More banks fear overall profitability slide for such action against money laundering

At least nine local banks have been battered by newly-invented 'de-risking' strategy to combat money laundering that may also affect profitability of other local banks.

Such official findings stem from the national action plan mandated by an international combat against money laundering and terror financing.         

"Some other local banks have also been affected by the de-risking," Abu Hena Mohammad Razee Hassan, Deputy Governor of Bangladesh Bank (BB), disclosed while replying to a query about the impact on de-risking of Bangladesh.

The term 'de-risking' refers to financial institutions closing the accounts of clients perceived high risk for money laundering-or terrorist-financing abuses, namely money service businesses, nonprofit organisations, correspondent banks, and foreign embassies.

The central bank of Bangladesh has already advised the global banks through their local offices or representatives to inform the Bangladesh Financial Intelligence Unit (BFIU) of the central bank before cutting ties with local commercial banks, said Mr. Razee Hassan, also head of the BFIU.

"The issue has already been discussed at FATA (Financial Action Task Force) and APG (Asia Pacific Group on Money Laundering) recent meetings," the BFIU chief noted.

Among the nine local banks, five are state-owned commercial banks while one is a Shariah-based Islamic bank and three other conventional local private commercial banks. They have been designated as the mostly affected banks of Bangladesh, according to a BB senior official.

Currently, 49 local banks are running their operations across the country. He also said the BFIU has urged the global banks to review the corresponding relationship discontinuation with the local banks.

"Some corresponding relationships had been discontinued on the basis of media reports," the official said in reply to a query.

Adverse impacts of de-risking increased further in 2016, affecting 60 per cent local banks as against 53 per cent a year before. It was 60 per cent in 2014, according to a study conducted by the Bangladesh Institute of Bank Management (BIBM).

Contacted, Shah Md. Ahsan Habib, professor and director of the BIBM, said the profitability of banks may be hampered following adverse impacts of the de-risking drive.

 "Cross-border transactions and remittance business of the banks have been affected due to the de-rising," Dr. Habib explained. He also urged the banks to take effective measures to improve compliance capacity of AML/CFT for avoiding such negative impacts.

"Workers' remittance inflows are suffering downturn not just because of weakened demand for migrant workers in major migrant labour-hosting countries but also because it is getting harder, even impossible in some instances, for migrant workers to access legitimate channels for sending money home, with high-cost burdens of compliance with unduly  stringent AML/CFT regulations dissuading international banks from relationships with remittance-handlers," the central bank said in its latest monetary policy statement (MPS), released Wednesday.

It also said: "Urged repeatedly in global dialogues, inter alia by the BB and other Bangladesh authorities, global AML/CFT standard-setters are now reportedly looking into this."

The inflow of remittances dropped by 14.48 per cent to US$ US$12.77 billion in the fiscal year (FY) 2016-17 from $14.93 billion a year ago.