Foreign banks account for 90% of blocked airlines funds in country

Foreign banks operating in Bangladesh have been responsible for 90% of the blocked funds of foreign airlines, with Standard Chartered alone handling 70% of the airline business volume in the country, according to banking sources.

Despite instructions from the Bangladesh Bank to expedite payments, there has been little progress in releasing the funds due to a dollar crisis faced by foreign banks, as reported by the airlines. 

In a recent press release, the International Air Transport Association (IATA) highlighted that $214 million of airline funds were trapped in Bangladesh, ranking the country as the second worst-performing nation in this regard. 

However, during a press conference on 6 June, the Bangladesh Bank disputed the figure and claimed that the amount was $177 million, urging lenders to accelerate the payment owed to airlines. 

The Business Standard has found that Standard Chartered alone accounted for $182 million in blocked airlines funds.

When questioned about the bank's failure to remit $182 million in airline funds, Enamul Huque, managing director and head of Client Coverage, Corporate, Commercial, and Institutional Banking at Standard Chartered, stated, "In 2023, we have already supported the repatriation of a substantial part of the remittable amount in the airline sector, given our higher market share in the industry. 

"The total amount remitted to date is multiple times greater than the current outstanding. We are hoping to make further remittances following BAFEDA guidelines, as soon as the foreign currency becomes available."

According to banking sources, Standard Chartered handles the business of five airlines, including Turkish, Qatar Air, Saudi, and Malaysia. Citibank NA handles Emirates, Thai, and Etihad, while HSBC handles Cathay Pacific. 

Among local banks, Brac Bank handles Malindo, Gulf Air, Air Maroc, Druk Air, and Air Arabia, and Eastern Bank handles Salam Air.

When contacted, a senior officer of Malaysia Airlines informed TBS that they were unable to remit their funds despite the instructions from Bangladesh Bank. The airline claimed to have Tk400 crore pending for remittance, with an additional Tk70 crore expected to be added soon. 

The airline representative also stated that 90% of airlines operating in Bangladesh had reduced their number of flights due to the inability to repatriate their earnings. The reduced flight availability has led to increased airfares, causing hardship for migrant labourers.

A senior officer from a private commercial bank explained that foreign banks are facing a dollar crisis because they do not receive labour remittances. Consequently, foreign banks primarily rely on inter-bank markets and export proceeds as sources of dollars. 

With the inter-bank market currently ineffective due to the dollar crisis, foreign banks are also experiencing a shortage, added the banker. 

The delay in remitting airline funds by foreign banks is attributed to the absence of commitment or deadlines for remittance. In contrast, banks are obligated to settle import letters of credit (LC) payments within a specific period. 

While the delays in remittance by foreign banks have damaged the country's reputation, branding it as the second worst-performing nation, the central bank cannot take action as remittance issues fall within the realm of bank-client relations.

How foreign banks doubled profits from Bangladesh operation

All three foreign banks operating in Bangladesh have witnessed a doubling of their net profits in the past year, with the growth primarily driven by dollar selling, as stated in the bank's annual reports. 

For example, Citibank NA reported an exchange gain of Tk350.33 crore from selling US dollars, a 477% increase compared to Tk60.70 crore in the previous year. This significant income growth from dollar selling contributed to a 713% surge in Citibank NA's net profit, reaching Tk249 crore last year from Tk30.60 crore the previous year.

Standard Chartered, the largest foreign bank in Bangladesh in terms of book size of Tk24,600 crore, gained Tk554 crore from dollar dealings last year which was 65.65% higher compared to the previous year, according to its balance sheet.

The net profit of the bank doubled to Tk1,655 crore in 2022 from Tk758 crore a year ago, thanks to huge profits from dollar sales.

The Hong Kong and Shanghai Banking Corporation Limited, Bangladesh (HSBC Bangladesh) was the second-highest profit-making foreign bank.

Its profits soared 55% to Tk587.9 crore while net interest income advanced 13.9% to Tk873 crore.

The bank's income from foreign exchange gains amounted to Tk449 crore, which was 227% higher than that of the previous year.