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Offshore Banking Act-24 to boost our forex reserves

Published : Wednesday, 22 May, 2024 at 12:00 AM  Count : 345

Offshore Banking Act-24 to boost our forex reserves

Offshore Banking Act-24 to boost our forex reserves

The much-talked-about draft Offshore Banking Act 2024 was placed in parliament and finally promulgated by the government on 14.03.2024. This act aims to boost our foreign currency reserves and attract more foreign investments from foreign firms registered abroad, foreign investors, foreign nationals, and non-resident Bangladeshis. The Offshore Banking Act comes at a time when the country has been experiencing regular depletion of foreign currency reserves and facing challenges in maintaining the balance of payments.

Though the government has enacted the Offshore Banking Act to boost foreign currency reserves and attract foreign investments, the offshore banking operations have been present in Bangladesh since 1985 through Bangladesh Bank guidelines. This time, the government enacted the Offshore Banking Act to provide more comfort and confidence to foreign firms, foreign nationals, foreign investors and non-resident Bangladeshis, protecting their interests.

Initially, to facilitate foreign firms with foreign currency loans and receiving foreign currency deposits in the EPZ areas, the central bank allowed local banks to offer banking services through OBU. In the earlier BBs OBU guidelines, it was mentioned that OBUs could mobilize foreign currency deposits from foreign firms, individuals, and EPZ entities, and also offer them lending in foreign currency. Later, OBU facilities were extended to joint venture companies and local companies in the EPZ areas. Furthermore, the offshore banking facilities were widened further to local companies so that they could avail themselves of facilities such as LC import and export bill discounting and purchase and bill negotiating, availing foreign currency loans through OBU etc.

Now, the OBU has been conducting myriads activities such as mobilizing foreign currency deposits, lending in foreign currency to foreign/local firms in EPZ/Hi Tech/Economic Zones, arranging foreign currency loans to foreign/local firms, and import and export bill discounting and bill negotiating etc. The recently enacted Offshore Banking Act 2024 includes some salient features such as offering foreign firms registered overseas, foreign nationals, foreign investors, and non-resident Bangladeshis with attractive interest rates on term deposits ranging from 6% to 8.50%, based on tenors and benchmark reference rates if they maintain term deposits in five foreign currencies with OBU. Interest received form offshore banking deposits are free from direct and indirect taxes and levies.

Moreover, both principal and interest can be freely repatriated to abroad.  There are two ways offshore banking accounts can be opened. Firstly, the foreign firms, foreign nationals and NRBs can open offshore banking term deposits directly by themselves. Secondly, any representative of non-resident Bangladeshi, such as family members and relatives, or partner of a foreign investor residing in Bangladesh can open accounts which will be known as International Business(IB) account.

Offshore Banking (OBU) Account: Eligibility for opening Offshore Banking Account are: Person resident outside Bangladesh including NRBs, Foreign nationals, Persons of Bangladeshi origin (Bangladeshi holding foreign citizenship), Companies/Firms registered and operating abroad, Foreign institutional investors and Type A units in EPZs (Export Processing Zones, Private EPZs, Economic Zones and Hi-tech parks) in Bangladesh.  

International Business (IB) Account: The following individuals or entities having genuine relations with non-residents can open/operate International Banking (IB) Accounts: Any Resident Bangladeshi individual (aged 18 years & above), Bangladeshi Corporates/Firms and Type A, Type B, Type C industrial enterprises operating in EPZs (Export Processing Zones)/EZs (Economic Zones)/HTPs (High Tech Parks).

As per the central bank circular, interest rates on OBU term deposits would be as under:
Deposit    Ceiling Rate
Up to 1 year, not less than 3 months Benchmark reference rate + 1.50%
Above 1 year and up to 3 years    Benchmark reference rate + 2.25%
Above 3 years and up to 5 years    Benchmark reference rate + 3.25%

Previously, there were no such lucrative interest rate offers in the OBU.  Recently,the central bank through circular announces exciting interest rates for OBU deposits and investments. The interest received from OBU term deposits accounts is not subject to any deduction of income tax and levies; income is free from any direct and indirect taxes and levies. In line with Offshore Banking Act, the National Board of Revenue (NBR) has issued a circular exempting Offshore Banking deposits from taxes and levies. Moreover, the OBU deposits, both principal and interest, can easily be repatriated abroad. The Depositors and investors may en-cash their funds in BDT and use them or make investments in onshore banking.

The Bangladesh Bank has empowered to issue guidelines from time to time to protect the interests of the depositors and investors. To attract foreign currency deposits through Offshore Banking, some banks have already been offering attractive interest rates and other facilities. In offshore banking operations, foreign companies, non-resident Bangladeshis, and foreigners can open accounts and deposit money in 05 foreign currencies: USD, GBP, EURO, JPY, and YUAN, which need to be sent from abroad through banking channels.

Since the passing of the Act, huge criticisms are being raised regarding special benefits that have been offered for offshore banking deposits. Some quarters are saying that the benefits have been offered in order to returning the laundered money, which were flight from our country, back into our financial system to tackle the foreign reserves crisis. However, in the new world scenarios after the covid and Russia Ukraine conflict, many countries have been withdrawing funds from china and other Asian countries and relocating their investment to adjacent countries. Bangladesh can leverage the fund diversion by OBU.

Last but not the least, the offshore banking deposits and investment can be good source for our foreign currency in time of volatility of foreign exchange reserves. It will replenish our foreign currency reserves if banks could bring attention to its beneficiaries. The central bank has offered lucrative interest rates for OBU deposits and incomes have been waived from income taxes and levies by the Offshore Banking Act. In order to attract Offshore banking products to its targeted customers, the government, the central bank and scheduled banks should arrange roadshow and campaign in overseas.

The writer is a banker

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