23 banks under cenbank's radar for non-encashment of ERQ dollars
As of September 21, ERQ accounts in the country's banks held a total of $639 million, of which $320 million is supposed to be encashed.
The central bank has directed 23 banks to promptly convert 50% of their deposited dollars in Exporters' Retention Quota (ERQ) accounts into cash, citing non-compliance with its directive issued two months ago.
Earlier in September, the central bank mandated the immediate encashment of 50% of the outstanding amount in the ERQ accounts in accordance with the prevailing exchange rate.
According to a central bank official, 34 have complied with instructions and encashed the required amount. However, there are instances where some banks have only encashed 20-40% of their ERQ accounts. All banks are now under directive to encase the remaining amount swiftly.
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A senior official of a garment exporter association pointed out that banks are currently offering rates of up to Tk118-119 for buying remittance dollars, which had reached Tk124 a few days ago.
He said, "This contrasts with the dollar rate of exporters' export proceeds, which stands at Tk110.50. The same rate is applied for encashing dollars from ERQ accounts. Furthermore, when importing industrial raw materials, we are compelled to purchase dollars at Tk120-121. This results in a loss of at least Tk10-11 per dollar. Why do we accept this loss?"
Officials of some of the affected banks told The Business Standard that some exporters are expressing objections to encashing dollars from their ERQ accounts due to the unfavourable exchange rate. Implementing any decision should prioritise the interests of the bank's regular customers, they said. Due to these reasons, the indicated portion of the ERQ account cannot be encashed, they explained.
As of September 21, ERQ accounts in the country's banks held a total of $639 million, of which $320 million is supposed to be encashed.
A managing director of a leading private bank told TBS, "Since the onset of the dollar crisis, we have been incurring an average daily expense of $150-200 million for import LCs. Encashing a portion of the ERQ account has had a negligible impact on the liquidity of the country's foreign exchange market. Moreover, the reduction in the dollar deposit limit in ERQ accounts by the central bank has curtailed exporters' ability to deposit large sums of dollars."
A senior official of the central bank said, according to the foreign exchange guideline made by the central bank, merchandise exporters were entitled to a foreign exchange retention quota of 60% of 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), such as POL products, including naphtha, furnace oil, and bitumen, readymade garments made from imported fabrics, electronic goods, etc, the retention quota is 15% of the repatriated FOB value.
Exporters of software, data entry, processing, and other ICT-related services may retain 70% of their repatriated net export earnings in foreign exchange in ERQ accounts.
In the last week of September, the central bank implemented a 50% reduction in the dollar deposit limit for ERQ accounts. Additionally, the retention limit out of realised export proceeds of ERQ has been amended to 7.5%, 30%, and 35%, a decrease from the previous 15%, 60%, and 70%, respectively. In July of last year, the percentage of deposits in ERQ accounts was also reduced by 50%. Furthermore, the central bank has mandated the encashment of 50% of the outstanding balance of ERQ accounts. This directive was effective until December 2022.
