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Banks forcibly converting USD into LKR?

05 Jan 2022

 
  • Customers complain banks converting without their consent
  • Cabraal denies forced forex conversion
  BY Shenal Fernando Customers have been complaining that licensed commercial banks (LCBs) are forcibly converting their US dollars into Sri Lankan rupees (LKR), reportedly based on a circular the Central Bank of Sri Lanka (CBSL) has issued to the banks, a claim which was emphatically denied by the CBSL yesterday (5). Several customers on Twitter yesterday claimed that their US dollars have been converted into Sri Lankan rupees by their respective banks. A Twitter user, on Tuesday (4), Tweeted that she was just informed by her bank that all her USD will be converted to LKR as per a government gazette and that the bank had asked her to sign a form of consent, to which she had refused. She further noted that the bank also mentioned that many local banks have already begun converting without consent. However, CBSL Governor Ajith Nivard Cabraal, on his official Twitter handle, yesterday denied the allegations made by several persons on social media that the foreign currency in their foreign currency accounts are being forcibly converted to Sri Lanka rupees based on a CBSL directive. “Rumours spread by some mischievous elements that Sri Lankan banks have been ordered by the CBSL to forcibly convert balances in their customers’ forex accounts are totally false,” Cabraal stated. However, Cabraal’s Tweet received the following responses from three different individuals:
  • “I just confirmed with my bank manager that there’s a CBSL circular instructing them to do this for foreign currency remittances received from October 2021 onwards. I’ve asked for a copy.”
  • “The bank forcibly converted the total forex remittance of my account last month without my consent citing your instructions. These were fees for my foreign consultancies. When questioned, they said this is a directive issued to them by the Central Bank.”
  • “Bank held on to my USD without transferring it to my NRFC account twice in the last 30 days, forcing me to convert the entire amount to LKR. I had to send multiple emails and argue with the bank to have the funds transferred to the USD account. This never happened before.”
The CBSL, on 28 October 2021, via Gazette No. 2251/42, introduced new rules with regard to the conversion of export proceeds. A key feature of these new rules relating to the conversion of export proceeds is that it applied not only to merchandise exports, but also to service exports. According to the new rules, “payments received in foreign exchange by a person resident in Sri Lanka for services (including professional, vocational, occupational, or business services) provided to a person resident outside Sri Lanka” shall be subjected to the rules as well. However, this definition of service exports clearly exempts the application of the said rules on the inward remittances of Sri Lankan expatriates. Under the new rules, merchandise and service exporters were given a list of permissible expenses for which exporters could retain their export proceedings and the remaining balance of such export proceeds received are mandatorily required to be converted into Sri Lankan rupees. The list of permissible expenses, for which exporters could retain their export proceedings, included outward remittances in respect of current transactions of the exporter of goods and services; withdrawal in foreign currency notes or transfer of funds for travel purposes of the exporter of goods and services; debt servicing expenses and repayment of foreign currency loans; payments for purchases of goods and obtaining services by the exporter related to such export of goods and services, including one-month commitments in foreign currency; and payments in respect of making investments in Sri Lanka development bonds in foreign currency up to 10% of the export proceeds, so received. Speaking to The Morning in December last year, a CBSL official told us that the idea behind the latest gazette issued on foreign exchange conversion was to convert the export proceeds that are received in a calendar month before the seventh of the following month. According to the CBSL official, 100% of the salaries earned by freelancers and others for their services provided to foreign companies should be converted, as there is no reason for them to retain it. “The issue is that the banks are held responsible, because, according to said gazette, the banks are supposed to ensure that these conversions are happening,” a banker told us. The official said that the banks have to cover themselves first, as the CBSL can easily come after the banks, which is the reason why the banks are under so much pressure. “Freelancers who are getting paid for their services in foreign exchange are liable to convert them (earnings) 100%, as they cannot claim expenses,” the banker added. However, the official pointed out that the foreign exchange that has been accumulated over a period of time did not have to be converted, but rather only the amount received after the regulation date.

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