Offshore banking image

Offshore banking-feature -Advantages -Disadvantages

The term “offshore bank” originated with banks that were established on the British Channel Islands, off the coast of northwest France. These institutions were set up as tax havens to attract more investment.

Offshore banks are found widely dispersed geographically in being located in places such as the Cayman Islands, Bermuda, Luxembourg, the Channel Islands, Macau and Panama


What is Offshore Banking

Out of regular practice banking system absolutely run by foreign currency and a banking system which funds are informed from foreign sources is called in a word Offshore banking. At the end of the 20th century, this types of banking business start at first at United States of America, Keyman, Bahama, Namard diplunja.

The Offshore Financial Center collects, borrows or receives funds from non-residents and channel these again to non-resident borrowers. Since offshore financial services are provided to non-residents without involving local currency, local authorities either exempt these activities from local tax regulation or keep the rates and the regulations to the minimum. Additionally, they build up infrastructure facilities to smoothly conduct offshore activities and maintain confidentiality with regard to their operation.

 

The feature of Offshore banking:

 Local government rules and regulation is not applicable. For this reason, separate rules and regulation have already been incorporated.

  1. It is a banking system which are completely run by the foreign currency. Here is mainly used Euro, USD, Pound Starling, Japanese Yen, Swiss Frank etc.
  2. Generally, all country are not imposed Levy Tex and duty on Earned revenue. Though Some country imposed levy tex and duty, its volume is the up to the mark.
  3. Fixed of interest rate is free in this banking system. Nobody interferes to fix the interest rate.
  4. In this system, To take investment or collecting funds from others and to invest the customers accordingly. Here supplied funds are collected from a limited renowned arena.

 

 

Advantages of Offshore banking:

  1. Banking at the International level within the country.
  2. OBU can accept deposits and provide investment in freely convertible foreign currencies.
  3. The transactions/operations of OBU(s) are free from set rules/regulations of Bangladesh Bank and other local regulators.
  4. Advantages of low or nonexistent taxes/levies so that its customers can enjoy the unique package of tax benefit.
  5. Higher profit on deposit.
  6. Multi-Currency Account facility.
  7. Easy unlimited ins and out of the fund.
  8. OBU need not maintain statutory capital & reserve or liquidity.
  9. Foreign currency easily ins in the country. As a result, so foreign currency reserved will strong.
  10. The interest rate free capital fund increased in the country.

 

 

Why Offshore Banking in Bangladesh:

Foreign investors do not have the opportunity of availing credit facilities from the Different Financial Institutions (DFI) of Bangladesh.

In order to cater the need of financial support off-shore Banking facilities is being provided to the foreign-owned(Type-A)/ Join Venture(Type-B) unit in the EPZ’s of Bangladesh.

EPZ(Export Promotion Zone): The BEPZA is the official agency of the government to promote, attract and facilitate foreign investment in the EPZs. The primary objective of an EPZ is to provide special areas where potential investors would find a congenial investment climate, free from cumbersome procedures.

At present, there are 6 EPZ(s) in Bangladesh: Chittagong, Dhaka, Mongla, Ishwardi, Comilla, Uttara.

 

Customers of  Offshore Banking

Foreign investors:

Type-A: 100% Foreign Owned Company

Type-B: Join Venture Company

All foreign nationals.

Local Investors (Sub: to BOI Permission)

Non Resident.

Different financial Unit like AD branch and other FI

 

The product of the Offshore Banking Unit:

Project financing (Type A & B category Company)

Short-Term Murabaha (Type A & B category Company)

Term Financing for Local Investors (Sub:to BOI permission)

Export/Import financing (EPZ clients)

Import bill-discounting UPAS (for local importers)

Al-Wadiah Current Account (Type A & B category Company)

Other deposit Account for foreign nationals & NRB clients.

Local banks can maintain their Nostro A/C with our OBU

 

OBU(s) Source of fund

International Division (ID) of the Bank.

OBU can borrow fund from any bank or FI in FC.

NFCD Account of the Bank.

OBU can receive deposit from A & B category Clients.

 

 

Advantages:

Banking at the International level within the country.

OBU can accept deposits and provide investment in freely convertible foreign currencies.

The transactions/operations of OBU(s) are free from set rules/regulations of Bangladesh Bank and other local regulators.

Advantages of low or nonexistent taxes/levies so that its customers can enjoy unique package of tax benefit.

Higher profit on deposit.

Multi Currency Account facility.

Easy unlimited ins and out of fund.

OBU need not maintain statutory capital & reserve or liquidity.

 

Disadvantages:

Local Export Policy & Import Policy cannot be imposed.

Adequate collateral Security cannot be tagged.

High risk of Money Laundering.

The problem we may face:

Security Problem

Multinational bank as a barrier

Product Limitation

Clients Limitation

Guide Line

High Risk for Money Laundering

 

Discounting of Import Bills (UPAS)

As per BRPD Circular No.28 dated Sept.05,2010 OBU can discount AD(s) deferred LC:

Buyer & Seller will make an agreement regarding UPAS

Buyer will request their AD Branch for allowing UPAS opportunity

AD will take approval from HO ID and Investment Committee.

ID will instruct OBU to provide UPAS facilities to the client.

AD will open L/C with additional clause for UPAS.

Beneficiary Bank will send the documents to our AD Br.

After scrutiny of the bill AD Branch will send acceptance letter to OBU requesting discount the bill.

OBU will arrange to make payment the bill value after discounting.

At maturity, AD branch will adjust the liabilities.

 

As per BRPD Circular No.28 dated Sept.05,2010 OBU can discount AD(s) deferred LC:

 

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