Foreign banks enhancing credit backup to BD counterparts

Banks now enjoy a feel-good ambiance in external trade financing as foreign counterparts open line-of-credit backup mainly as Bangladesh sees significant improvements in foreign-exchange receipt, officials and bankers say.

After the changeover in state power following last year's July-August mass uprising, large international banks that typically act as correspondents for commercial banks here squeezed or suspended limit of their lines of funds for the Bangladeshi banks.

And it put the country's commercial lenders in serious trouble in dealing with international trade, according to them.

As the country's macroeconomic health started improving from early this year following payment of overdue import bills amounting to around $2.50 billion, foreign correspondent lenders began easing their line-of-credit support for their responding banks in February last. Now, majority of such overseas banks open their forex-backing supports for local banks here in a turnaround, according to the market players.

Correspondent banking is the provision of banking services by one bank (correspondent bank) to another bank (respondent bank). Bangladeshi banks mostly act as respondents.

By establishing multiple correspondent relationships globally, banks can undertake international financial transactions for themselves and for their clients in jurisdictions where they have no physical presence.

Seeking anonymity, the treasury head of a private commercial bank says, "Majority of the corresponding banks have already opened their credit lines for a number of Bangladeshi banks in recent months."

Among the corresponding global banking biggies are Mashreq Bank, Citi N.A, HSBC, Standard Chartered Bank, JP Morgan Chase Bank N.A, RAK Bank, First Abu Dhabi Bank, Emirates Nbd Bank Pjsc, Emirates Islamic Bank, Commerzbank AG, Duestsche Bank AG, Ajman Bank and Zuercher Kantonalbank.

Only Indian corresponding banks have not eased the credit supports for their Bangladeshi counterparts yet, probably because of the prevailing strained relations between the two next-door neighbours, the banker adds.

The inflow of foreign currencies, the American greenback in particular, continues to rise riding a remarkable growth in remittance and export receipts. And this rebound prompted the foreign banks to change their line- of-credit policies regarding Bangladeshi banks, according to him.

Managing Director and CEO of United Commercial Bank (UCB) Mohammad Mamdudur Rashid says many foreign banks either tightened or suspended their credit lines for Bangladeshi banks, including his one, after the shakeup in power through the mass uprising.

But they kept in touch with their foreign partners continuously sharing their target-centric plan of actions to improve the fundamentals of the bank.

Satisfied with the progress of the bank, he says, all the foreign banks have opened their lines of credit for UCB, which processes 7.0 per cent of the country's overall international trade.

"Apart from existing correspondent banks, new foreign banks have joined in the lines of credits, which is a good sign for the economy," says the experienced banker.

Managing director of Shahjalal Islami Bank Mosleh Uddin Ahmed says a top executive of Dubai-based Mashreq Bank called him last month and assured him supporting line of credits the respondent required in processing international trade.

"It clearly indicates that the confidence of foreign banks in their Bangladeshi peers continues to rise," the seasoned banker told the FE writer.

On condition of not disclosing identity, a BB official says rising inflow of foreign currencies over the last several months is bolstering the country's forex reserves despite clearing huge overdue import bills.

And it ultimately enhances banks' capacity to meet their overseas payment obligations in this post-import-compression regime, the official adds. "Look at net open position (NOP) of the banking sector, which keeps ballooning because of the rising forex inflow," the central banker cites an example.

In banking jargons, NOP represents the difference between a bank's foreign assets and liabilities. It reflects the bank's risk exposure to currency movements.

According to the central bank, the volume of NOP in banks came to around $1.10 billion now from $500 million recorded couple of months ago. The volume is the highest after the pandemic period of 2021.

The central bank's statistics also show the country's gross forex reserves still stand at $29.53 billion and $24.45 billion in accordance with BB and IMF calculations as on July 07 even after the payment of $2.02 billion in import bills through the Asian Clearing Union (ACU).

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