Shoring Up Resilience: Harnessing Offshore Banking to Strengthen

The recent regulatory developments in offshore banking in Bangladesh are viewed as a vital new source of foreign exchange, especially during this period of shortage. These guidelines are expected to strengthen the national financial sector and have the potential to evolve into a stable source of forex through formal banking channels, ultimately contributing to the national economy.

The recent regulatory developments in offshore banking in Bangladesh are viewed as a vital new source of foreign exchange, especially during this period of shortage. These guidelines are expected to strengthen the national financial sector and have the potential to evolve into a stable source of forex through formal banking channels, ultimately contributing to the national economy.

Offshore banking was first introduced in Bangladesh in 1985 to facilitate financing in Export Processing Zones (EPZs). Recent policy changes, including the 2019 offshore banking framework and the 2024 Offshore Banking Act, have boosted interest in offshore banking among Non-Resident Bangladeshis (NRBs), foreign nationals, overseas firms, and investors in EPZs, EZs, and Hi-Tech Parks. These changes have led to a steady increase in popularity, as banks have received positive responses regarding foreign currency deposits.

“Currently, our businessmen are facing significant challenges in opening letters of credit (LC) for imports due to the dollar crisis. By utilizing the foreign exchange received from offshore depositors, banks can help alleviate this issue, creating a mutually beneficial financial arrangement for potential NRB depositors, banks, and the national economy,” says Mustafa K. Mujeri, Executive Director of the Institute for Inclusive Finance and Development (InM), and former chief economist of Bangladesh Bank and Director-General of the Bangladesh Institute of Development Studies (BIDS).

According to the latest Fortnightly Major Economic Indicators report by Bangladesh Bank (Volume: 07/2024; Issue: 01), exports decreased by 4.34 percent, totaling USD 44.47 billion in FY24. The report attributes this decline primarily to a drop in knitwear exports in recent months. It also notes that the current account balance remains in deficit, with a shortfall of USD 6.51 billion in FY24, compared to USD 11.63 billion in FY23. The deficit is largely driven by the increasing trade gap. As a result, foreign exchange reserves declined from USD 31.20 billion on June 30, 2023, to USD 26.71 billion as of June 30, 2024.

Given the situation, the central bank’s guidance on offshore banking operations aims to attract NRBs by relaxing asset declaration requirements and exempting interest on their savings and deposits from all duties and levies. Additionally, banks are offering attractive interest rates in foreign currencies. This initiative is seen not only as a remedy for the current foreign exchange crisis but also as a…