Banks now can maintain taka vostro accounts

Authorised dealer (AD) banks in Bangladesh fron now can maintain taka vostro accounts with foreign trading partner banks without requiring any initial deposit.

Bangladesh Bank (BB) has issued a set of new guidelines in this connection that facilitate international trade by expanding the scope of transaction settlement in the local currency, taka.

Under the new guidelines, authorised dealer (AD) banks in Bangladesh will be allowed to open and maintain Taka Vostro accounts in the names of foreign trading partner banks without requiring any initial deposit.

The Foreign Exchange Policy Department-1 of BB’s issued Circular No. 38 on Wednesday (September 23) and sent it to all authorised dealer banks operating in the country. Dr Md Abu Bakkar Siddique, Director (Current Charge) of the central bank, signed the circular.

According to the circular, Taka Vostro accounts may be opened and maintained in the names of foreign trading partner banks to facilitate import and export trade with Bangladesh. No initial deposit will be required for opening such accounts.

The circular further stated that letters of credit (LCs), contracts and invoices may be denominated in freely convertible currencies. However, at the time of settlement, the relevant amount must be converted into Taka at the prevailing exchange rate.

Banks have also been instructed to ensure that the exchange of banking documents and communication with banks in partner countries are carried out securely, promptly and efficiently.

Importers will be required to settle transactions through local banking channels or through the relevant Vostro accounts. Subject to fulfilment of the prescribed conditions, overdraft facilities may also be provided against such accounts.

The surplus funds held in Vostro accounts of foreign banks may be invested in Bangladesh in foreign direct investment (FDI), portfolio investment, alternative investment funds and open-end mutual funds.

In addition, subject to approval from the relevant authorities, such funds may be used to settle dues payable to local entities or remitted abroad.

Bangladesh Bank has also instructed that the existing rules and regulations concerning IMP and EXP forms must be duly complied with in import and export transactions, respectively.

At the same time, banks must take necessary measures to prevent money laundering and terrorist financing (AML/CFT) and strictly follow the Know Your Customer (KYC) requirements by properly verifying relevant customer information.

The circular further stated that, in the case of countries interested in conducting transactions in local currencies that are not freely convertible, settlement may be carried out by maintaining a foreign Nostro account, subject to prior approval from BB’s.

The central bank's latest directive is expected to further expand the scope for settling international commercial transactions in the local currency, Taka, while facilitating import and export activities.