How banks' easy remittance dream turned into a loss-making nightmare abroad

Infographic: TBS

After an exhausting run, Sonali Bank shuttered its London shop mid-August this year. Operations of the branch dated back to 1999 when the state-owned lender began its UK journey as Sonali Trade and Finance Ltd. 

The main goal of the London office was to help Bangladeshi nationals abroad in remitting money home.

In 2001, the office added some extra tasks to the daily routine. It would collect deposits, distribute loans and guarantee letter of credits (LCs) for external trades. 

As the business expansion was not in line with Sonali's financial health, Bangladesh had to inject dollars from its forex reserve into the ailing lender multiple times.

But even the support could not save the branch thanks to Sonali UK's mismanagements, corruption and weak anti-money laundering shield, according to the Bangladesh Bank. 

As losses had been mounting on the balance sheet, the overseas branch faced a £32 lakh fine by the UK financial regulatory body and bar in opening new accounts. 

With the branch finally closed in 2022, Sonali's dream of collecting foreign currencies easily in the UK to boost Bangladesh's remittance inflow got smashed.

Similar to the Sonali case, at least eight overseas outlets of Bangladeshi banks have been closed in the last couple of years, according to the central bank. The causes noted by the Bangladesh Bank are similar: poor feasibility in opening foreign offices, corruption, irregularities and mismanagements, and recurring losses.

The closure list includes Janata Bank exchange house in US, Agrani remittance house in Canada, NBL Money Transfer Inc USA, Exim Exchange Company (Canada) Limited, Mutual Trust Bank's UK MTB Exchange, National Credit and Commerce Bank's UK NCCB Exchange and South East Bank's South East Financial UK.

Depending on the country, it needs Tk5-Tk10 crore investment to launch a Bangladeshi money exchange abroad. Besides, if the loss-making exchange house wants to wind down the business, the required processes also cost much.

Referring to the calculation, bankers said the closure of eight overseas shops might have caused several hundreds of crores of taka losses to the country. 

Amid a dollar crisis, falling remittance inflow and depleting forex reserves, the Bangladesh Bank recently recommended banks open more branches abroad to boost inbound money flow instead of raising exchange rates for remitters. 

In a sharp contrast to the central bank suggestion, Islami Bank Bangladesh Ltd – which brings in about one-third of the country's total remittances – says it does not have any exchange house abroad.

"Banks do not need their own money exchange shops abroad to bring in more remittances. It is possible to bring overseas money by just making smart agreements with the existing money exchange houses," Mohammed Monirul Moula, managing director of Islami Bank, told The Business Standard.

Usually, the local banks get remittances from global money transfer services such as Western Union, MoneyGram and Xpress Money. The companies receive fees from the banks for providing the transactions.

Sailing out without a plan? 

After 2010, local banks jumped into a competition to launch money exchange houses in the US and European countries. The public and private banks started about two dozen money exchange houses in the European Union bloc, the United States, the United Kingdom and Canada. 

Almost half of the shops were closed subsequently, as they were launched without any business feasibility, according to bankers.

They said most of the foreign branches and exchange houses had never been active. They could not make any profit either, thanks to a lack of foresightedness of the top management and proper planning.

Selim RF Hussain, managing director of Brac Bank and chairman of Association of Bankers Bangladesh Limited, said the overseas exchange houses by local banks are usually divested globally.

"Small countries often face issues in opening bank accounts for transactions," he told The Business Standard.

The banker said Bangladeshi nationals abroad usually transact cash which many foreign countries discourage. He said frequent cash transactions by overseas bank exchange houses face regulatory obstacles.

"Our Birmingham exchange house was also closed due to frequent cash transactions. We had to remove the bar by appealing to the court," he added.

Md Afzal Karim, chief executive officer and managing director of Sonali Bank, told The Business Standard that they now plan opening a remittance house in the UK.

"Expatriates who used to send remittances from the UK through the Sonali Bank branch will send money through the exchange house," he added.

Make the existing ones profitable first

Local public and private banks had six branches, 24 exchange houses, and 7 representative offices abroad.

State-owned Sonali Bank has two branches in India and three representative offices in Kuwait and Saudi Arabia. Janata Bank has two exchange houses in Italy and four branches in the United Arab Emirates.

Rupali Bank has bought shares of a bank in Pakistan, while Agrani Bank has six exchange houses in Malaysia and four in Singapore.

Bank Asia has two exchange houses in the UK and the US, while Brac Bank has four exchange houses in the UK, France, Portugal and Italy.

National Bank has nine exchange houses in Malaysia, two in Greece and the Maldives and three in Singapore.

Prime Bank has six exchange houses in Singapore and the UK, and a subsidiary in Hong Kong, while Standard Bank has seven exchange houses in the US and one in the UK.

Exim Bank has an exchange house in the UK and a subsidiary in Hong Kong, Eastern Bank has two representative offices in Myanmar and China and a financial institution in Hong Kong.

Besides, Southeast Bank, IFIC Bank, AB Bank, Mercantile Bank, City Bank, Social Islami Bank, Islami Bank and UCBL have exchange houses abroad.

Former Bangladesh Bank governor Salehuddin Ahmed said he found during his stint that bank managers did not have a "proper sense of responsibility" in running the foreign outlets and exchange shops.

"We found some staff at the foreign outlets were coming to the office twice a week, but they were taking all the benefits," he commented.     

He said banks can boost the remittance inflow by effective deals with independent money exchange houses instead of opening their shops abroad. He also called for making the existing overseas outlets profitable first before opening a new shop.