THE much-talked-about draft Offshore Banking Act 2024 was placed in parliament and finally promulgated by the government on March 14, 2024. This act aims to boost our foreign currency reserves and attract more foreign investments from foreign firms registered abroad, foreign investors, foreign nationals, and non-resident Bangladeshis. The Offshore Banking Act comes at a time when the country has been experiencing regular depletion of foreign currency reserves and facing challenges in maintaining the balance of payments.
Though the government has enacted the Offshore Banking Act to boost foreign currency reserves and attract foreign investments, offshore banking operations have been present in Bangladesh since 1985 through Bangladesh Bank guidelines. This time, the government enacted the Offshore Banking Act to provide more comfort and confidence to foreign firms, foreign nationals, foreign investors and non-resident Bangladeshis, protecting their interests.
Initially, to facilitate foreign firms with foreign currency loans and receive foreign currency deposits in the EPZ areas, the central bank allowed local banks to offer banking services through the offshore banking unit or OBU. In the earlier OBU guidelines of the Bangladesh Bank, it was mentioned that OBUs could mobilise foreign currency deposits from foreign firms, individuals and EPZ entities and also offer them lending in foreign currency. Later, OBU facilities were extended to joint venture companies and local companies in the EPZ areas. Furthermore, the offshore banking facilities were widened further to local companies so that they could avail themselves of facilities such as LC import and export bill discounting, purchase and bill negotiating, availing foreign currency loans through the OBU, etc.
Now, the OBU has been conducting myriad activities, such as mobilising foreign currency deposits, lending foreign currency to foreign or local firms in EPZ, Hi Tech and Economic Zones, arranging foreign currency loans to foreign or local firms, and import and export bill discounting and bill negotiating, etc. The recently enacted Offshore Banking Act 2024 includes some salient features, such as offering foreign firms registered overseas, foreign nationals, foreign investors, and non-resident Bangladeshis attractive interest rates on term deposits ranging from 6 per cent to 8.50 per cent, based on tenors and benchmark reference rates, if they maintain term deposits in five foreign currencies with the OBU. Interest received from offshore banking deposits is free from direct and indirect taxes and levies. Moreover, both principal and interest can be freely repatriated abroad. There are two ways offshore banking accounts can be opened: Firstly, foreign firms, foreigners and non-resident Bangladeshis can open offshore banking term deposits directly by themselves, and secondly, any representative of a non-resident Bangladeshi, such as family members, relatives, or a partner of a foreign investor residing in Bangladesh, can open accounts, which will be known as international business, IB, accounts.
Eligibility for opening an offshore banking account are persons resident outside Bangladesh, including NRBs; foreigners; persons of Bangladeshi origin (Bangladeshis holding foreign citizenship); companies and firms registered and operating abroad; foreign institutional investors; and type A units in EPZs (export processing zones, private EPZs, economic zones and hi-tech parks) in Bangladesh.
The following individuals or entities having genuine relations with non-residents can open or operate international banking accounts: any resident Bangladeshi individual (aged 18 years and above); Bangladeshi Corporates/firms; and type A, B and C industrial enterprises operating in EPZs.
As per the central bank circular, interest rates on OBU term deposits would be as follows: benchmark reference rate + 1.50 per cent as ceiling rate for deposit up to one year, not less than three months; benchmark reference rate + 2.25 per cent as ceiling rate for deposit above one year and up to three years; and benchmark reference rate + 3.25 per cent as ceiling rate for deposit above three years and up to five years.
Previously, there were no such lucrative interest rate offers in the OBU. Recently, the central bank, through a circular, announced exciting interest rates for OBU deposits and investments. The interest received from OBU term deposit accounts is not subject to any deduction of income tax and levies; income is free from any direct and indirect taxes and levies. In line with the Offshore Banking Act, the National Board of Revenue has issued a circular exempting offshore banking deposits from taxes and levies. Moreover, the OBU deposits, both principal and interest, can easily be repatriated abroad.
Depositors and investors may en-cash their funds in the local currency and use them or make investments in onshore banking. The Bangladesh Bank is empowered to issue guidelines from time to time to protect the interests of depositors and investors. To attract foreign currency deposits through offshore banking, some banks have already been offering attractive interest rates and other facilities. In offshore banking operations, foreign companies, non-resident Bangladeshis, and foreigners can open accounts and deposit money in five foreign currencies: US dollar, British pound, euro, Japanese yen, and Chinese yuan, which need to be sent from abroad through banking channels.
Since the passage of the law, huge criticisms have been raised regarding the special benefits that have been offered for offshore banking deposits. Some quarters are saying that the benefits have been offered in order to return the laundered money, which was withdrawn from our country, back into our financial system to tackle the foreign reserves crisis. However, in the new world scenarios after the Covid outbreak and the Russia-Ukraine war, many countries have been withdrawing funds from China and other Asian countries and relocating their investment to adjacent countries. Bangladesh can leverage the fund diversion by the OBU.
Last but not least, offshore banking deposits and investments can be a good source for our foreign currency in times of volatility in foreign exchange reserves. It will replenish our foreign currency reserves if banks can bring attention to their beneficiaries. The central bank has offered lucrative interest rates for OBU deposits, and incomes have been waived from income taxes and levies by the Offshore Banking Act. In order to attract offshore banking products to their targeted customers, the government, the central bank and scheduled banks should arrange campaigns overseas.
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Mohammad Zonaed Emran is a banker.