Probe begins into nine banks' dubious forex dealings

A special regulatory probe into nine commercial banks with higher exposure to the foreign-exchange market begins to prevent potential volatility as Bangladesh transitions into a band-centric floating exchange-rate regime, officials said.

Nine teams of Bangladesh Bank (BB) have been fielded to conduct the fresh inspections about eight leading private commercial banks (PCBs) and one state-owned commercial bank (SoCB) in connection with such dubious dealings in the greenback.

The teams got down to doing on-site inspections into the banks on Wednesday, focusing alleged 'rate distortion' to foreign exchange that may fuel volatility on the market in the near future, they added.

Rate distortion means banks charge higher price of the US currency bypassing their announced rates particularly for BC (bills for collection) selling and TT (Telegraphic Transfer) clean.

Additionally, the investigators have been tasked with collecting the buying and selling rates of foreign currency for export, import, and remittance for the past month.

The BB investigators have also been assigned to examine the gap between the rates offered by banks for procuring inward remittances from overseas exchange houses and the selling rates of the foreign exchange to customers.

Before regime switch, all scheduled banks were allowed to offer a maximum exchange rate of Tk 122 per US dollar for BC selling at the customer level, while the maximum buying rate was set at Tk 121.

In some cases, a few banks purchased inward remittances by offering up to Tk 123 per dollar, bypassing the central bank's directives, according to market-insiders.

Earlier on December 31, 2024, the central bank had verbally increased the mid-rate of crawling peg to Tk 119 instead previously fixed Tk 117 per greenback.

Actually, maximum exchange rate of the local currency against the US dollar was fixed at nearly Tk 122 after adding 2.5-percent band of the crawling peg.

A crawling peg is a system of exchange-rate adjustments in which a currency with a fixed exchange rate is allowed to fluctuate within a band of rates.

"We've started a special inspection into the banks as part of our market- monitoring efforts," a senior BB official told The Financial Express (FE) Wednesday while replying to a query. He also said the central bank would take next course of action after receiving the inspection reports.

The BB probe teams have been asked to complete their inspections by the end of this week, according to the central banker.

The regulator's latest move came against the backdrop of switching to a more flexible exchange regime in line with the International Momentary Fund's advice.

At a meeting with top executives of all the scheduled banks, Bangladesh Bank Governor Dr Ahsan H. Mansur instructed the bankers to act logically and rationally in terms of dealing in foreign exchange under new system to avert possible volatility on the forex market.

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