What risks do delayed remittance incentives pose to banks?

Commercial banks are facing growing financial pressure as the government's delay in reimbursing remittance incentives leaves billions of taka tied up in unpaid claims.

Bankers warn that prolonged arrears could reduce lenders' willingness to invest in attracting remittances and put additional pressure on smaller and liquidity-constrained banks.

The delays could also affect remittance flows if banks and money-transfer businesses become less willing to bear the costs of the incentive system.

Bankers say prolonged delays in government reimbursements could create several risks for the banking sector.

Banks may lose interest in making additional investments and promotional efforts to attract remittances.

They may also find it increasingly difficult to bear the costs of maintaining business relationships with foreign exchange houses and money-transfer companies.

The pressure could be greater on smaller banks and those already facing liquidity shortages, as they have less capacity to absorb the cost of financing unpaid incentives.

A large amount of outstanding government receivables could also complicate banks' asset-liability management.

As banks continue to pay incentives from their own funds while waiting for reimbursement, more liquidity remains tied up without generating returns.

Bankers also warn that prolonged delays could undermine customer confidence and increase the risk of remitters turning to informal hundi channels.

This, in turn, could weaken the positive contribution remittances are currently making to the country's foreign exchange market, current account balance and foreign exchange reserves.