Bangladesh Bank seeks explanation from banks

Bangladesh Bank has initiated the process of seeking explanations from several banks for selling dollars at prices higher than those officially announced.

These banks allegedly provided dollars to importers and corporate customers at rates exceeding the declared values. As per the central bank's allegations, these actions run counter to foreign exchange policies and monetary policies, constituting punishable offenses. 

Some letters seeking explanation in this regard were sent to several banks on Sunday and Monday. Central bank officials said that letters will be sent to several other banks as well.

The banks that received the letters are private sector Mercantile Bank, Midland Bank, Modhumoti Bank, Premier Bank, Sharia-based Al-Arafah and Social Islami Bank. Top officials of these banks have confirmed receiving the letters. However, none of them agreed to provide an official statement on this matter.

In the letter issued to the banks, it is mentioned that during the inspection of the mentioned bank branch, evidence was discovered indicating that the dollar price against the import bill was higher than the officially declared rate. The letter also specifies the amount of additional money that the banks have collected for the dollar compared to the officially declared price. 

The letter states that such actions are in violation of foreign exchange policy and monetary policy. Consequently, the banks have been requested to provide their response on this matter within five working days. 

As Bangladesh Bank spokesperson Mezbaul Haque is on leave, no one from the authorities made any comment about the matter. Assistant spokesperson also declined to comment about it. But the matter of seeking explanation was known from several related sources.

Several officials at the top level of several banks who received the letter told Prothom Alo that dollars are not available at the scheduled price in the market. They had to purchase dollars at a higher price. For this, higher prices have been charged in the sale. Banks are not supposed to fail to pay the import liability on time.

Again, the bank cannot even make a loss of Tk 4-5 per US dollar. The central bank is taking action without considering the actual situation. This may have a negative impact on the dollar market.

The Bangladesh Foreign Exchange Dealers' Association (BAFEDA), which represents banks dealing with foreign exchange, and the Association of Bankers, Bangladesh (ABB), representing top bank executives, have been periodically setting the dollar exchange rate based on advice from Bangladesh Bank since the last quarter of the previous year. 

The official price of the dollar has increased this month as well. According to the new decision, the dollar price for export of goods or services and remittance has been fixed at Tk 109.5 per USD . Earlier, banks used to officially pay Tk 109 to expatriates and Tk 108.50 to exporters for every dollar.

On the other hand, banks will now sell dollars to importers at Tk 110. Earlier, banks used to sell every dollar for Tk 109.50 to importers to meet import liabilities. However, in some cases, some banks have charged Tk 114-115 per dollar.

A related source informed, a top group which imports consumer goods sent a bunch of documents to the top tier of government recently to explain the price hike of food products citing import cost. Later it was sent to the central bank for taking action in this regard from the top level of the government.

After that, several teams were formed by the central bank and the branches and head offices of the accused banks were visited. It also provides evidence of the dollar being charged higher than the scheduled price. After that, Bangladesh Bank started sending letters asking for explanations.

The former Chief Economist of Bangladesh Bank, Mustafa K. Mujeri, shared with Prothom Alo, "All over the world, the market determines the price of the dollar. The central bank has tried to maintain the price by selling dollars in Bangladesh for so long. Now, that is not the case as the reserves are reduced.

Currently, banks are selling dollars. In this manner, no country can sustain the value of the dollar. It would not be reasonable to expect banks to buy dollars at high prices and sell them at low prices. We should focus on how to strengthen and enhance the effectiveness of the market system." 

He further added, "The result of taking such measures may lead to banks reducing the amount of remittances they bring in. Expatriates may consequently opt to send money through informal channels like Hundi rather than the formal banking channel. This could potentially reduce imports and slow down the overall economy." 

In 2022, Bangladesh Bank had taken action against 12 local and foreign banks on allegations of earning excess profits in dollars. Among these, the heads of treasury departments of six banks were removed. However, later on, the central bank rescinded that decision. The central bank has directed those banks to allocate the additional profit of Tk five billion towards corporate social responsibility (CSR).