Kazi Zahidul Hasan :
Lending through offshore banking units has marked sharp rise in the recent years due mainly to lower interest rate on such lending.
As of December last year, local banks lent Tk 49,532 crore through their offshore banking units (OBUs) compared to Tk 39,330 crore as of December 2016, showing a 25 per cent year-on-year growth.
Of the total amount, 27 private commercial banks lent Tk 30,044 crore and six foreign banks Tk 19,297 crore, according to an official figure.
Multinational companies and garment manufacturers have mainly availed the short-term lending facility with a maximum interest rate of 6.0 percent.
Banking experts, however, issued cautionary note over the rising offshore lending saying the extraordinary credit growth is likely to expose local banks’ to rising defaults pushing them to asset liability mismatch.
“Loans under offshore banking are growing sharply as banks use cheap funding to attract clients,” Dr Salehuddin Ahmed, former Bangladesh Bank (BB) Governor told The New Nation yesterday.
He, however, said risk has risen alongside the growth in such lending.
“Banks should continue to maintain good credit underwriting practices and ensure that provisioning is prudent and robust to avert potential risks associated with the lending,” said Dr Salehuddin Ahmed.
He said even there are some grey areas of offshore lending which should be addressed.
The central bank should expedite monitoring and supervision of the banks’ offshore lending operation to address the risks.
Currently, 33 commercial banks out of 56 are running their 50 OBUs across the country as per a directive issued by the Banking Control Department of BB on December 17, 1985.
“Low cost funding is driving the growth of offshore lending in recent years. The rapid expansion of loans has also posed risk to the banks,” Dr Ibrahim Khaled, former BB Deputy Governor told The New Nation.
He said the risk of offshore banking lies in the recovery process, which is lengthy.
“The lending through offshore banking is required to come under Bangladesh Bank’s scanner for effective monitoring to mitigate any future risk,” Dr Ibrahim Khaled.
A loan through the offshore banking unit usually costs 4-6 percent interest in contrast to about 10 percent traditional lending by local banks.
In 2014, the loans under offshore banking stood at Tk 26,174 crore.
