With less dollar deposits, banks forced to reduce card limits

Against the Maldivian Rufiyaa, the dollar has now gone up to MVR 18.4. Now the dollar is appreciating at its worst level during the Covid-19 pandemic. With this situation, the loudest voice this weekend is that Bank of Maldives (BML), which is used by many Maldivians, has decided to reduce the limits on its cards for transactions abroad.

The bank declined to comment on the rumours. However, the bank's CEO Karl Stumke repeats one thing. The bank cannot sell what it cannot buy.

A former board member said the board discussed reducing the dollar limits on cards several times this year. However, it was not done in consultation with various agencies.

However, the amount BML currently has to pay for foreign transactions made with cards is not sustainable compared to the bank's dollar revenue, he said.

“At some point, the bank will have to take the decision to lower the card limit,” the person said on condition of anonymity.

According to some of the statistics he gave:

"A bank cannot continue like this. Action must be taken at some point in the interest of the bank's customers and shareholders," he said.

He said the bank can only use a certain amount of dollars and money people deposit in the bank. The bank cannot do anything beyond that limit.

BML's attempt to hold on to card limits without reducing them will put the entire bank's financial situation at risk. A financial slowdown for BML will have a direct impact on the general public.

Another financial expert said the bank's Net Open Position (NOP) would be very low compared to the bank's previous foreign exchange requirements.

The NOP is a measure of the difference between the total value of a bank's foreign currency assets and its foreign currency liabilities. If the difference is large, the financial risk to a bank will be very high.

"No bank can take such a financial risk. A strong bank like BML will not do that," he explained.

He said dollar deposits in banks have declined since the Covid-19 pandemic. Instead, on the black market, dollar transactions at low prices have increased, he said. The authorities are not doing enough to stop this.

"We are going to this point because no steps have been taken to introduce the dollar into the banking system. It should be given high priority. On the other hand, the black market has expanded during this period," the expert said.

BML's foreign exchange numbers confirm one thing. The bank will have to take steps to reduce or mitigate the high foreign exchange costs for cards. It is to reduce the limits issued to the cards or temporarily suspend the limits for the time being.