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    offshore banking

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    Date: 05.11.

    24

    Course Code: FIN - 4201

    Course Name: Real Estate Finance

    Assignment

    Submitted to: Shahanaz Parvin

    Submitted by: Sanzida Hossain

    ID: 202121159001

    Semester- Fall 2024

    Batch No: 59

    Department: BBA
    Offshore Banking in Bangladesh

    Offshore banking in Bangladesh has evolved since its inception in 1985, primarily aimed at attracting
    foreign direct investment (FDI) and enhancing the country's export capabilities. Offshore Banking Units
    (OBUs) operate under specific regulations, allowing them to conduct transactions in foreign currencies
    and cater to non-resident clients. Here’s a detailed overview of offshore banking in Bangladesh:

    Historical Background

     Offshore banking in Bangladesh was established in 1985 through a circular from Bangladesh
    Bank.
     The primary goal was to create financing opportunities in Export Processing Zones (EPZ).
     Over the years, it has gained popularity among businesses and banks due to its ability to
    facilitate global transactions and foreign currency financing.

    Current Landscape

     As of now, 35 banks are actively involved in offshore banking, with total outstanding loans from
    OBUs exceeding BDT 600 billion.
     OBUs primarily focus on discounting import and export bills and providing long-term foreign
    currency financing to corporations.
     The regulatory framework allows OBUs to accept deposits and borrow from overseas entities,
    including non-resident Bangladeshis (NRBs).

    Regulatory Changes

    In February 2019, Bangladesh Bank introduced a comprehensive guideline to regulate offshore banking
    operations more stringently. Key amendments in May 2019 included:

     Local companies can now avail foreign currency loans with Bangladesh Bank's approval.
     Exporters can access short-term financing against shipments without prior approval.
     Joint venture companies in EPZs can obtain short-term loans without prior approval.
    Challenges and Impacts

     The imposition of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) on OBU liabilities
    has posed significant challenges.
     Banks must maintain a portion of their OBU liabilities in local currency, which can strain liquidity
    and increase funding costs.
     The additional requirements could lead to a reduction in the competitiveness of local banks
    compared to overseas lenders who are not subject to the same regulations.

    Global Context

     Offshore banking globally often operates in jurisdictions with low or no taxation, attracting
    international investments.
     In contrast, local OBUs face higher operational costs due to regulatory requirements, making
    them less attractive compared to foreign banks.
     Neighboring countries like India have more favorable conditions for offshore banking, such as
    exemptions from CRR and SLR.

    Conclusion

    Offshore banking has played a crucial role in Bangladesh's economic growth by providing low-cost
    financing options. However, recent regulatory changes may hinder the competitiveness of local OBUs.A
    balanced and comprehensive policy approach is essential to support the growth of offshore banking in
    Bangladesh while ensuring regulatory compliance.

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