Cenbank policymaker asks banks to stop buying remittance dollars at inflated rate

As some banks are purchasing and selling dollars at inflated rates, a Bangladesh Bank policymaker yesterday instructed the banks to adhere to the exchange rate set by the Association of Bankers, Bangladesh (ABB) and the Bangladesh Foreign Exchange Dealers' Association (Bafeda). 

The central bank policymaker contacted multiple banks to inquire about their practice of purchasing remittance dollars at elevated rates.

Speaking to senior officials of at least seven banks, The Business Standard came to know that most of the banks yesterday bought remittance dollars at the rate of Tk118-119. But beyond that, there were 5-6 influential banks that offered rates above Tk120 while collecting remittance dollars.

A senior central bank official emphasised that banks should refrain from collecting remittances at rates exceeding the fixed rate. "We have already initiated an investigation into a bank suspected of purchasing remittances at inflated prices. If necessary, we will expand our inspection to other banks to ensure compliance with the prescribed exchange rate."

A policy-making official from a private bank explained that some banks are attracting larger remittance volumes by offering higher rates. "These banks have substantial deferred LC liabilities, meaning they have opened import LCs months ago but lack the dollars to settle them. As a result, they are offering significantly higher rates to attract remittance dollars compared to other banks."

Central bank data shows remittances in the first 10 days of November reached $794 million. However, remittances are not coming equally to all banks. There are some banks which have received more remittances in 10 days of the current month than what they normally receive at the end of the month. According to the sector concerned, banks are getting more remittances due to higher rates.

A senior official of another private bank said that some exchange houses are selling dollars at high prices by calling auctions to the banks. Banks that are able to pay higher rates are getting more dollars.

Earlier on Monday, in a meeting with foreign exchange houses that brought remittances, the central bank gave instructions to adhere to the fixed rate of the dollar. Then the exchange houses said that banks offer them higher rates to get remittance dollars, in this case they don't have to do much.

A senior official of a leading private bank said, "Banks are giving false information to the central bank about the dollar rate. They are reportedly buying remittance dollars at a rate of Tk110.50. But in reality it does not comply. The central bank also knows about this, yet they are watching everything silently. If this continues, the dollar market will become more unstable, he commented.

The volatility started after a circular by ABB and Bafeda on 1 November this year. After a meeting between the two organisations, they said that from now on, the banks will be able to collect remittance dollars from their own funds with incentives. Within four working days of this decision, the dollar price of remittance rose to Tk124. The central bank was shaken by the incident.

After a meeting with MDs of 13 banks, members of ABB and Bafeda on November 8, the chairman of ABB said that the maximum 2.5% incentive can be given from the banks' own funds. Accordingly, banks can pay a maximum of Tk113.26 per dollar for remittances. Remitters will get Tk116 with a 2.5% incentive from the government.