BB warns bankers against soaring remittance rate as dollar hits Tk128 at kerb market

The Bangladesh Bank has warned banks against offering higher rates to remitters than the agreed rate of Tk116 per US dollar, including the government's incentives.

Central bank Governor Abdur Rouf Talukder voiced the warning to the managing directors of 13 commercial banks, members of both the Association of Bankers, Bangladesh (ABB), and the Bangladesh Foreign Exchange Dealers Association (Bafeda) during a meeting at the central bank headquarters on Thursday.

Selim RF Hussain, managing director of Brac Bank and chairman of the ABB, confirmed the new exchange rate for remittances.

The move comes as the central bank found that some banks offered as much as Tk124 per dollar in recent weeks in an attempt to compete with informal channels such as "hundi" operators, who offer even higher rates.

The central bank's decision has left some bankers puzzled. They say they are allowed to buy dollars from remitters at Tk116, but they are not allowed to sell them for more than Tk111 for import payments. This means that they are making a loss on every dollar they buy from remitters.

The central bank says it is still working on a solution to this problem. In the meantime, it has asked banks to comply with its instructions and not offer higher rates to remitters, several CEOs who attended the meeting said.

They said the central bank's move is likely to have a number of implications.

It could lead to a decrease in remittances flowing into Bangladesh. If remitters find that they can get a better rate by using informal channels, they may be less likely to use the formal banking system.

"It could put pressure on the forex reserves," the CEO of a private bank said. "It could lead to a depletion of the country's foreign exchange reserves and put downward pressure on the value of the taka."

Last month, when banks started offering higher rates, the inflow of remittances was increasing, which is evident in central bank data. Bangladesh received $1.98 billion in inward remittances in October, the highest in four months, as the dollar strengthened and the government offered incentives to boost remittances.

Central bank data show that expatriates sent $643 million more remittances in October than in September, a 48.2% increase. Remittance inflow hit a 41-month low at $1.33 billion in September.

The MDs of at least two banks present at the meeting told TBS that the banks that are buying dollars at a higher price have been asked to comply with the rates set by Bafeda. Besides, as per earlier instructions, banks have been asked to sell 10% of the remittance dollars they buy in the interbank market. They are expecting that the dollar rate of remittance will come down next Sunday.

According to the latest decision by the ABB and Bafeda, banks can pay a maximum rate of Tk110.50 to collect a dollar of remittance. Following the guidelines of Bafeda, banks will be able to collect a dollar from remittance houses at a maximum rate of Tk113.26 with a maximum incentive of 2.5% from their own funds. But customers will get a rate of Tk116 with a government incentive of 2.5%.

In the case of selling these dollars, banks cannot take the cost of their incentives from importers. The maximum dollar rate for import settlement will be Tk111.

However, banks collected remittance dollars from exchange houses at the rate of Tk123-Tk124 on Thursday as well. While selling, banks are showing the rate of Tk111 in the paper work, but in reality, they are charging Tk124-Tk125 from the customers through different means.

Selim RF Hussain said how to ease the foreign market volatility was discussed in the meeting. The governor told banks to follow the decisions made in the Bafeda meeting.

"We will take various initiatives together so that we can stay within this rate. From the beginning of next week, efforts will be made to stay within the rate prescribed by Bafeda in coordination with various exchange houses," he said.

Replying to a question from journalists, the ABB chairman said, "The Bangladesh Bank will take action against those who do not accept the rates set by Bafeda. Banks have no jurisdiction to take any separate role against banks."

Last week, Bafeda, through a circular, said banks can give any incentives from their own funds to collect remittance dollars. Earlier, its limit was fixed at 2.5%. In this regard, Selim RF Hussain said everything must be within a limit, not unlimited.

"Even after lifting the cap, we had an agreement among ourselves that we would not give incentives much higher than 2.5%. It was said in the Bafeda meeting that the dollar selling rate should not exceed Tk111. If a bank wants to give incentives, it has to be paid at its own expense; it cannot be collected from importers. Now some banks are giving maybe 4% incentives; we will try to reduce it by talking to them," he added.

Noting that everything cannot be done in writing, he said, "We all have to work together to build a stable forex market for the sake of the country. Banks will now buy remittance dollars at a maximum rate of Tk116, including 2.5% incentives from the government and another 2.5% from banks."

He commented that if any bank charges high rates from importers, they should inform the central bank.

Commenting on the current dollar market situation as "very difficult", he said not all banks will be able to comply with a decision. They are not able to accept it because some banks may have a big problem. "We have to make decisions considering all aspects," he added.

Md Mezbaul Haque, spokesperson for the Bangladesh Bank, said, "We want to ensure the discipline of the dollar market. Banks have assured us that they will not buy dollars beyond the rate set by Bafeda. According to their analysis, they do not need more dollars beyond what they are currently receiving."

Commenting that the dollar market has become unstable after the announcement that banks can provide incentives from their own funds, he said in the last six months, the dollar rate of remittances has not increased much. As each bank gives different incentives, the market is being distorted, and discipline is lost.

Mezbaul, also an executive director at the central bank, said, "Now banks are saying that they have fixed the dollar rate by analysing the market, and this is the proper rate. Banks have sought our assistance in implementing the rate as neither ABB nor Bafeda is an enforcing agency.

"They cannot take any punitive action. So they need our cooperation to ensure discipline. We have said that you will get full support from the central bank. Because we know not many banks are buying dollars at high rates."

When asked if any action will be taken against those buying remittance dollars at the Tk123–124 rate, the spokesperson said those who bought dollars at higher rates will now sell dollars at Tk111. Banks will lose Tk12 per dollar; this is the arrangement.

Cash dollar reaches record Tk128 amid crisis

Cash dollar prices in both open and kerb markets reached a record high of Tk128, thanks to the dollar crisis in these markets and the rising trend in remittance dollar prices in banks.

Several money changers in Motijheel and Dilkusha areas of the capital said banks are now buying remittance dollars from foreign money exchangers at the highest rate of Tk124. The impact has come to the cash dollar in the open market of the country. The cash dollar price has increased by Tk7-8 in a week.

Last week, money changers sold the dollar at Tk120-121. However, the retail dollar price is not supposed to exceed Tk114 as per the central bank's fixed rate.

Murad Hasan, owner of Dohar Money Changer in Dilkusha, told TBS, "We have a shortage of cash dollars. Customers are not getting cash dollars in banks. So the demand for cash dollars here has increased a lot. We cannot sell dollars as per the demand."