Banks asked to encash 50% of exporters' retention deposits

Infograph: TBS

The Bangladesh Bank has directed banks to encash 50% of the dollars deposited in exporters' retention quota (ERQ) accounts to boost foreign currency liquidity in the market.

In a letter sent on Sunday, the central bank asked banks to immediately encash half of the total $639 million in deposits held by ERQ accounts on 21 September.

Accordingly, exporters will receive a rate of Tk110 per dollar for their retained export proceeds.

Selim RF Hussain, managing director at Brac Bank, told The Business Standard, "This is a good decision. Encashing dollars from ERQ accounts will increase dollar liquidity in the market."

Bankers say, considering the current situation, the liquidity of the dollar has been good for the past few months. However, the challenge lies in banks' efforts to maintain strong liquidity by reducing the opening of letters of credit (LCs) for imports. This is because they are placing greater emphasis on forex portfolio management due to the heavy pressure of deferred payments.

However, exporters say they may face losses in the future as the central bank makes these decisions without consulting them.

Mohammad Hatem, executive president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), told TBS, "The central bank is doing whatever it wants without talking to us. Dollars are currently being bought from us for Tk110. But we are buying the same dollar from banks to import the raw material at Tk117. Here, we are losing Tk7 per dollar.

"If the dollars deposited in our ERQ accounts are encashed, then the central bank should give assurance that we can buy dollars at the time of need at the price at which we are selling now."

The business leader urged the Bangladesh Bank to discuss with businessmen and economists while taking such decisions.

Shahidullah Azim, vice president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said, "We rely on ERQ accounts to obtain a portion of dollars needed for imports, particularly during crises, when acquiring dollars from banks becomes challenging. Unfortunately, with the central bank's reduction of the outstanding, the capacity of these accounts has depleted significantly."

A senior central bank official said, according to the foreign exchange guidelines issued by the Bangladesh Bank, merchandise exporters are entitled to a foreign exchange retention quota of 60% of the repatriated free on board (FOB) value of their exports. Service exporters may retain 60% of their repatriated export receipts in ERQ accounts.

However, for exports of goods with a high import content (low domestic value-added), like POL products including naphtha, furnace oil, and bitumen, ready-made garments made of imported fabrics, and electronic goods, the retention quota is 15% of the repatriated FOB value.

Exporters of software, data entry and processing, and other ICT-related services may retain 70% of net export earnings repatriated in foreign exchange in ERQ accounts.

In the last week of September, the central bank reduced the dollar deposit limit in ERQ accounts by 50%. It is said there that the retention limit out of realised export proceeds of ERQ will be 7.5%, 30%, and 35%, a decrease from 15%, 60%, and 70%, respectively.

However, earlier in July last year, the percentage of deposits in ERQ accounts was also reduced by 50%. Also, the central bank asked to encash 50% of the outstanding balance of the ERQ account. The directive was effective until December 2022.