BRPD Circular No. 04: Master Circular on Regulation for Overseas Banking Operation

Bangladesh Bank Chief Executive Motijheel, Dhaka-1000 Bangladesh. Ref No: BRPD(EM)204/2024-372-409 Banking Policy and Regulation Department 08 July 2024 BRPD Circular No. 04 Date: 08 May 2025 25 Baisakh 1432 24 Asharh 1431 Managing Director/Chief Executive Officer All Scheduled Banks operating in Bangladesh Dear Sir,

Reference is drawn to the instructions issued through letter Ref No: BRPD(EM)204/2001-372-409 dated 16/07/2001 by the Banking Policy and Regulation Department regarding the policy on the establishment of branches, representative offices, and subsidiary companies (Exchange Houses, Finance Companies) abroad by any Bangladeshi bank-company, and the purchase of shares of any foreign bank-company or company not engaged in banking business.

2. In order to expand Bangladesh's trade and investment in the global market and to ensure smooth and swift completion of related transactions, certain Bangladeshi scheduled bank-companies have been conducting overseas banking operations since 2001 by establishing branches/finance companies/exchange houses/representative offices abroad. These institutions, in addition to collecting deposits, distributing loans, and conducting other banking operations for customers in the respective countries, also complete foreign trade-related transactions. Furthermore, bank-companies conduct various other businesses such as investment, leasing, hire-purchase, factoring, etc., by establishing various subsidiary companies abroad. Over the past two decades, alongside the increase in the number of bank companies in Bangladesh's financial system, the nature and scope of banking business have expanded. Along with structural changes in the banking sector due to globalization and liberalized economic realities, new banking products and services have been introduced. In this context, there is a need to rethink the expansion, integration, implementation, risk management framework, and formulation of relevant rules and regulations for overseas banking operations to address various global challenges. In this backdrop, it has been observed that there is a need for amendment/addition/modification/revision in the existing policy guidelines to conduct and supervise the overseas banking operations of scheduled banks ideally.

3. The following guidelines shall be followed in the case of establishment of branches, representative offices (Representative Offices), and subsidiaries (Exchange Houses, Finance Companies, etc.) abroad by any Bangladeshi bank-company, and the purchase of shares of any foreign bank-company or company not engaged in banking business:

3.1. Considerations for establishing branches, representative offices, and subsidiaries (Exchange Houses, Finance Companies, etc.) abroad: (1) The bank-company must have a minimum of 07 (seven) years of experience in banking business; (2) The bank-company must be rated 'A' (Credit Rating 1) or 'BBB' (Credit Rating 2) as determined by Bangladesh Bank, and must be rated 'A' (1) or 'BBB' (2) in the Foreign Currency Rating and 'A' (1) or 'BBB' (2) in the Local Currency Rating. Simultaneously, it must possess a minimum score of 3 on the Internal Control Rating determined by Bangladesh Bank; (3) The proposed bank-company must be listed in the share market of Bangladesh and must be an 'A' category share in the share market; (4) Diplomatic, business, and economic relations must exist between Bangladesh and the country where the branch/representative office/subsidiary company of the bank-company is to be established; (5) The existing policy of the respective country regarding the employment of Bangladeshi citizens and their repatriation to the country should be favorable to Bangladesh; (6) Approval/no-objection from the Central Bank or Monetary Authority or regulatory authority of the respective country must be obtained for conducting business operations in that country; (7) If a branch, representative office, or any subsidiary company of another Bangladeshi bank-company or financial institution already exists in any country or specific location, the rationality of establishing multiple branches of the institution mentioned in the feasibility report must be established with appropriate information; (8) The maximum number of personnel required for the proposed branch, representative office, or subsidiary company abroad must be recruited from among Bangladeshi citizens; (9) In the case of establishing an Exchange House, consideration must be given to the number of Bangladeshi migrants sending remittances in the respective country, the amount of money sent to Bangladesh by migrants, and the total amount of financial transactions between that country and Bangladesh; (10) The proposal for establishing a branch, representative office, or subsidiary company abroad must be approved by the Board of Directors of the applicant bank-company; (11) The share of the applicant bank-company as an owner/partner in any proposed subsidiary company or Exchange House abroad must be majority; (12) The Bank Companies Act, 1991, Section 26 regarding subsidiary institutions, Section 32 regarding establishment of new business centers or relocation of existing business centers, and other sections and rules/regulations, as well as rules/regulations applicable under any other existing law, must be complied with; (13) The proposed branch, representative office, or subsidiary company abroad must follow the existing foreign exchange transaction rules/regulations followed in Bangladesh for the transactions concerned; (14) Arrangements must be ensured to provide updated information through the connection between the Core Banking System (CBS) of the bank-company and the CBS used in the overseas branch, representative office, and subsidiary company; (15) The bank-company must conduct internal audits of the overseas branch/subsidiary company every 2 years at the maximum. The expenses incurred for internal audits must be borne by the applicant bank-company; (16) Efforts must be made to increase the net profit of the proposed branch, representative office, or subsidiary company abroad through control of operational expenses. To this end, the Board of Directors or management of overseas institutions should refrain from traveling to that country unless absolutely necessary for relevant individuals. If travel abroad is absolutely necessary for official purposes, prior approval must be obtained from Bangladesh Bank; (17) Arrangements must be ensured to repatriate the net profit earned from the overseas branch/subsidiary company of the bank-company to the country at the end of each financial/calendar year; (18) The daily operational expenses (Operating Expenses) of the proposed branch/subsidiary company and the salaries and allowances of the employed staff must be met from the income earned by the branch/subsidiary company itself; i.e., no money for this purpose can be sent from the applicant bank-company to the respective country (Host Country); (19) In the case of bank-companies establishing drawing facilities and overseas Exchange Houses, the relevant rules/regulations and policies notified by the Foreign Exchange Policy Department will apply; (20) Prior approval of the Banking Policy and Regulation Department of Bangladesh Bank must be obtained for the closure or suspension of business operations of the overseas branch, representative office, and subsidiary company of the bank-company, and arrangements must be made to repatriate the proceeds from the sale of assets in case of closure.

4. Application process for the establishment of branches, representative offices, and subsidiary companies abroad by bank-companies:

4.1. The applicant bank-company must first submit a feasibility report (Feasibility Report) including the following matters regarding the business prospects of the proposed branch, representative office, and subsidiary company, and obtain policy approval from the Banking Policy and Regulation Department of Bangladesh Bank: (1) Political stability and business risk of the applied country; (2) 05-year projected financial projections of the business; (3) Industry overview and market analysis of the business; (4) Capital structure and source of the business; (5) Human resource management plan; (6) Plan for employee recruitment and salaries/allowances; (7) IT infrastructure; (8) Identification of Directors including name, position, age, and experience in the banking sector; (9) Organizational chart and functional chart; (10) Marketing strategy and policy for business development; and (11) If there is any entity abroad prior to the application for the proposed institution, the performance (including net profit/loss and other information) of each, total investment from Bangladesh, total amount of foreign currency repatriated, etc., must be mentioned.

After obtaining approval from the Monetary Authority and other regulatory authorities of the nominated country for the establishment of the target institution in the nominated country, and completing all procedures regarding institution establishment, an application must be made for final approval from the Banking Policy and Regulation Department of Bangladesh Bank.

5. Purchase of shares of any foreign bank-company or company not engaged in banking business: (1) In the case of purchasing shares of any foreign bank-company or its subsidiary company abroad, priority must be given to participation in the management of the concerned institution along with participation in ownership; (2) In the case of purchasing shares of any foreign bank-company abroad and purchasing shares of companies not engaged in banking business, Section 26 of the Bank Companies Act, 1991, along with other relevant laws, rules/regulations, and policies, will apply; (3) Before investing in the shares of any foreign bank-company by any Bangladeshi bank-company, a credit rating report of the nominated bank, audited financial statements of the last three years (Audited Financial Statements), a report on the capital adequacy of the nominated bank-company in the Host Country, and a certificate confirming that there is no conflict of interest between the directors of the investing Bangladeshi bank-company and the nominated bank-company must be submitted, and policy approval must be obtained from the Banking Policy and Regulation Department of Bangladesh Bank; (4) Prior approval of Bangladesh Bank must be obtained for the establishment of branches abroad by Bangladeshi banks, establishment of subsidiary companies, purchase of shares of any bank abroad, and purchase of shares of listed public limited companies with a triple 'A' rating or equivalent rating not engaged in banking business.

6. Submission of Returns: The following returns/reports of the overseas branch/subsidiary company of the bank-company must be submitted to the Banking Policy and Regulation Department of Bangladesh Bank (Division-1) within the specified time: (1) Half-yearly financial statements (within 01 (one) month of the end of the half-year); (2) Audited annual financial statements (within 02 (two) months of the completion of audit work); (3) Report on repatriation of net profit to the country (within 02 (two) months of the end of each financial/calendar year); (4) Copy of any type of inspection report conducted by the regulatory authority abroad and information on any type of fine or regulation imposed on the institutions by the regulatory authority (within 01 (one) month of receipt by the branch/subsidiary company); (5) Any financial information must be presented in three currencies (BDT, USD, and EUR) with the amount and date mentioned; and (6) At least 2 years of comparative analysis must be provided when providing any financial information.

7. The policy guidelines issued through letter Ref No: BRPD(EM)204/2001-372-409 dated 16/07/2001 by the Banking Policy and Regulation Department are hereby repealed. However, all operations taken and done under the repealed letter until the issuance of this circular will be considered valid.

8. This instruction is issued under the power granted under Section 45 of the Bank Companies Act, 1991. This instruction will come into force immediately.

Yours faithfully, (Mohammad Shahriar Siddique) Director (BRPD) Phone: 9530252