Definition:: Offshore Banking

Offshore Banking
Definition:
An offshore bank is a bank located outside the country of residence of the depositor,
typically in a low tax jurisdiction (or tax haven) that provides financial and legal
advantages. Offshore banking is the international banking business involving foreign
currency denominated assets and liabilities and is kept separate from domestic
(onshore) banking business. An efficient offshore banking system is imperative in
ensuring the success of incoming foreign investment.
Advantages:
 Greater privacy (less control from Central Bank).

 Exemption from the minimum reserve requirement.
 License for doing offshore banking is easier to get.
 Some offshore banks may operate with a lower cost base and can provide higher
interest rates than the legal rate in the home country due to lower overheads and a
lack of government intervention.
 Offshore finance is one of the few industries, along with tourism, that
geographically remote island nations can competitively engage in. It can help
developing countries source investment and create growth in their economies, and
can help redistribute world finance from the developed to the developing world.
 Protection from local political and financial instability. Offshore banks provide
access to politically and economically stable jurisdictions.
Disadvantages:
 The existence of offshore banking encourages tax evasion, by providing tax

evaders with an attractive place to deposit their hidden income.
 Offshore jurisdictions are often remote, and therefore costly to visit, so physical
access and access to information can be difficult.
 Offshore private banking is usually more accessible to those on higher incomes,
because of the costs of establishing and maintaining offshore accounts.
 Developing countries can suffer due to the speed at which money can be
transferred in and out of their economy as “hot money”. This “Hot money” is aided
by offshore accounts, and can increase problems in financial disturbance.
 Offshore banking has been associated in the past with the underground economy
and organized crime, through money laundering
Present Situation in Bangladesh
Dhaka bank is first private commercial bank (local) to have launched offshore banking
in June 18, 2005 and went in operation in June, 2006. To operate offshore banking unit
(OBU) banks have to comply the following terms and conditions
 Non-resident (Individual and or Industry)

 Bangladeshi National working abroad
 Type-A Unit (100% foreign owned) operating in EPZ & outside EPZ
 Type-B, Type-C and industrial units outside the EPZ (only for term loan)
 AD Branch for UPAS settlement (for Bill discounting) & MDB FC investment
In the recent years, given rapid growth and changes in global investment patterns, the
definition has been broadened to include the acquisition of a lasting management
interest in a company or enterprise, outside the investing firm's home country. As such,
it may take many forms such as a direct acquisition of a foreign firm, construction of a
facility, or investment in a joint venture or strategic alliance with a local firm, with the
attendant input of technology and licensing of intellectual property.
Under existing Bangladesh Bank regulation, foreign investors do not have the
opportunity of raising funds from local commercial banks. The OBUs are operated
through completely separate counters and maintain their own accounts relating to
offshore banking business separately. The OBUs, regardless of their location, get
coverage under the EPZ Act. 1980 and conduct transactions in freely convertible foreign
currencies. The OBU clients have been allowed exemptions from the preview of
provisions of Banking Companies Act 1991, except some particular sections as declared
by the Bangladesh Bank.
Bangladesh needs to develop offshore fund to fulfill its policy of attracting foreign
investment. Private capital in Bangladesh is not plentiful and technical know-how is
limited. Because of this, there is ample scope and, indeed, a strong need to encourage
investment from abroad.
Offshore banking facilities should attract foreign investors to invest in the mainland.
Foreign investors always consider the easy movement of their investment without any
hassels. If the offshore banking is properly guided by the regulators it will flourish in
Bangladesh and it would be eeasier for local banks to operate offshore banking
smoothly.

Definition:: Offshore Banking

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Offshore Banking

 Greater privacy (less control from Central Bank).

 The existence of offshore banking encourages tax evasion, by providing tax

Present Situation in Bangladesh

 Non-resident (Individual and or Industry)

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