Bangladesh Bank has allowed offshore banking units to buy and sell foreign currency directly and to carry out cross-currency swap transactions, in order to make the management of foreign currency funds more efficient and economical. The move will widen the scope for financing approved trade and business activity in foreign currency at competitive cost.
Bangladesh Bank issued a circular to that effect on Monday.
The central bank says the facility has been given in order to ease customer transactions, strengthen foreign currency liquidity management, make asset-liability management more effective, and bring the country’s offshore banking operations into line with internationally recognised treasury practice.
The circular says that under the new arrangement, offshore banking units will be able to buy and sell foreign currency directly and carry out cross-currency swap transactions with their own domestic banking units, with other authorised dealers and offshore banking units, and with relevant counterparties.
That will allow the units to raise foreign currency funds from suitable sources, structure those funds more effectively and manage foreign currency risk. In particular it will create scope to provide financing at competitive cost in approved trade finance.
Under the circular, such transactions must be directly related to approved customer transactions, funding requirements, settlement obligations, foreign currency liquidity management, asset-liability management or foreign currency risk management.
Bangladesh Bank has encouraged offshore banking units to adopt prudent strategies for managing foreign currency funds. It has stressed raising comparatively low-cost foreign currency funds where necessary and managing the associated currency risk through suitable foreign currency purchases and sales or cross-currency swaps.