Gross forex stocks of banks falling fast

Gross foreign-exchange holding by commercial banks keeps falling as factors like currency swap and widening deficit in trade credits principally weigh down, competent sources say.

On the other hand, officials and bankers have said, the import orders amid belt-tightening steps taken by Bangladesh Bank (BB) as a forex-saving measure also started accelerating in recent months on the back of sharp supply of forex, particularly the American greenback. And it is also contributing to the decline in their forex stocks.

According to statistics available with the central bank, the outstanding gross forex reserves in banks stood at $6.17 billion in September 2023. It has since been on a slope to climb down to $5.97 billion in November and $5.56 billion in December 2023.

But the gross forex holding by the commercial banks had made an upturn since early this calendar year as the volume stood at $ 5.84 billion in January. Thereafter, the figure started dropping again to reach $5.53 billion in February and $5.43 billion by end of the previous month of March, the BB data showed.

Seeking not to be quoted by name, a BB official said the economy started witnessing a latest fall in the outstanding gross forex stock in the banking sector in February when the currency swap between the central bank and the scheduled banks came into effect.

Currency swap is a mechanism through which the cash-strapped banks can get liquidity through selling their overbought US dollars to the central bank that, in turn, has to make do with an emaciated amount of forex reserves.

"Since the introduction," the central banker says, "the involvement of commercial banks in the swapping arrangement continues rising significantly, which is mainly contributing to the fall in the gross stock of forex in banks."

At the same time, according to him, the deficit in the trade credits had ballooned to $10.75 billion up to February last, which means the commercial banks are not getting dollar receivables supposed to be coming in from abroad.

"So, the banks cannot show the dollars into their accounts. This is another major reason behind the continuous fall in gross forex holding of banks," says the official about the arithmetic of dollar dearth.

Sources at the BB have said the currency swap was launched on the money market amid tightening liquidity situation in the banks following contractionary monetary stance since February 20, 2024 to give some sorts of respite to cash-hungry lenders.

Since then, the commercial banks had sold more than 3.0 billion US dollars to the central bank and received around Tk 370 billion till April 25, 2024.

During the same period of time, the banks under the mechanism swapped $1.80 billion paying around Tk 200 billion, the BB sources said.

Apart from currency swap and trade credits, managing director and chief executive officer of Jamuna Bank Mirza Elias Uddin Ahmed says, the volume of LCs (letter of credit) started rising in recent months following sharp increase in the supply of dollars particularly from exports and remittances.

"This is another reason behind the drop in gross forex holding of banks. Don't worry, we still have good volume of dollars and we're using those very cautiously," the experienced banker told the FE correspondent about the prudence bankers are adopting.

Top executive of Dhaka Bank Emranul Huq says banks are now selling increased number of dollars on the market to meet the existing liquidity pressure while the overseas liabilities in the form of deferred payment continue falling.

"These are the other factors behind the falling gross stock of dollars in banks," Mr Huq adds.

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