The Bangladesh Bank (BB) is taking action against 10 banks for selling dollars to importers at higher prices than declared. As part of this, the central bank has initiated the process to fine the heads of the treasury departments of these banks. In the letters sent to these banks on Monday, the BB stated that the heads of the treasury department have no way to evade responsibility.
The treasury department of the banks oversees the demand and supply of dollars and taka in the bank. In some banks, officials of the rank of deputy managing director are the heads of the treasury department.
According to various sources, the 10 banks facing investigation are Mercantile Bank, Premier Bank, BRAC Bank, Modhumoti Bank, Midland Bank, Exim Bank, Social Islami Bank, Al-Arafah Islami Bank, Shahjalal Islami Bank, and Trust Bank. The sources also suggest that the number of banks under investigation may increase in the future.
Last year, BB had removed heads of the treasury department of six banks on the same allegation. However, the central bank could not uphold its decision.
Speaking about this, Association of Bankers Bangladesh (ABB) chairman and BRAC Bank managing director (MD) Selim RF Hossain told Prothom Alo, “It’s an issue between the central bank and other banks. Such letters are a regular occurrence. So, I don’t want to make any comment on this.”
The managing directors (MDs) of several banks that received the letter from the Bangladesh Bank declined to comment on it officially. They mentioned that there is an unofficial directive from the central bank to refrain from making any comments in this regard. They added that providing comments to the media could potentially lead to further punishment.
Speaking to Prothom Alo, Mustafa K Mujeri, former chief economist of the Bangladesh Bank said, “The market will decide the price of dollars. This is the rule. The central bank has tried to maintain the price of dollars for so long. However, that situation no longer exists anymore due to the decline in our forex reserve. The way the dollar market is being regulated now is not right. It is not possible to maintain the price of dollars this way. The focus should be on strengthening the market. Such initiatives may force the banks to reduce the inflow of remittance. It will also increase money laundering."
Why such an initiative?
The Bangladesh Foreign Exchange Dealers Association (BAFEDA) and the Association of Bankers of Bangladesh (ABB) have been fixing the price of dollars since the last quarter of the last year at the advice of the central bank.
The newly fixed rate of dollars is Tk 109.50 in terms of export of products and services and remittance. The banks are selling dollars to importers at a rate of Tk 110 per dollar.
However, in some cases some banks are selling dollars at a rate of Tk 114 to Tk 115 as they have to buy the remittance and export incomes at higher prices. Otherwise, the banks are not willing to open letter of credit (LC).
A relevant source said, a top consumer’s products importer recently submitted a several documents to the government explaining the reasons behind the price hike and the import cost. Later, the top echelons of the government sent those documents to the central bank and asked them to take necessary initiatives for this.
Following that, several teams of the central bank audited different branches and head offices of the accused banks and found evidence of selling dollars at a higher price than declared. After that, the Bangladesh Bank issued letters to those banks seeking an explanation.
Officials from various banks who received the letter say that the price of the dollar is announced daily. It is also mentioned that the price would be fixed immediately in case of transactions exceeding USD 10,000. The central bank is making decisions without fully understanding the actual situation. There is no other option but to cover the liability by purchasing dollars at higher prices for imports. Banks cannot buy dollars at high prices and sell them at low prices.
What is in the letters?
Letters were sent to 10 banks on Monday seeking to know why action should not be taken against the treasury-heads as their explanation was not satisfactory. The subject of the letter was “in reference to the sale of foreign currency to corporate customers at a higher rate than the fixed price”.
The letter said, “Your statement against the complaint of taking additional money from the customer in the name of a corporate deal for the payment of import bill, violating the rate announced by the Bangladesh Bank, was not acceptable. The treasury head of your bank cannot evade liability by selling dollars at high prices."
The letter also sought answers within five days of the issuance of the letter as to why actions would not be taken against the treasury heads of the bank under Section 109 (7) of the Bank Company Act.
The Bangladesh Bank officials say that they will take necessary initiatives after receiving the answers from the bank.
Speaking to Prothom Alo regarding the letters, BB executive director and spokesperson Mezbaul Haque said, officials of Bangladesh Bank say that necessary action will be taken as per the law after receiving the reply.
When asked about the letter, the Executive Director and Spokesperson of Bangladesh Bank Mezbaul Haque told Prothom Alo they (the accused banks) announced a rate and sold dollars to their corporate clients at a rate higher than the declared. Therefore, the letters were issued asking why actions would not be taken in this regard.
“Earlier, treasury heads of several banks were transferred for similar offences. Fine is a harsher punishment than a transfer. It is related to an official’s career,” he added.
The dollar crisis has been ongoing for a year and a half. The forex reserve of the central bank was reduced to almost half within this time period.
The importers say they are not being able to open the letter of credits as per the demand. The dollar crisis is also prevailing in the open market. The price of dollars rose to Tk 118 there.
* This report appeared on the print and online versions of Prothom Alo and has been rewritten in English by Ashish Basu