The Bangladesh Bank (BB) has advised the commercial banks to act cautiously, particularly in operating their offshore banking units (OBUs), to avert possible exchange rate risk in future.
The banks, which are running OBUs, have also been directed to bring down borrowing from onshore sources, officially known as domestic banking units (DBUs), at a reasonable level from the existing one.
Currently, total exposure of the OBUs stands at US$6.40 billion, of which $2.25 billion has been financed from the DBUs, according to the BB's latest statistics.
The instructions were given at a meeting of 29 banks, held at the central bank headquarters in the capital on Monday, with BB Deputy Governor S K Sur Chowdhury in the chair.
The managing directors (MDs) and chief executive officers (CEOs) along with the heads of treasury and credit of the banks took part at the review meeting, officials and bankers said.
Higher financing from the DBUs has already created a liquidity pressure on the country's foreign exchange market, they added.
Operations of the OBUs are normally maintained by the banks concerned through collection of funds from their own sources, overseas sources and taking clean deposit from other banks.
"We've advised the banks to stop aggressive attitude in their OBUs' operations," Mr. Sur Chowdhury told the FE after the meeting.
He also said the central bank also advised the banks to deal with foreign exchange transactions considering BC (Bill for Collection) sale and TT (Telegraphic Transfer) clean rates.
Sources, however, said the meeting reviewed the credit exposure of the banks' OBUs as well as the overall credit and deposit situation.
At the meeting, the banks have also been advised not to offer higher rates to the overseas exchange houses for receiving inward remittance that influences the overall exchange rates in the market, they added.
The BB also advised the banks to reconcile NOSTRO accounts regularly and stop foreign currency deals in the name of corporate ones.
"We've advised the banks to stop unhealthy competition," Mr. Sur Chowdhury said, while replying to a query relating to the rising trend in credit growth than that of deposit.
The rate of deposit growth, year-on-year, came down to 10.88 per cent as on July 30, 2017, from 12.21 per cent three months before that time, the BB data showed. The deposit growth was 13.13 per cent in December 31, 2016.
On the other hand, the overall credit growth rose to 17.16 per cent as on July 27 this year, from 15.90 per cent as on March 30. It was 15.32 per cent on December 31, 2016.
The banks have been advised to lend money in the manufacturing sectors instead of the less productive ones, the BB deputy governor added.
Currently, 36 commercial banks, out of 57, are running their OBUs across the country as per a directive issued by the BB Banking Control Department on December 17, 1985.
Under the directive, the OBUs have been exempted from the purview of certain provisions of the Banking Companies Ordinance 1962.
Besides, the OBUs will also be considered for exemption from Article 36(1) of the Bangladesh Bank Order 1972 on such terms and for such period as may be deemed fit by the government.
The OBUs are exempted for maintaining CRR (cash reserve requirement) and SLR (statutory liquidity ratio) with the BB against their liabilities.
They are free to accept deposits from outside Bangladesh and borrow from abroad. They are also free to make advances/investments abroad and make permissible transactions with industries in the export processing zones (EPZs).
Under the existing provisions, the central bank is not fully empowered to closely monitor the OBUs' operations due to legal constraints.
The BB is now working on issuing a fresh directive to mitigate the risks of OBUs' operations through strengthening supervision.
"We expect that the directive will be issued shortly," another BB official told the FE.