City Bank's offshore unit bags $21m foreign deposits in two months

Highlights: TBS

Since the new offshore banking law was passed in March, City Bank has managed to build offshore deposits of nearly $21 million, while others, although unable to secure any deposits yet, are working to promote their offshore banking products.

To promote their offshore banking products, four banks, including City Bank, will participate in a programme in New York on 24 May.

Mashrur Arefin, managing director and CEO of City Bank, said they are getting good response from foreign depositors as they started massive campaigning soon after the offshore banking law had been passed.

He said strong financial health of his bank helped to gain confidence of investors.

Most banks are, however, not showing interest in introducing offshore deposit products due to not having direct relationships with foreign banks to maintain a nostro account for managing foreign funds.

A nostro account is a bank account that a bank holds with a foreign bank in the currency of the country where the funds are held. The account is a must to manage foreign deposits.

The Offshore Banking Act 2024 was passed in Parliament on 5 March, just after getting the final approval from the cabinet on 28 February, aiming to build up foreign deposits amid fast erosion of foreign exchange reserves.

According to the law, the government will not charge any tax on the profits that foreigners make in the offshore banking units (OBU) of Bangladeshi banks. The law also gives several facilities to the depositors such as withdrawing their deposits whenever they want.

Soon after the law was passed, the Bangladesh Bank started to pursue banks to promote offshore banking to hunt foreign deposits.

Out of 52 banks, only five banks designed offshore deposit products and listed them on their websites. They are offering a maximum 8.57% interest rate against offshore deposits in dollars and above 7% in euro when the global interest rate benchmark SOFR is nearly 5.5% for dollars and less than 4% for euro.

However, other than City Bank, others have yet to build deposits so far, according to industry insiders.

Foreign deposit is one of the components in the financial account, which turned negative $2.7 billion in FY23 due to huge withdrawal by depositors after the Federal Reserve raised interest rate. This contributed to widening of the deficit in the financial account to above $9 billion in July-March of FY24, according to Bangladesh Bank data.

However, the negative balance has been narrowing gradually in the current fiscal year, reaching $1 billion in July-March of FY24 due to ease in withdrawal pressure and slow inflow of fresh deposits.

OBU outreach in NY

At present, 26 banks' top executives are visiting New York at the invitation of the United States Department of Justice to attend an event.

During the visit, only four banks will participate in an outreach programme in New York on 24 May to promote their offshore banking among non-residents.

Bangladesh Bank Deputy Governor Kazi Sayedur Rahman will be present at the event where managing directors of the four banks — BRAC, Dutch-Bangla, Agrani and City — will also attend.

Islami bank, the largest private commercial bank, is not joining in the campaign despite the bank also introducing offshore banking deposit products but did not receive any deposits yet.

When contacted, a senior executive of the bank, who is assigned to handle offshore depositors, told The Business Standard that they did not get foreign deposits yet in their new deposit scheme.

Abul Kashem Md Shirin, managing director of Dutch-Bangla Bank, said that after City Bank, his bank was the second to introduce offshore deposit products, but they have not yet secured any deposits.

He said they are receiving many inquiries about the bank's financial capacity to pay interest. "This indicates a lack of confidence in the country's banking sector that needs to be addressed to attract deposits."

Shirin said the outreach programme in New York will help to build investor's confidence as Bangladesh Bank representatives will be present in the campaign.

Meanwhile, Bank Asia was initially set to join the event but later withdrew as they are not yet ready with deposit products, despite being featured on the campaign poster.

The bank's Managing Director Sohail RK Hussain said Bank Asia is not part of the OBU outreach event in New York. Instead, he is attending a BFIU and US Justice Department event on money laundering, cybersecurity, and other threats to the banking system.

Hussain also said he will visit their New York exchange house operation and meet with correspondent banks for LC confirmation and foreign currency loans.

"However the OBU outreach programme is important. Non-residents (individuals as well as businesses) can be an important source of funds for our OBU operations," he said.

Such initiatives like these are important because the initial step is to instil confidence in overseas investors, added Hussain.

Why most banks unwilling to campaign

Banks need to have a nostro account with foreign banks to manage foreign funds. However, only four to five banks have strong networks with foreign banks for maintaining nostro. This is because foreign banks are unwilling to maintain nostro with most Bangladeshi banks due to their weak financial health.

A senior executive from a private bank said banks with strong relationships with foreign banks are promoting offshore banking products because they can directly liaise with foreign banks and cover the interest costs offered for offshore deposit products.

However, banks lacking direct relationships with foreign banks must rely on credit or deposit lines through intermediary banks like Standard Chartered and HSBC in Bangladesh, incurring additional commissions, added the banker.

"Therefore, it's not feasible for them to offer high interest rates on offshore deposits," he said. "Banks can only afford to pay interest when they can generate sufficient income using foreign deposits for Letter of Credit (LC) operations."

Therefore, banks with substantial LC requirements are promoting offshore deposit products, while those unable to effectively utilise foreign funds for income generation will struggle with the burden of foreign deposits, said the bank official.

He also said foreign banks consider the country rating, individual credit rating of banks, and their reputation when maintaining nostro accounts.

Therefore, Bangladesh Bank Governor Abdur Rouf Talukder recently held a meeting with top executives of only five banks asking them to go for campaigning offshore banking in New York, he added.

City Bank

The bank is offering a maximum 8.37% interest for five year fixed deposits in dollars and 6.6% in Euro, while the minimum rate is 6.83% and 5.20% respectively for three months. The bank requires minimum $5,000 deposits in both currencies to open a fixed deposit account.

Deposit with $1,00,000 or more will be offered special services including direct membership of world class priority banking service – Citygem, meet and greet service at the airport, City Bank lounge access and priority pass for International lounges.

Till 15 May, City Bank received a total $20.83 million foreign deposits from 109 customers.

The bank received $3.06 million from 41 customers in its OBU international bank account, which were opened by Bangladeshi residents on behalf of their relatives staying abroad, according to the bank​​​​​​. 

BRAC Bank

BRAC Bank, which introduced offshore deposit products very recently, is offering a maximum 8.57% for five-year deposits in dollars and 7.09% in Euro and 8.45% in GBP. The interest rates that BRAC is offering is highest in the industry so far.

The minimum offered interest rate against three-month fixed deposits is 6.82% for dollar accounts, 5.34% for Euro and 6.70% for GBP. Depositors can start savings by depositing only $500, according to the bank's notice.

Moreover, the bank is offering special services for the depositors with deposits of $50,000 or above.

Dutch-Bangla Bank

The bank is offering offshore deposit products in four foreign currencies: AUD, CAD, Euro, GBP and USD.

The maximum offered interest rate for five-years deposits is 7.26% for AUD, 7.90% for CAD, 5.91% for Euro, 7.19% for GBP and 7.4% for USD.

Minimum deposit requirement is $1,000 foreign currency, according to the bank's notice.