How banks made millions from volatile dollar 

At a time when the entire country is grappling with rising dollar prices that put foreign exchange reserves under stress, some banks have made high profits from the volatile forex market, propelling the greenback to become dearer and making the inflation worse.

In the first half of the current year, banks generated income up to 400% from foreign exchange dealings, while their earnings from other sources, such as the share market and interests, declined.

Such huge profits have come at the cost of high inflation – as banks charge importers high, which eventually fueled soaring commodity prices in the local market. 

High income from foreign exchange dealings helped banks show moderate profit growth in January-June of the current year, according to banks.

For instance, Brac Bank saw a 425% growth in foreign currency dealings in the first half of the current year. 

The bank's income from foreign currency dealings surged to Tk93 crore in January-June from Tk17 crore in the same period of the previous year, according to the bank's financial statement.

However, its income from other sources declined, leading to a fall in earnings per share to Tk1.47 from Tk1.72 during the period. 

Infographic: TBS

Likewise, Dutch-Bangla saw a 400% growth in income from foreign currency dealings in the period, causing a jump in its overall profit. 

The bank's income from foreign currency dealings amounted to Tk146 crore in January-June, which was Tk29 crore in the same period last year.  And, its earnings per share increased by 10% to Tk3.58, according to the bank. 

AB Bank saw a 35% growth in its half-yearly profit, thanks to high income from foreign currency dealings. Its earnings from foreign currency dealings surged by 338% to Tk66 crore from Tk15 crore in the same time a year ago. 

Islami Bank registered a 140% growth in income from foreign exchange dealings with a profit of Tk233 crore in January-June.

Rising dollar prices have brought in a good profit margin for banks, but most banks' overall profits did not rise as expected because of the interest rate cap and a fall in stock prices.

Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) President Jasim Uddin recently claimed that banks were making a profit of Tk10 for every dollar they were selling.

The banks have been given a licence to do business, not to make such a high profit per dollar, he said.

"We cannot accept that banks will sell a dollar for Tk105-Tk110 after buying it from the central bank for Tk94," said the FBCCI president after paying a courtesy call on Bangladesh Bank Governor Abdur Rouf Talukder on Thursday.

He also claimed that many share traders have started trading in dollars.

Discarding his claim, Selim RF Hussain, managing director at Brac Bank, said it is completely wrong. 

If banks could make such a huge profit per dollar, it would have come to the Bangladesh Bank's notice, he noted. 

Explaining high income from foreign currency dealings, Selim RF Hussain said it is a normal trend – if foreign exchange market or local currency market remains volatile, profit margin of some organisations go up. 

It is true that some banks made good profits from the volatile forex market but it was not true for all banks. The profit per dollar was not as high as the FBCCI president claimed, he also said.  

If there is any unnatural profit growth, the Bangladesh Bank will look into it and take appropriate action, he pointed out. 

The dollar price surged faster after the Russia-Ukraine conflict started in February this year. The inter-bank exchange rate, which was Tk85 at the beginning of the year, shot up to Tk94.7 this month as the Bangladesh Bank devalued taka faster amid a widening gap between kerb market and inter-bank rates. 

However, banks were ignoring the inter-bank exchange rate by settling LCs at higher rates that went up to Tk105 this month. 

The greenback soared to a record Tk112 at the kerb market on 25 July before coming down to Tk108 a day later. It was selling at TK110 on Thursday last. The taka was devalued by the central bank for the third time in a month on 24 July.

The Bangladesh Bank's continuous intervention through dollar sales put pressure on foreign exchange reserves, taking it to below $40 billion this month. 

In May, the Bangladesh Bank issued a notice, asking exporters to encash their proceeds from the same banks through which they made shipment of goods. 

The notice was issued amid the allegation that exporters were selling dollars at higher rates from their export proceeds, fueling volatility in the market. 

The new instruction limited bargaining power of exporters in getting dollar prices from banks, but it had little impact on dollar prices in the market as banks were selling dollars to importers at higher prices, contributing to a surge in inflation. 

Banks made their profits by purchasing dollars at lower prices from exporters and selling at higher prices to importers, say market insiders. 

In May, the central bank and top bankers held a meeting agreeing to sell dollars at a similar rate for international trade to stop dollar price manipulation. But the decision was not implemented finally.