BB faces Tk 55 cr loss from dollar sales to IBBL

Zarif Mahmud: The financial sector regulator Bangladesh Bank has reported an unprecedented fraud in dollar trading. The central bank sold dollars at a low price to Islami Bank and bought them from the bank at a high price on the same day. This incident happened a day after the introduction of the new system of foreign exchange rate ‘crawling peg’. In this, the central bank lost aboutTk 55 crore in a single day.
Bangladesh Bank is responsible for this unprecedented incident on the orders of the recently resigned Governor Abdur Rauf Talukdar to facilitate the bank originally owned by S. Alam. It has come up in Bangladesh Bank’s own investigation report.
It is known that on May 9, Islami Bank purchased $82 million from Bangladesh Bank through two deals.
The purchase price for the bank from Bangladesh Bank was fixed at Tk 110 per dollar at that time. However, on the same day, Bangladesh Bank purchased $85 million from Islami Bank through two deals at the rate of Tk 116.46 per dollar. Bangladesh Bank incurred a loss of Tk 54.91 crore.
In order to restore stability in the foreign exchange market, on the advice of the IMF, the new method of determining the dollar exchange rate, the crawling peg, was introduced on May 8. Under this system, the dollar price was increased by Tk 7 to an intermediate rate of Tk 117, which was implemented from May 9. Dollars can be sold at one taka more than this rate and dollar buying and selling is allowed at one taka less. Knowing that the price of the dollar will increase by Tk 7 on the day of the operation of the system, they agreed to sell dollars to Islami Bank at the rate of the day before the implementation of the crawling peg system (at the rate of May 8).
Again, the crawling peg is agreed to buy those dollars at the effective day’s rate. Accordingly, the $82 million sale deal to the bank was shown on the previous day’s date. Because that day the exchange rate of dollar was Tk 110. Not only that, confirmation of this deal from the bank was sent to the mail of Bangladesh Bank the next day (May 9) at 6:45 PM. And the purchase deal of $8.5 million from Islami Bank took place on the same day of execution of the transaction. On that day, the average exchange rate of the dollar was Tk 117.
As per the conventional norms, foreign exchange transactions are done from the dealing rooms operated under the forex reserve and treasury management department of the central bank. Two branches of the department work in such transactions. In between, the front office executes dollar trade deals and generates transaction messages. And the middle office sends that message to the back office run under the accounts and budgeting department of the central bank. In the light of that message, the back office monitors whether the transaction is done properly and how much money is left in the account after the transaction. The inconsistency came to their notice after the two transactions in question were sent to the back office of the Accounts and Budgeting Department of the Central Bank.
Bangladesh Bank officials said that it is an international practice to send a deal to the back office within the valid date after execution. And it is better to send it to the back office on the day the deal is done. But two of the four transactions discussed with Islami Bank were not sent to the back office within the Validate. According to the observation report of the Central Bank, the confirmation of the deal received from Islami Bank was recorded in the inward register by the front office on May 9. Besides, the deal confirmation which is immediately received by the back office when this foreign currency trading deal is organized, was also received from Islami Bank through e-mail at 6:13 pm on that day. In view of all these facts, it can be understood that the deal date of sale of dollars is May 8, but the deal was actually completed on May 9. That is, even if the deal date shows the previous day, the dollar has basically been bought at a higher price and then sold at a lower price. The amount of loss incurred by the central bank due to the use of different exchange rates for purchase and sale deals of the same value date is Tk 54.91 crore.
It is further stated that after approval of two purchase deals (deal date 9/05/2024) and two sale deals (deal date 08/05/2024) executed by front office with Islami Bank on valid date dated 9th May at 6:45 PM on that day in the Mid Office Branch. No reply received from front office branch when asked about dispatch of two sales deals executed on dealdate 8th May at 6.45pm on 9th. Besides, there was no signature of the concerned Additional Director and Director of Division-1 except the Assistant Director and Chief Dealer against the deal (forwarding of the deal).
As per the instructions of 3.2.3, there is a provision to send the deal conversation along with the format as per the format by the front office after checking it to the mid office branch. Besides, there is a provision to send the copy containing statement of daily executed deals submitted by Head of Treasury (Director of Division-1) to Mid Office and Back Office branches as per the given format. But in many cases, it is not sent according to this rule. Last April 1 last copy of the deal submitted with the Head of Treasury has not been forwarded to this branch. As a result, the main purpose of preparing the report and sending it to the mid office and back office is being disrupted and at the same time the ‘Reserve Management Operations Manual’ is being disrupted.
When the Deputy Governor of the concerned department, Nurun Nahar, was contacted, she told, “I do not remember the matter.” I don’t know if something like that is happening or not.’ When I tried to contact the recently resigned Governor Abdur Rauf Talukder, his phone was switched off.