The classified loans of the offshore banking units (OBUs) of different banks swelled more than four times or Tk 3.18 billion in the first nine months of the last calendar year (2017).
The non-performing loans (NPLs) that were provided in terms of foreign currency rose to Tk 4.19 billion as on September 30, 2017, from Tk 1.01 billion as on December 31, 2016, according to the central bank's latest statistics.
However, the amount of such classified loans came down to Tk 4.19 billion in the third quarter (Q3) covering July-September period of 2017 from Tk 4.21 billion in the preceding quarter (Q2).
"The classified loans of OBUs increased significantly during the Jan-Sept period, as a substantial amount of foreign currency loan of a first-generation private commercial bank (PCB) turned into NPLs," an official of the Bangladesh Bank (BB) told the FE on Thursday.
Four banks, including three PCBs and a foreign commercial bank (FCB), have faced the burden of their OBUs' NPLs as on September 30, 2017, according to the BB confidential report.
It was only two banks - one PCB and a FCB - nine months before.
However, the share of classified loans in the total volume of outstanding loans also rose to 0.87 per cent as on September 30, 2017, from 0.26 per cent as on December 31, 2017.
The NPLs cover substandard, doubtful and bad/loss of total outstanding credits, which reached Tk 484.44 billion as on September 30, 2017, from Tk 393.30 billion at the end of 2016. It was Tk 384.95 billion as on September 30, 2016.
The OBUs are allowed to provide foreign currency loans to their customers as well as operate transactions in specified foreign currencies. The currencies are US dollar, British pound, Canadian dollar, Deutsche mark, Japanese yen, Swiss franc, the Netherlands guilder, French franc, Swedish kroner and Singaporean dollar.
Talking to the FE, a senior executive of a leading PCB said the OBUs are now playing a significant role in the credit market of Bangladesh following high demand for foreign loans, mainly due to low interest rates on such lending.
Currently, the banks are charging interest on such lending at rates ranging between 4.0 per cent and 6.0 per cent, according to the banker.
He also said BB should formulate a policy in this connection immediately and conduct audit of the OBUs to assess their actual financial position.
Currently, the central bank is not fully empowered to closely monitor the OBUs' operations due to some legal constraints.
Currently, 35 commercial banks out of 57 are running their OBUs across the country according to a directive issued by the Banking Control Department of BB on December 17, 1985.
Under the directive, the OBUs have been exempted from the purview of certain provisions of the Banking Companies Ordinance 1962 as per the government notification.
Besides, the OBUs are also considered for exemption from Article 36(1) of the Bangladesh Bank Order 1972 on such terms and for such period as may be deemed fit by the government.
Subsequently, the OBUs are exempted for maintaining CRR and SLR with BB against their liabilities.
These units are free to accept deposits and borrow from outside the country. They are also allowed to make advances/investments abroad and make permissible transactions with the EPZs.
The central bank took initiatives to bring functions of the OBUs under regular monitoring by introducing a policy for offshore banking operation of the banks in Bangladesh.
"We're still working to formulate the policy soon to bring the overall OBU operations under the existing Banking Companies Act," another BB official said.
He also said the policy will help to supervise the OBU operations closely.
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