Commercial banks forex holdings decreased in August
Last month, commercial banks experienced a decrease in foreign currencies compared to the previous month. This happened because there was a big drop in money sent from other countries, and only a little bit more things were sold to other countries than last year. According to the latest data from Bangladesh Bank, the gross foreign currency balance with the banks was $5.80 billion in August, which is lower than the $5.90 billion recorded in July.
The amount recorded in August increased by 16 percent compared to the previous year. The lowest figure since fiscal year 2021–22 was in October last year, with a balance of $4.50 billion.
Migrant workers sent home $1.59 billion last month, which is a 21.5 percent decrease compared to the previous year. This decline is the largest since April 2020, according to the BB data. On the other hand, exporters experienced 3.8 percent year-on-year growth, earning $4.7 billion.
Industry insiders have stated that when remittance earnings decrease and import payments increase, the foreign currency balance of banks typically decreases. They also clarified that the foreign currency balance of commercial banks is not included in the country’s foreign exchange reserve. As of September 21, the country’s forex reserves amounted to $21.45 billion due to the higher demand for the US dollar compared to the inflow.
In August 2021, the reserves reached a historical high of $48 billion. However, since May 2022, the reserves have been declining due to increasing import payments caused by high commodity prices during the Russia-Ukraine war. The main reason for the decline in foreign currency with commercial banks was the significant decrease in remittance earnings, according to Syed Mahbubur Rahman, managing director of Mutual Trust Bank.
The anonymous CEO of private commercial banks believes that the crisis in the US dollar exchange rate is another factor contributing to the increase in deferred payments for letters of credit. The drop in foreign currencies is not a new phenomenon, and most banks are currently facing this issue.
The Bangladesh Foreign Exchange Dealers Association (Bafeda) and the Association of Bankers, Bangladesh (ABB) have been setting the US dollar rate since last year based on unofficial instructions from the central bank. As of August 31, they have agreed to purchase the US dollar at Tk 109.50 and sell it at Tk 110 starting from the first working day of this month.
The private bank’s chief executive said they are not getting US dollars at the FedA-ABB fixed rate because the curb market is offering higher rates. Ahsan H. Mansoor, executive director of the Bangladesh Policy Research Institute, pointed out that the commercial banks of the country are currently facing a crisis with the US dollar due to the fixed exchange rate. The economist said the US dollar is not doing well because remittances from other countries and money earned from selling goods to other countries are both low.