Bank-Insurance
Bangladesh Central Bank Surpasses IMF Benchmark, Ends 2023 with $17.7bn Reserves
As the year concluded, Bangladesh’s central bank reported net reserves of approximately $17.7 billion in December, surpassing the International Monetary Fund’s (IMF) benchmark and positioning the country favorably for the third tranche of a $4.7 billion loan package. The IMF condition targeted a net reserve of $17.48 billion by December 2023, a goal that the central bank not only met but exceeded.
Despite facing a reserve crisis, the central bank achieved this milestone while selling a record $6.7 billion to banks during the first six months (July-December) of the fiscal year 2023-24. In the previous fiscal year, the corresponding figure was $7.8 billion. The central bank’s robust dollar sales were driven by the necessity to fulfill import obligations, particularly for daily essentials such as oil, gas, and fertilizers, while simultaneously adhering to the IMF’s reserve maintenance conditions.
During this period, the central bank also managed to purchase $1.04 billion from banks, a notable increase compared to the previous fiscal year. Despite most banks experiencing a dollar shortage, the central bank strategically acquired dollars to bolster foreign exchange reserves.
To meet the IMF net reserve calculation, the central bank excluded obligations to the Asian Clearing Union (ACU) and bills due within a year. This adjustment resulted in a $4 billion difference between gross and net reserves, reinforcing Bangladesh’s adherence to international financial standards.
The central bank’s spokesperson, Md Mezbaul Haque, emphasized their commitment to maintaining forex reserves, engaging in both dollar sales and purchases from banks. The acquisition of dollars amid a shortage involved transactions with banks facing difficulties in cash transactions, facilitating the central bank’s reserve management.
As of December 28, the central bank’s foreign exchange reserves stood at $21.7 billion based on the BPM-6 standard. Over the past three years, consistent dollar sales from reserves to commercial banks have been observed, primarily to settle import bills. The central bank’s proactive measures and strategic financial management have positioned Bangladesh favorably in international financial markets.
Amidst this, the dollar rate discrepancy in banks, where dollars are sold to the central bank at Tk110 while remittance dollars are collected at Tk109.50, raises questions. Importers, facing higher dollar rates than the declared rate, add complexity to the financial landscape. The central bank’s actions, including purchasing $200 million from Islamic Bank and an additional $100 million from various banks in late December, underscore its commitment to managing the country’s forex reserves effectively. Despite challenges, the central bank’s efforts contribute to stabilizing the financial environment and fostering economic resilience.
The Bangladesh Bank has adjusted the dollar price to Tk117 from Tk110 by introducing the crawling peg exchange rate mechanism.
Under this new approach, the bank will buy and sell dollars with Tk117 as the mid rate.
This decision was reached during a meeting of the monetary policy committee on Wednesday, May 8th.
Additionally, the committee has opted to discontinue the SMART lending rate mechanism, allowing banks to set their lending rates based on dollar demand and supply, according to a circular issued after the meeting.
The crawling peg system permits a currency with a fixed exchange rate to fluctuate within a specified band of rates, combining features of both fixed and floating exchange rate regimes.
On May 5th, Bangladesh Bank Governor Abdur Rouf Talukder announced the adoption of a market-based interest rate and the implementation of a crawling peg system to stabilize the foreign exchange rate.
He stated that the central bank is collaborating with prominent economists and bankers to devise a contractionary monetary policy aimed at curbing inflation and restoring macroeconomic stability.
Earlier, on April 2nd, the World Bank stressed the importance of a crawling peg mechanism aligned with market-clearing exchange rates to narrow the gap between formal and informal exchange rates, as outlined in the latest Bangladesh Development Update report.
Meanwhile, the International Monetary Fund (IMF) has advocated for a market-based dollar rate. In January 2023, the IMF attached several conditions to a $4.7 billion loan facility over a three-and-a-half-year period. Bangladesh has received two installments of the loan by fulfilling nearly all conditions, except for the reserve requirement.
On Sunday (May 5), the Bangladesh Bank (BB) once again dissolved the board of directors of the National Bank.
In a letter addressed to the managing director of the National Bank, the central bank announced the cancellation of the existing board of directors.
Furthermore, the banking regulator established a new board of directors and appointed Khalilur Rahman, the bank’s sponsor director, as the new chairman, according to the BB’s communication.
Mezbaul Haque, spokesperson for the Bangladesh Bank, commented on the development, stating that the action was taken to bolster the bank’s board of directors.
This move comes after a similar action in 2023 when the central bank ordered the dissolution of the National Bank’s board and formed a new one.
Prime Bank PLC has recently received Bancassurance Business commencement approval from Bangladesh Bank.
Mohammad Shahriar Siddiqui, director, BRPD, Bangladesh Bank handed over the approval letter to Nazeem A Choudhury, deputy managing director – consumer banking of Prime Bank PLC, at a ceremony held at Bangladesh Bank recently.
Mohammad Ashfaqur Rahman, additional director, BRPD, Bangladesh Bank, Ashraful Alam, joint director, BRPD, Bangladesh Bank, Miah Mohammad Rabiul Hasan, chief bancassurance officer, Prime Bank PLC were also present at the ceremony.
Bancassurance is a partnership between a bank and insurance company that will allow a Bank to sell insurance products of the insurance company through its distribution channels.
To offer a wide range of products to its customers and ensure best in class service, Prime Bank has partnered with leading insurance companies National Life Insurance Company Ltd. and Reliance Insurance Ltd.
Being one of the leading banks of the country, Prime Bank hopes to cater to the needs of insurance requirements of its customers through Bancassurance, in Bangladesh market.
