financial year, 13.58 billion dollars were sold. Earlier, the central bank sold a maximum of 7.62 billion dollars in the fiscal year 2021-22.
Reserves fall to 19 billion: Reserves are being eroded due to continuous selling of dollars in the market. If the dollar crisis is not solved now, the reserve will go to the bottom. According to the report, in 2021, the reserves of Bangladesh reached the highest level. In August of that year, the reserves rose to 48.06 billion dollars. It has now come down to 26.42 billion dollars according to Bangladesh Bank due to continuous sale of dollars. And according to BPM-6 it has dropped to 20.66 billion dollars. This week, the Asian Clearing Union (ACU) is going to pay the import debt of 1.21 billion dollars to Bangladesh Bank. Due to this, the reserve has further decreased to 19.45 billion.
The former chief economist of the Dhaka office of the World Bank. Zahid Hossain said that it is very important to bring the dollar price to a normal level to solve the financial crisis. But due to ABB and Bafeda fixing prices, price volatility has arisen. Therefore, although the dollar rate cannot be completely market-based, we must move towards it step by step. Otherwise the crisis will deepen.