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Card limits necessary to prevent uncontrolled dollar outflows: BML

Mariyam Malsa
24 September 2020, MVT 17:16
BML's CEO and Managing Director Tim Sawyer. PHOTO: AHMED AWSHAN ILYAS/ THE EDITION
Mariyam Malsa
24 September 2020, MVT 17:16

On September 16, Bank of Maldives (BML) introduced limits on Debit and Credit Cards for foreign transactions involving Maldivian Rufiyaa, in response to a decline in foreign exchange resulting from the COVID-19 pandemic.

Under the measures, a USD 250 limit was imposed for each card, per month on both debit and credit cards with a primary MVR account, while an increased limit of USD 750 is applicable for customers living overseas.

Despite the new restrictions, comparatively lenient arrangements were made available to Maldivian students and patients situated abroad, who might require higher allowances to cover essential needs.

Speaking to The Edition regarding what the bank previously described as “a difficult but necessary step”, BML's CEO and Managing Director Tim Sawyer outlined the motivations and exigent factors that led to the imposition of limits on card-based transactions.

Sawyer highlighted concerns surrounding the fall in tourist arrivals in spite of the government’s decision to reopen borders on July 15. While Maldives Immigration recently revealed that only 13,516 holidaymakers arrived in the country as of September 15, the CEO confirmed that dollar inflows had yet to solve shortfalls caused by the pandemic’s massive impacts on the tourism industry.

“At the same time, the exchange rate remains fixed and there has been no desire to restrict imports. So, the demand for dollars continues, but dollars coming in are limited”.

Despite highlighting successes in acquiring funds from international financial institutions, including IFC and the European Investment Bank (EIB), Sawyer explained that these dollars are ring-fenced for particular purposes such as extending support for small businesses.

Sawyer noted that the net outflow from card-based transactions prior to lockdown was between USD 5 and USD 8 million per month, with small businesses utilising cards to finance imports. However, he went on to add that an increasing number of customers were opting for e-commerce platforms such as Skrill, in order to transfer funds overseas.

Therefore, even though the volume of imports fell by 51 percent in May, as per Maldives Customs Service, the bank noted a rise in dollars being sent abroad, with particularly significant increases in outflows observed during July and August.

The BML CEO disclosed that the bank first considered limiting card-based transactions in early July, as the spike in money outflows which were not related to imports, initially became apparent. The worsening of imbalance could have possibly led to a situation that endangered Maldives’ ability to attain crucial imports.

“So, what we want to achieve is a balance between the dollars going out and the dollars coming in”, stated Sawyer who asserted the importance of outflows being focused on essentials such as key medicines and foodstuffs, in accordance with the priorities of the Maldives Monetary Authority (MMA), rather than people either storing money overseas or using it on non-essentials.

Could you offer a response to public concerns raised over the immediate implementation of limits on card-based transactions, without customers being granted a grace period?

Firstly, it seemed sensible to implement it swiftly after the announcement and that BML wanted to avoid a sudden spike in money being moved overseas.

“So, we are not trying to stop people who have dollars moving them where they want'', he assured, noting that the concerns surrounded people exchanging rufiyaa to dollars and then moving those funds overseas, which could have potentially strained the stock of dollars intended to cover essential TTs and imports.

The spending restrictions present serious challenges particularly for locals residing in foreign countries. How long will the bank take to process requests for temporary increases on limits for education and medical purposes?

Referring to BML’s decision to make exceptions for students and patients living abroad that require higher transaction allowances for essential purposes, Sawyer guaranteed that the bank would process requests within the set service standard of 24 hours, after they are lodged via email or internet banking facilities.

For example, he stated that if an individual situated abroad informed BML regarding a USD 10,000 payment for tuition fees or medical bills, then the bank would approve a one-off increase within 24 hours to facilitate the transfer.

Furthermore, the BML CEO disclosed that the bank already possessed an adequate list of locals that reside in foreign countries, following BML’s involvement in efforts to assist Maldivians living abroad during the lockdown period.

Given the widespread and lasting impact on Maldivians in the country as well as abroad, how involved was the Maldivian government, either directly or indirectly, in the making of this recent decision?

Sawyer confirmed that discussions were held with several authorities, including MMA, the Ministry of Finance and the Ministry of Foreign Affairs. However, he assured that, as an independent bank, BML had finalised its own decisions regarding dollar outflows.

“There was no influence on us one way or the other”.

“Obviously we didn’t want to do it, I don’t think the Maldivian government would have wanted us to do it, the Maldivian people didn’t want this”, stated Sawyer who noted that the state had, however, expressed an understanding regarding the financial situation.

The BML CEO went on reiterate that 95 percent of cardholders would not be affected as a result of the limitations imposed on card-based transactions, revealing that only a few thousand customers regularly initiated large transfers of more than USD 2,000. If allowed to continue without restrictions, such large movements would have worsened the existing imbalance between dollar inflows and outflows, stated BML’s CEO.

After the border closure was lifted on July 15, how did the restart of tourism impact dollar inflow?

“It has helped, but it is very much at the edges”, stated Sawyer who noted that the lifting of restrictions on international travel had enabled resorts across the archipelago to finalise reopening plans, with BML extending limited support and lending to such establishments.

However, Sawyer highlighted that tourist arrivals had yet to reach 20,000 along and that guest houses across Maldives remained closed, whilst the government has scaled down its initial projections. At present the Ministry of Tourism expects only 100,000 additional tourist arrivals within the remainder of 2020.

Asserting that just over 13,000 arrivals in two months did not represent a significant impact, particularly compared to trends from previous years indicating that several thousand more holidaymakers would have arrived in such a timespan. According to official figures, the total number of tourist arrivals for August 2020 represents 5.2 percent of arrivals recorded for August 2019.

Overall, the BML CEO stated that reopening borders had not “made a lot of difference” from a financial point of view, adding that a pronounced difference would be observed once monthly arrivals exceeded 100,000 by “many thousands more”.

'Awaiting a favourable shift in conditions'

Discussing the set of conditions that need to be met to allow BML to revert the limitations on card-based transactions, Sawyer expressed hopes for a decrease in the severity of the COVID-19 pandemic, thereby boosting the tourism industry and subsequent dollar inflows, which would in turn allow BML to offer customers more money for cards and TTs.

Assuring that the bank would “act as soon as possible” in response to favourable shifts, the BML CEO also revealed that limiting overseas business also restricted the bank’s income to a significant extent. He elaborated that BML would prefer to allow customers to continue shopping overseas, from the standpoint of a commercial bank, as such transactions brought in additional income. However, since the management had chosen to prioritise Maldives’ ability to acquire key imports through TTs, Sawyer reflected that the decision to limit card-based transactions was “both unpopular and costing us [the bank] money, which is probably unique in banking”.

Despite the unforeseen and challenging circumstances faced by the banking sector, Sawyer highlighted BML’s status as “one of the best capitalised banks in the world”, with a capital adequacy ratio of around 40 percent.

He asserted that the factor, combined with favourable financial records in 2019 as well as 2018 and 2017, considerably helped buffer the impacts of the pandemic. Despite acknowledging several repercussions connected to COVID-19, including disruptions in interest payments following the decision to grant moratoriums, the BML CEO expressed confidence in the bank’s capacity to continue operations.

“I think profits this year will be substantially down, but we are still a very viable bank”.

In addition to hopes of a revitalisation within the Maldivian tourism industry, BML has initiated proactive efforts to seek foreign funding in an attempt to ease pressures on liquidity and provide much needed USD working capital to businesses impacted by the pandemic, especially resorts and small and medium enterprises (SME)s.

Detailing progress secured in these discussions, Sawyer noted that the bank had secured a EUR 20 million facility equivalent in USD from the European Investment Bank (EIB) through the Ministry of Finance as well as a USD 50 million loan from the International Finance Corporation (IFC). While USD 20 million from the latter agreement has already been received and disbursed, Sawyer disclosed that the bank was also collaborating with IFC to deliberate with other lending institutions such as the OPEC Fund for International Development.

Most recently, BML signed a USD 5 million facility with the International Islamic Trade Finance Corporation (ITFC) to support (SME)s.

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