Bangladesh Bank (BB) has allowed offshore banking units to conduct cross-currency swaps and directly buy and sell foreign currencies, giving them greater flexibility to source cheaper funding and manage currency risks.
Under the new rules, offshore banking units (OBU) can undertake transactions with their own domestic banking units, other authorised dealer banks, other OBUs and other legitimate counterparties.
Bangladesh Bank (BB) issued the circular on Monday, widening the treasury tools available to OBUs for managing foreign-currency funding, liquidity and exchange-rate exposures.
The facility means an OBU can tap funding in a currency that is cheaper or more readily available and use foreign exchange transactions or cross-currency swaps to manage the resulting currency exposure.
This could allow OBUs to lower funding costs and offer more competitive financing for eligible trade and business transactions.
The transactions, however, must be directly linked to permissible customer transactions, funding requirements, settlement obligations, foreign-currency liquidity management, asset-liability management or foreign-exchange risk management.
Bangladesh Bank also encouraged OBUs to seek lower-cost foreign-currency funding where feasible and use appropriate foreign-exchange transactions or cross-currency swaps to manage the associated risks.
The move is aimed at improving foreign-currency liquidity management and aligning offshore banking operations with internationally accepted treasury practices, according to the circular.
Offshore banking units operate separately from banks’ conventional domestic banking operations and primarily conduct permitted foreign-currency business.
