Bangladesh Bank has decided to fine the delinquent banks that have failed to make payments to foreign parties against letters of credit (LCs), a top BB official said.
“It is reported internationally when a bank fails to pay against an LC on maturity. We have no option but to fine these delinquent banks,” Abu Hena Mohammad Razee Hassan, deputy governor of BB, told The Daily Star yesterday.
The wilful default by a few banks is set to cast a bad light against the country's entire banking sector, negating the benefits of Bangladesh coming out of the grey list of Financial Action Task Force, the global money laundering and terrorist financing watchdog.
The finance minister and central bankers said the country will not have to bear the extra cost in LC confirmation charges it had to count when it was on the grey list.
The LC confirmation charge is imposed when an exporter's (foreign party) bank wants security in receiving payments under the LC.
Accordingly, an importer's (local party) bank approaches international banks such as HSBC, Standard Chartered or Citibank NA, to provide guarantee to the exporter's bank about the payments.

And, these banks impose a charge, which is called LC or ad confirmation fee. This is also called a 'risk fee' taken by the confirming bank.
The LC confirmation charge depends on some factors, mainly the country risk and the reputation and strength of the issuing bank. It is also called commitment fee and varies from bank to bank.
Presently, banks charge 1.5 percent to 2 percent of LC value as confirmation fee, meaning a local importer has to pay $2 million to another bank as LC confirmation fee against an import of $100 million worth of goods.
“It should be 0.5 percent of LC value, especially after Bangladesh's good score in FATF assessment,” said the BB deputy governor, adding that some banks' failure to pay against LCs has shrunk local banks' bargaining capacity to reduce LC confirmation fees.
Some other BB officials said Bangladesh's credit rating might also deteriorate for this failure.

The World Bank will provide a credit facility worth $210 million to Bangladesh to help build modern food storage systems and strengthen distribution.
Under a deal signed between the two parties yesterday, the government will construct the food storage system that will be able of feed 10 million people under a new project.
The facility will be provided for a term of 40 years, including a 10-year grace period, and carries a service charge of 0.75 percent.
The Modern Food Storage Facilities Project will construct steel silos with a total storage capacity of 535,500 tonnes of rice.
It will also support the distribution of smaller household silos to 500,000 households in the disaster-prone coastal areas.
“Bangladesh faces floods and cyclones in almost every three years, and climate change could increase the frequency and intensity of these extreme-weather events,” said Christine Kimes, acting country head of World Bank Bangladesh.

“This modern food storage system combined with an effective distribution system will help ensure food security immediately after a natural disaster.”
“The project will reduce the vulnerability of people living in natural disaster-prone areas and help Bangladesh build a stock of food to meet emergencies,” Kimes said.
The modern steel silos will be able to store food grains for up to three years while retaining the nutritional quality of the rice through computerised control of humidity and temperature, World Bank said in a statement yesterday.
“The steel rice and wheat silos would enhance shelf life from seven months to three years. This would protect the government from having to replenish rice and wheat stocks in every seven months with huge costs,” said Arastoo Khan, additional secretary of the Economic Relations Division.
“So the government would have greater manoeuvrability in management and distribution of cereal stock.”
The project will also support the improvement and modernisation of the monitoring and management system of food stocks in Bangladesh, as well as the development of a food policy research programme and provide project management support, supervision and technical assistance and training.

 Bank Asia organised a workshop on ‘Shariah Compliance in Islamic Banking’ for its 32 officials from 5 Islamic Windows and Islamic Banking Division at the bank’s Institute for Training and Development on Saturday.

 Eastern Bank Limited (EBL) received the Best Retail Bank in Bangladesh Award for 2014.

The bank received the award at The Asian Banker’s International Excellence in Retail Financial Services 2014 Awards ceremony, held in Sydney, Australia recently.

The awards giving ceremony was organised in conjunction with the region’s most prestigious retail banking event, the Excellence in Retail Financial Services Convention.

 The Institute of Chartered Accountants of Bangladesh (ICAB) organised a workshop on "Anti-Money Laundering and Terrorist Financing" at the institute’s auditorium in Dhaka on Monday.

Abu Hena Mohammad Razee Hassan, Deputy Governor of Bangladesh Bank, presided over the workshop, said a press release.

ICAB President Showkat Hossain, past president and Council Members Muhammed Farhad Hussain, Syful Islam and Council Member Gopal Chandra Ghosh were also present at the function.

Debaprosad Debnath, General Manager and Operation Head, Bangladesh Financial Intelligence, Bangladesh Bank, and Kamal Hossain, Joint Director, Bangladesh Financial Intelligence BB, are the resource persons in the workshop.