The central bank is scheduled to meet with bankers on Sunday (14 August) to discuss the way out of the dollar crisis in a move to stabilise the country's foreign exchange market.
The Bangladesh Bank has invited the Association of Bankers Bangladesh (ABB) and the member banks of the Bangladesh Foreign Exchange Dealers' Association to the meeting to be held at the central bank headquarters around 3pm, according to sources familiar with the development.
A source at the foreign exchange dealers' association said, although the central bank did not say anything clearly about the agenda, bankers believe that the foreign exchange rate and the forex market will be discussed in the meeting.
On 8 August, the central bank ordered the transfer of the treasury heads of the Prime Bank, Brac Bank, City Bank, Dutch-Bangla Bank and Southeast Bank as well as the foreign sector Standard Chartered Bank to their human resource departments as a punitive measure for making abnormal profits from dollar trading.
Banks are also not very satisfied with such a decision of the central bank. Sources said that additional profit by selling dollars may be discussed with the banks in the meeting.
According to bankers, there are no guidelines from the central bank on how a bank can profit from buying and selling dollars.
Acknowledging the fact that there is no directive on profit limit, a senior official at the central bank said that according to the Bangladesh Bank guidelines, banks have to follow the BC (bills for collection) selling rate for payment of import LCs (letters of credit).
Generally, the BC selling rate is 5-10 paisa higher than the central bank's interbank exchange rate. Normally, banks make a profit of 10-20 paisa per dollar on LC settlements. At present, many banks have made a profit of Tk5-7 per dollar.
In practice, the BC selling rate is not followed except for government LC payments. Treasury department officials at two state-owned banks said despite not receiving dollars as per demand from the central bank, the BC selling rate determined by the central bank is being charged for LC settlements of daily necessities and government purchases. However, the rate charged for private LC settlements is much higher.
The banks operating in the country made import LC settlements at the highest Tk109 on Thursday. According to them, no bank has enough dollars. Exchange houses are asking Tk112-113 per dollar. Now the banks are afraid of buying dollars at this price due to the fear of the central bank's punishment.
Banks said that they have to buy dollars from exchange houses by paying at least Tk12-15 more than the BC selling rate. Sometimes the dollar cannot be bought even at Tk107-108. Therefore, if they sell dollars at the BC selling rate, they will have to incur a huge loss.
In such a situation, the central bank pretends not to see everything. A senior official at the central bank told TBS that the interbank exchange rate is not being set according to the volatile dollar market. As a result, banks are forced to transact at higher prices. The central bank knows everything. This official commented that it is difficult to follow all the rules in this time of crisis.
The financial sector of the country including banks has a role in implementing the monetary policy of the central bank. This official also mentioned that the monetary policy formulated by the Bangladesh Bank is not being implemented due to the irregularities of the banks which have been punished.
Mentioning that there is no discipline in bringing remittances, a member of the foreign exchange dealers' association said, banks are collecting dollars as per their wish which has created uneven competition.
"We will bring remittances by paying more and there is no problem with it. It would be better if there is discipline here. The rate of remittance should be fixed in such a way that the informal market (hundi) cannot flourish," he added.
In the meeting, bankers are likely to call for an increase the incentives in remittances. The foreign exchange dealers' association had earlier demanded to increase the incentives.
"Currently, exporters are getting incentives of 5%-20% on their domestic value addition depending on products, the source said. Whereas remitters are getting only 2.5%. What is their fault? Incentives on remittance inflows would have been at par with the minimum 5% incentive available to exporters. The bankers can again raise the demand in Sunday's meeting," he also said.
Referring to the foreign exchange dealers' association's earlier unsuccessful decision to buy dollars from exchange houses, he said, "We told the central bank to monitor things by itself. In that, everyone including banks respects and obeys them."
Pointing out that there is a "complexity" in the agreement of the exchange houses with the banks, he said, "Our technical committee was supposed to resolve the complication with the exchange houses. However, the market became volatile and we could not meet again later. Once the situation is normal, we will sit with the agreement made with banks."
Asked about the kind of complexities, without mentioning the issue directly, he said he thinks that if exchange houses have such an agreement with banks that only the houses can fix the dollar rate, then there will be a problem. In such a case, a new agreement may be required by excluding the previous agreement.
"I don't know about the contract to the point, but there is a problem here," he added.
Ataur Rahman Pradhan, managing director of Sonali Bank and chairman of the Bangladesh Foreign Exchange Dealers' Association, told TBS, "The governor has invited us. But what will be discussed, nothing has been informed yet."
"The regulator will also want smooth business. Whatever the central bank says, maybe we will have something to say there too. As I don't know anything yet, it would not be right to comment on it," he added.