The Bangladesh Bank has tightened its oversight on overseas operations of local banks, mandating strict conditions before they can establish foreign branches, subsidiaries, or invest in offshore entities.
- Banks under A-category a must
- 7 years’ experience in core banking
- Foreign unit funding barred
- Host country approval required
BB issued a comprehensive guideline in this regard on May 8.
According to the guidelines, only financially sound banks with strong regulatory ratings and proven governance will be allowed to expand abroad.
Under the new framework, banks seeking to operate overseas must have a minimum of seven years’ experience in core banking, attain a strong or satisfactory CAMELS rating — a key indicator of financial health — and be listed on the local stock exchange under the ‘A’ category.
Any attempt to open a branch, exchange house, finance company, or representative office abroad now requires not only a feasibility report but also host country approval.
Additionally, the host country must have existing diplomatic and economic ties with Bangladesh, and banks are encouraged to prioritise hiring Bangladeshi nationals for their overseas operations.
The guidelines also mandate the repatriation of net profits to Bangladesh annually, ensuring that earnings from foreign ventures contribute to the domestic economy.
The approval process has been tightened, requiring banks to submit detailed feasibility reports that include market research, financial projections, and risk assessments before receiving the green light from Bangladesh Bank.
Once operational, foreign branches and subsidiaries must adhere to strict reporting requirements, including regular financial disclosures and internal audits conducted at least every two years.
The regulator warns that parent banks cannot fund operational expenses or staff salaries of overseas subsidiaries using remittances from Bangladesh.
Instead, foreign operations must be self-sustaining and must remit net profits back to Bangladesh annually.
Moreover, no expansion will be permitted without prior approval from Bangladesh Bank’s Banking Regulation and Policy Department.
The guidelines also stress operational prudence. Banks must control costs, avoid unnecessary foreign travel, and ensure at least biennial internal audits of their overseas units.
Furthermore, banks must immediately report any regulatory penalties or sanctions imposed by foreign authorities, ensuring transparency and swift action in case of compliance breaches.
Any dissolution of a foreign operation must also receive prior approval, with proceeds from asset sales repatriated to Bangladesh.
Additionally, if a bank intends to acquire shares in a foreign bank or even in a non-banking entity, it must prove that no conflict of interest exists among directors, submit audited financials for the last three years, and secure policy approval from the central bank.
Preference will be given to deals where the Bangladeshi bank will not only have ownership but also take part in management.
With Bangladeshi banks increasingly expanding into global financial markets, the Bangladesh Bank made the move to strengthen monitoring over the overseas operation of banks, the guidelines said.
