Banks get wider scope to source dollars at lower cost

Bangladesh Bank has allowed offshore banking units of commercial banks to buy and sell foreign currency and conduct cross-currency swaps, widening their access to dollars for domestic banking operations.

The central bank announced the move in a notification on Monday, saying the new facility was intended to make foreign-currency fund management “more efficient and cost-effective”.

“Offshore banking units have been allowed to directly buy and sell foreign currency and conduct cross-currency swap transactions,” the circular said.

Bangladesh Bank expects the decision to increase access to foreign-currency financing for trade and business at more competitive costs.

The facility has also been introduced to bring the country’s offshore banking operations more closely in line with internationally recognised treasury practices.

Under the new arrangement, offshore banking units will be able to buy and sell foreign currencies and enter into cross-currency swaps with their own banks’ domestic banking operations and with other authorised dealers.

The central bank believes this will enable offshore units to mobilise more foreign currency than before to meet domestic demand. Greater investment opportunities are also expected to make the units more active.

A senior official of the relevant department at Bangladesh Bank told bdnews24.com that offshore banking units would now be able to supply dollars to the domestic banking system whenever needed.

“This creates scope for banks to access more dollars, which should increase the supply of foreign currency across the banking sector,” added the official, who declined to be named.

“As dollar availability increases, competition among banks to sell dollars should also rise. That, in turn, could allow businesses to obtain dollars at a lower cost.”

Source: The Business Standard