BB lets offshore banking units buy, sell forex directly, conduct currency swaps

New rules give OBUs greater flexibility to manage foreign-currency funding, liquidity and exchange-rate risks.

Bangladesh Bank has allowed Offshore Banking Units (OBUs) to buy and sell foreign currencies directly and conduct cross-currency swap transactions, giving them greater flexibility to raise cheaper foreign-currency funds and manage exchange-rate risks.

The move is expected to help OBUs optimise their funding costs and offer financing at more competitive rates, particularly for permissible trade and business activities.

In a circular issued today (21 September), the central bank said the new arrangement aims to facilitate legitimate customer transactions, improve foreign currency liquidity management, and strengthen the asset-liability management practices of OBUs.

Under the new rules, OBUs can carry out outright foreign currency purchase and sale transactions, as well as cross-currency swaps, with their respective Domestic Banking Units, other authorised dealers, other OBUs, and other legitimate counterparties.

BB said the facility will allow OBUs to access suitable foreign currency funding sources, optimise their funding structures, and manage currency exposures more efficiently.

However, such transactions must be directly linked to permissible customer transactions, funding requirements, settlement obligations, foreign currency liquidity management, asset-liability management, or foreign exchange risk management, the circular said.

The central bank has also advised OBUs to adopt prudent foreign currency funding strategies, including tapping lower-cost currency funding opportunities where feasible, and to use appropriate foreign exchange transactions or cross-currency swaps to hedge or manage related currency risks.

The decision brings OBU operations closer to internationally accepted treasury practices, giving offshore banking units greater flexibility in managing foreign currency liquidity and funding costs. It could also help lower the cost of financing for eligible trade-related activities by allowing OBUs to source foreign currency more efficiently.

Source: The Business Standard