Cenbank seeks pvt banks’ help to clear $2b overdue payments

The Bangladesh Bank has sought the support of private banks in the country to clear overdue approximately $2 billion of various import expenses of the government to the state-owned banks.

This appeal was made during a meeting today with senior officials from the central bank’s Forex Reserve and Treasury Management Department, along with representatives from 15 private banks.

According to officials present at the meeting, the central bank reported that nearly $2 billion in government import payments are overdue. Private banks have been asked to sell $50 million daily to state-owned banks to facilitate the clearance of these payments. However, a final decision on this request from the banks has yet to be made.

A senior central bank official said, “Clearing these overdue payments would benefit the entire banking sector. The current backlog has led foreign correspondent banks to reduce loan limits for private banks and to hesitate in confirming Letters of Credit (LCs). Settling these overdue payments would improve relations with foreign banks and lower costs for domestic banks.”

The official also mentioned that discussions have begun with the International Monetary Fund (IMF) for an additional $3 billion loan, as part of ongoing efforts to boost reserves. 

“For now, we have decided not to sell any dollars from reserves,” he added.

A deputy managing director from a private bank said that after the 1974 flood, there was a need for food imports which could not be met due to insufficient reserve dollars. The recent floods might similarly require increased food imports, potentially necessitating additional dollar support from reserves. Hence, the central bank is currently reluctant to sell dollars from reserves.

During the meeting, the central bank requested estimates from bankers on total remittances, both formal and informal. Bankers indicated that annual remittances amount to $30-40 billion, with $20-24 billion processed through formal channels and the remainder through hundi.

The central bank plans to introduce measures to channel at least $8-10 billion from hundi to formal remittance channels.

At the meeting, bankers also urged the central bank to allow the dollar rate to be determined by market forces and to provide accurate reporting on dollar rates. 

A central bank policy maker said that after raising the dollar rate from Tk110 to Tk117, wholesale prices for rice and oil increased the following day, leading to higher inflation and public hardship. The central bank will prioritise measures to control inflation, he added.

The meeting concluded with instructions for bankers to establish a Treasury Forum (TFs) akin to the Authorised Dealers Forum. Bankers recalled a similar proposal from the Bangladesh Foreign Exchange Dealers’ Association for the 2020-21 fiscal year.