When several banks in the country are looking to open new exchange houses to collect remittances, the almost 21-year-old Janata Exchange Company in Italy has been asked to shut down after years of insurmountable losses.
Janata Exchange in Italy has been facing financial losses for 13 consecutive years, which were covered by tapping into the foreign reserves of its parent company, the state-owned Janata Bank.
The central bank last month directed Janata Bank to close its loss-making subsidiary to protect customer deposits and maintain foreign exchange reserves.
Janata Bank spent approximately Tk45.62 crore to cover the exchange house's losses in 12 years from 2009 to 2020, according to the state-owned bank.
Besides, the exchange company took Tk11.31 crore from its equity to cover loss expenses for 2021 and 2022 without central bank approval.
As the ongoing losses continued, a department within the central bank in August presented a recommendation to the Bangladesh Bank governor, proposing the complete closure of the exchange house.
According to senior central bank officials, the governor has agreed to the proposal. Subsequently, a letter has been sent to the managing director of Janata Bank, ordering the closure of the exchange.
Janata Bank's Deputy General Manager Anisur Rahman, who looks after the state-owned bank's overseas interests, confirmed to The Business Standard of receiving the letter. "We will present our statement to the central bank in a letter soon," he said.
Start of Janata Exchange in Italy
Janata Exchange House in Italy started operations in Rome in 2002. Later, a second branch was opened in the country's Milan city.
The company was profitable from 2002 to 2008. During this period, the company remitted €5.96 lakh in profit to Bangladesh.
However, since 2009, the company did not see profit again.
A senior official of Janata Bank, requesting anonymity, told TBS that the reason for the exchange house not turning a profit is because of rising expenses compared to operating profit.
"The exchange house primarily relied on remittance commissions, but despite a growing migrant population in Italy, remittance flows remained low," the official mentioned.
Moreover, the official claimed, some officials received high salaries without reaching out to customers, leading to increasing losses.
Failure in agency operations
In 2015, the central bank authorised the exchange house to establish five agencies to mitigate losses. However, the institution did not manage to initiate agency operations.
Janata Exchange contacted the central bank multiple times, indicating ongoing communication with the central bank of Italy to secure agency operations.
However, there has been no progress on the matter.
An official of a foreign bank told TBS that central banks in Europe usually look into various issues to grant a money transfer licence to a company, including RICS management system, non-compliance issues, role in preventing money laundering, and the overall status of risk weighted assets and capital.
"The main reason for not getting a licence is that the institution has been in loss for a long time," he suspected.
Central bank's explanation
The central bank's letter said the closure decision was made as the institution's losses continued to widen even after issuing a business plan in 2020.
Besides, Janata Exchange should be closed down to protect the interests of Janata Bank depositors, and to maintain foreign exchange reserves, it said.
Janata Exchange used its cover fund to meet the expenses without the central bank's approval, it further said as the reason for the decision.
Bangladeshi migrants in Italy
According to data from the Bureau of Manpower Employment and Training, currently there are 77,133 Bangladeshi expatriates in Italy. However, the real number could be more than 2 lakh.
According to central bank data, Italian expatriates sent $1,054 million remittance in FY22, of which $29 million or 2.83% came through Janata Bank's exchange house.