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The central bank has issued a new policy asking banks to comply with cash reserve requirement (CRR) and statutory liquidity ratio (SLR) rules for their Offshore Banking Operations.
Under the new policy, three-fourths of total outstanding offshore operations' funds will have to be invested in Bangladesh.
All the banks will have to maintain capital requirements under Basel-III framework along with the implementation of Asset Liability Management (ALM) guidelines for their offshore banking operations, according to the new policy issued by the Bangladesh Bank (BB) on Monday.
The banks have been asked to renew the approvals of OBUs in line with the new policy by applying to the central bank within three months.
The banks will have to launch their offshore banking operations within six months or the time period subsequently extended by the central bank from the issuing date of approval, the policy added.
"Instructions of Asset Liability Management (ALM) guidelines will be applicable to the offshore banking operations," it noted.
Under the new policy, the banks are prohibited from the some activities including the placement of fund with domestic banking unit (DBU) in offshore banking operations.
Besides, at the close of business on any day, the value of offshore banking assets in Bangladesh will not be less than 75 per cent of the liabilities of offshore banking.
However, banks may also use funds mobilised from other sources including domestic banking operations with a limit not exceeding 20 per cent of its total regulatory capital.
"Unless stated otherwise, all regulatory limits imposed by the BB regarding funded and non-funded exposure shall be applicable for offshore banking operation," it noted.
Under the new policy, loans under offshore banking operations will need to be reported to the Credit Information Bureau (CIB) of the central bank.
"The new policy will help mitigate the risks of offshore banking operations in Bangladesh as the central bank will strengthen monitoring and supervision," a BB senior official told the FE.
The central bank has brought the offshore banking operations in Bangladesh under regulations by issuing the policy, he added.
In the past, the central bank was not empowered fully to monitor and supervise the OBU operations closely due to legal constraints.
Currently 35 commercial banks out of 58 are running their OBUs across the country as per a directive issued by the Banking Control Department of BB on December 17, 1985.
Under the directive, the OBUs had been exempted from the purview of certain provisions of the Banking Companies Ordinance 1962 as per the government notification.
Besides, the OBUs were considered for exemption from Article 36(1) of the Bangladesh Bank Order 1972 on such terms and for such period as may be deemed fit by the government.
It means the OBUs were exempted for maintaining CRR and SLR with the central bank of Bangladesh against their liabilities.
Talking to the FE, Syed Mahbubur Rahman, chairman of the Association of Bankers, Bangladesh (ABB), said the banks will have to arrange more funds for the implementation of the new policy for offshore banking operations.
"Credit flow to the private sector through offshore banking operations might get slowed down to some extent," noted Mr. Rahman, managing director and chief executive of Dhaka Bank Limited.