Banks under Groups 1 (21 banks) and 2 (11 banks) accounted for 75.12% of the sector’s total forex-exchange-rate risks
Foreign exchange market instability is causing several banks in Bangladesh to feel the heat, with many fearing an extended period of slowdown.
Some 33 out of 61 scheduled banks possess three-fourths of the industry’s total foreign exchange rate risks, according to the latest financial stability report released by the central bank.
It says the banks under Groups 1 (21 banks) and 2 (11 banks) accounted for 75.12% of the sector’s total forex-exchange-rate risks, in a notable increase from 62% in the preceding year.
Besides, banks under Group 3 (nine banks comprising full-fledged Islamic banking) possessed 18.85% of the exchange risks in 2022, indicating an increasing trend from 18.4% in 2021.
Simultaneously, the banks under Groups 4 (foreign commercial banks) and 5 (fourth-generation commercial banks), containing less than 10% share of total assets, were found less exposed to market risks in the banking system.
Spokesperson for the Bangladesh Bank Md Mezbaul Haque says banks which have higher foreign currency payment obligations than the forex earnings are in the category of short positioning.
For example he cites any bank that opened letters of credit (LCs) amounting to $10 million but can earn a maximum $8 million from exports and remittance.
The bank has a $2 million shortfall and it has to be met through buying the greenback. But the ongoing volatility on the forex market has been posing great risk to those banks, said Haque, also an executive director of the central bank, about the forex risks these bankers are facing.
On the other hand, the official says, there are some banks which have more foreign earnings than the spending to clear overseas transactions.
They are in the category of long positioning. It means the banks have surplus in foreign exchange.
There is risk for banks in long positioning as well. If the exchange rate against local currency depreciates, they will have to face the music. Normally, top banks having more concentration on imports are in short positioning, he added.
Source: Dhaka Tribune.