Banks in Bangladesh see significant decline in forex holdings: Reports

This is as per media reports, which added the gross foreign currency balance with the banks dropped to $5,047 million in April from $5,439 million in March and $5,559 million in December 2023.

This was the lowest level since January 2023, when it stood at $4,849 million.

In April 2023, the gross balance was $5,497 million, including nostro accounts and investments in offshore banking units.

The shortage of US dollars has become a significant challenge for the country, affecting both commercial banks and the central bank’s foreign currency reserves even as this scarcity is straining the ability to pay for imports and causing the Bangladeshi taka to weaken against the dollar.

The crisis reportedly worsened due to slowdowns in remittances, export earnings, and a drop in foreign direct investment inflows.

Export earnings in July-March of FY 2023-24 increased marginally by 3.99 per cent to $40.87 billion compared to $39.30 billion in the same period of FY23 while remittance inflow reached $19.11 billion in the July-April period of FY24, up from $17.6 billion in the same period of FY23.

To curb import surges, the government and the Bangladesh Bank have implemented measures since April 2022, including restrictions on luxury items and non-essential products. These actions reportedly led to a 15.42 per cent decline in imports in July-March of FY24 compared to the same period in the previous financial year.

The Bangladesh Bank, central bank of the country, has also intensified monitoring of imports to prevent sudden outflows of foreign currencies.

Despite efforts to address the dollar shortage, the crisis persists due to a reduction in the supply of the greenback and a drain on foreign reserves.

The central bank has been selling dollars to commercial banks, totalling more than $32.8 billion over the past 34 months. This includes $11.67 billion allocated to banks in July-April of FY24, $13.5 billion in FY23, and $7.62 billion in FY22.

However, these dollar sales reportedly have had unintended consequences – reducing the foreign exchange reserves of the Bangladesh Bank and creating a liquidity crisis in the banking sector.

Many import payments have been delayed or renegotiated due to the dollar shortage, giving banks more time to acquire the necessary foreign currencies even if the burden of the shortage is reportedly unevenly distributed among banks, with only a few holding a significant portion of the country’s dollar reserves while many others struggle to meet their customers’ demands for foreign currency.

As a result, the foreign currency reserves dropped to $18.2 billion on May 14, leading to a sharp rise in the exchange rate to Taka 117 from Taka 91 against the US dollar within a year.

Fibre2Fashion News Desk (DR)