OFFSHORE BANKING IN BANGLADESH

1. INTERNATIONAL ISLAMIC UNIVERSITY CHITTAGONG Department Of Economics & Banking OFFSHORE BANKING IN BANGLADESH SUBMITTED BY: Shah Meraz Rizvi

2. TOPIC: OFFSHORE BANKING S U B J E C T 9.Current Status of Offshore Banking in Bangladesh. 10.Findings. 11.Conclusion. SUBJECT 1. Introduction. 2. Objective of the study & Research Methodology. 3. Benefits of OFFShore Banking. 4.Criticisms of OFFShore Banking. 5. OFFShore Banking centres in Bangladesh. 6.Evolution of OFFShore Banking. 7. The Banks Involved In OFFShore Banking. 8.Salient Features Of OFFShore Banking Unit IN Bangladesh.

3. 1. INTRODUCTION Offshore Banking is a banking system that deals with the international currency market, that foreign exchange funds originate from foreign sources in the banking system, and managed by different law enforcement and accounting outside local law, is known as offshore banking.

4. 2. Objective of the study: ❑ • To identify and analyze the factors that contribute to the growth of offshore banking ❑ • To devise the strategy for sustainable development of SEZ through offshore banking Research Methodology: The data collected is from secondary source. Data related to different factors are collected from sources like reports, research papers, thesis, journals, news articles and books. In depth study of each factor is done to analyze its role in the growth of Offshore Banking.

5. 04 3. Benefits of OFFShore Banking To potentially save tax on deposits savings and investments 02 Enjoying the highest service levels 03 Having convenient and accessible access to funds 05 So you can access international investment opportunities 06 To benefit from foreign exchange services 01 Securing and protecting your capital 07 For superior lending and credit facilities.

6. 4. Criticsms of OFFShore Banking 1 No interest is earned on the account 2 Difficult to set up 3 It is often associated with organized crime 4 Its helps the economy in foreign nations

7. 5. OFFShore Banking Centres In Bangladesh: Recently Bangladesh has gone off shore for banking and the Bangladesh Bank has declared an open door policy in respect. Govt. of Bangladesh intends to introduce off-shore banking in order to activate financing business and industrial activities in the newly created Export processing zones (EPZ). ❑ Exported would get benefit in terms of finer margins on loans and better foreign exchange rates available via an offshore banking unit. ❑ The benefits of multi-currency operations which, to an extent, minimize currency fluctuation risk. ❑ Salaries would paid by offshore banks and local expenditure incurred by them contribute to the economy's welfare. ❑ Bangladesh may earn revenue in the form of license fees, profit taxes imposed on the banks operating in the area. ❑ Benefit of banks' funds in the form of capital & liquidity requirements. ❑ The country can gain improved access to the international capital markets. ❑ Setting up offshore banking centres would trigger enforced development of more advanced communication facilities ❑ The offshore banking centres will provide opportunities to train the local staff which will, in turn, contribute to faster economic growth. ❑ The offshore banking units would help channelize nonresident Bangladesh investments. ❑ The domestic financial system may become more efficient through increased competition and exposure of the domestic banks to the practices of offshore banks.

8. 6.Evolution of OFFShore Banking In Bangladesh: In Bangladesh offshore banking was started in 1985. Bangladesh Bank declared its policy in this respect vide BRPD circular No. BCD(P) 744(27) on 17th December, 1985. Operations for OBU in Bangladesh Primary objective The Banks Involved The clients Non-resident (Individual and or Industry) • Presently, • 22 local banks • 07 foreign banks To activate financing business and industrial activities in the Export Processing Zones (EPZ). • Deposit collection • Bangladeshi National working abroad • Investment/credit deployment • Type-A Unit (100% foreign owned) operating in EPZ & outside EPZ ,Type-B,Type-C. • Fund collection/borrowing Licentiate for doing off- shore banking in Bangladesh. • Industrial units outside the EPZ (only for term loan) • UPAS • All FC related transactions for its clients. • AD Branch under UPAS facilities (for Bill discounting).

9. 7. The Banks Involved In OFFShore Banking: Foreign investors do not have the opportunity of availing credit facilities from the Different Financial Institutions (DFI) of Bangladesh. In order to cater to the need of financial support, off-shore banking facilities are being provided to the foreign owned/join venture units in the EPZs of Bangladesh. According to Bangladesh Export Processing Zones Authority’s (BEPZA) publication on May 14, 2014, presently, 07 foreign banks operating in Bangladesh have been licentiated for doing off-shore banking. Apart from that, 22 local banks of Bangladesh also provide off-shore banking. According to the Bangladesh Bank (BB), more local banks are in the pipe- line to have off-shore banking license from them.

10. The list of the Local and Foreign Banks in Bangladesh licentiate for doing offshore banking is given below: LOCAL BANK : FOREIGN BANK: 1. Prime Bank Ltd. 2. Dhaka Bank Ltd.. 3. South-East Bank Ltd. 4. National Bank Ltd. 5. Estern Bank Ltd. (EBL). 6. Bank Asia Ltd. 7. Shahjalal Bank Ltd. 8. The City Bank Ltd. 9. The Premier Bank Ltd. 10. IFIC Bank Limited. 11. BRAC Bank Ltd. 12. AB Bank Limited. 13. Mutual Trust Bank Ltd. 14. Jamuna Bank Ltd. 15. One Bank Ltd. 16. Pubali Bank Ltd. 17. Standard Bank Ltd. 18. United Commercial Bank Ltd . 19. Islami Bank Bangladesh Ltd. 20. Trust Bank Limited. 21. Mercantile Bank Ltd . 22. National Credit and Commerce Bank Ltd. 1. Standard Charter Bank Ltd. 2. HSBC Ltd. 3. Woori Bank Ltd. 4. Citi N.A. Bank Ltd. 5. Commercial Bank of Ceylon. 6. Dutch-Bangla Bank Ltd. 7. State Bank of India.

11. 8. Salient Features Of OFFShore Banking Unit IN Bangladesh: BOI approval for lending to local corporate: The borrowing company needs to request for approval to BOI in prescribed format. The BOI approval process may take some time. BOI needs to be satisfied regarding commercial viability of the project, the ability of the project to repay foreign currency loans, suitability of the borrowing with the existing financial structure of the project and the credit worthiness of the project. Asset Liability Management of Offshore Unit: Unlike the domestic unit where all the deposits and loans are of fixed interest rates, the offshore banking unit has both fixed and floating rate assets and liabilities. Therefore, in addition to maturity matching, the floating rate assets have to be matched with floating rate liabilities and fixed rate assets have to be matched with fixed rate liabilities. Interest rate swap is necessary in cases where floating rate lending is financed by fixed rate deposits or vice versa. Features of Loans: As the foreign currency borrowing of local companies is subject to a long approval process, probably only comparatively large volume term loans is eligible for financing by OBU. Typically term has range from 1-5 years. The loans interest is fixed or floating. 01

12. 9.Current Status of Offshore Banking in Bangladesh: Bangladesh Bank sources (08 September 2017) Because of low interest, the bankers of the bank's offshore unit are facing risk. As a result, during the first six months of the current year (January-June), the distribution of the loan was 74,544 crores. In this, the loan status of the offshore unit of the bank sector has stood at Tk 46,874 crore. The default loan was Tk 420 crore in the offshore unit till June. Of these, 313 crores of money trafficked through AB Bank's offshore unit has been defunct. There is no policy for offshore banking operations in Bangladesh so far. As a result, the banks are expanding the business. Currently, interest rates on offshore banking are below 6 percent. In December last year(2016), the amount of offshore banking loan was Tk 393 billion. By the end of June(2017), it has increased to 46,874crore taka. As a result, the loan growth in six months has increased to around 7 billion taka. At the end of June last year(2016), the loan amount was 3,887 crores. After calculating that, the loan amount increased by one year to 8 thousand 787 crore. So far, the bank has disbursed 51 bank offshore banks, but 35 banks have disbursed the loan. The central bank's control over offshore banking units is very less.

13. 10.FINDINGS The bank should have a policy to maintain separate Nostro account for OBU The bank should have a policy for separate working strength Bank should have an approved OBU operational manual 01 02 03 The bank should have a policy for maintaining a Taka account to meet up the daily expenses for OBU The bank should have a policy for maintaining separate books of accounts showing all assets, liabilities, income and expenditure for OBU The bank should have a policy to collect fund for OBU 04 05 06

14. FINDINGS The bank should have a policy regarding LC reconfirmation The bank should have a policy for the uses of fund for OBU The bank should have a policy for credit appraisal 07 08 09 EPZ customer can use the BEPZA IP as a license. So, there is actually no implementation of letter of credit authorization BB can keep an close eye on the strength of foreign asset while issuing license for OBU to the local bank BB can monitor the fund flow of OBU 10 11 12

15. 11. CONCLUSION Today, offshore banking is extremely advanced, offering numerous services such as online banking, credit and debit card services and mobile banking. To the fact that banking regulations vary from nation to nation, it is possible the country in which your funds are located does not offer the same protections as other nations.

17. Thank YOU Shahmerazrizvi@gmail.com