Home » Bangladeshi banks to halt ACU transactions with Sri Lanka

Bangladeshi banks to halt ACU transactions with Sri Lanka

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Sri Lanka has left the regional payment mechanism Asian Clearing Union or ACU, prompting Bangladesh Bank to halt transactions with the crisis-hit neighbour.

In response to the self-motivated decision by the Central Bank of Sri Lanka to remain temporarily suspended from the ACU mechanism with effect from Oct 14, the Bangladesh Bank in a notice on Thursday asked all banks not to do any trade and trade-related transactions with Sri Lanka through the mechanism.

The central bank’s Foreign Exchange Policy Department issued a circular yesterday and sent it to top executives of banks, reports revealed.

The Asian Clearing Union (ACU) is an arrangement through which participating countries settle import payments for intra-regional transactions.

Bangladesh, Bhutan, India, Iran, the Maldives, Myanmar, Nepal, Pakistan, and Sri Lanka are members of the ACU, which has headquarters in Tehran. The central banks of the countries have to make payments every two months.

If any Bangladeshi bank wants to settle a transaction with a Sri Lankan commercial bank, it can do that by ignoring the ACU system, the report further said

Formed in 1974 in the initiative of the United Nations Economic and Social Commission for Asia and the Pacific, the Asian Clearing Union is a payment arrangement whereby the participants settle payments for intra-regional transactions among the participating central banks on a net multilateral basis.

The main objectives of the clearing union are to facilitate payments among member countries for eligible transactions, thereby economising on the use of foreign exchange reserves and transfer costs, as well as promoting trade and banking relations among the participating countries.

Besides Bangladesh and Sri Lanka, Bhutan, India, Iran, Myanmar, Nepal, Pakistan and the Maldives are members of the ACU.

The members pay import bills to other members through the union every two months.
Bangladesh is scheduled to make the next payments through the ACU in the first week of October.

Bangladesh remains hopeful that Sri Lanka will repay a debt of US$200 million that it owes to the country by March 2023, even as the economic crisis on the island continues and Colombo defaults on other loans.

The Governor of the Bangladesh Central Bank Abdur Rouf Talukder said he was “assured” by Central Bank of Sri Lanka Governor Nandalal Weerasinghe that the debt would be repaid after the pair met in Washington.

The loan from Bangladesh under a currency swap deal was supposed to be paid in three instalments in February and March 2023”, according to the Dhaka Tribune.

The deadline has already been extended twice according to Talukder.“We had a very good meeting,” he told reporters. “The governor assured me that they will meet the deadline for repayment. They are now restructuring their debts and have spoken to India, Japan and China about it.”

Earlier this year, Sri Lanka has announced preemptive default on its international debt obligations in April 2022 after failing to make a payment of approximately US$78m during its 30-day grace period.

The International Monetary Fund (IMF) has asked the Bangladesh Bank to withdraw the interest rate limit on loans and deposits as well as keep accounts of both net reserves and gross reserves.

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