Janata Exchange in Italy Faces Closure Due to Increasing Losses

22 Sep, 2023

Janata Exchange in Italy Faces Closure Due to Increasing Losses

Janata Exchange in Italy has been grappling with financial losses for an unbroken streak of 13 years, a situation that prompted the subsidiary to draw upon the foreign reserves of its parent company, the state-owned Janata Bank, to stay afloat.

To address this prolonged financial turmoil, the central bank recently issued a directive to Janata Bank, instructing the closure of its loss-making subsidiary. This action aims to safeguard customer deposits and preserve the foreign exchange reserves.

The financial challenges faced by Janata Exchange were substantial. Over a 12-year period from 2009 to 2020, Janata Bank extended approximately Tk45.62 crore to cover the losses incurred by the exchange house. Furthermore, the exchange company utilized Tk11.31 crore from its equity to offset loss expenses for the years 2021 and 2022, all without the requisite approval from the central bank.

As the losses persisted, a department within the central bank presented a recommendation in August for the complete closure of Janata Exchange. Senior central bank officials confirm that the proposal received approval from the Bangladesh Bank governor, leading to the issuance of a letter to the managing director of Janata Bank, mandating the closure of the exchange.

Janata Exchange House initiated its operations in Rome in 2002, subsequently opening a second branch in Milan, Italy. Initially, the company thrived, recording profits from 2002 to 2008 and remitting €5.96 lakh in profit to Bangladesh during this period. Unfortunately, the financial outlook took a downturn starting in 2009, and the company struggled to regain profitability.

A senior official from Janata Bank, who chose to remain anonymous, pointed to the rising expenses compared to the operating profit as a key reason behind the exchange house's persistent losses. The exchange house primarily relied on remittance commissions, but despite a growing migrant population in Italy, remittance flows remained low. Additionally, some officials within the organization received substantial salaries without effectively engaging with customers, contributing to the mounting losses.

In an attempt to mitigate these losses, the central bank authorized Janata Exchange in 2015 to establish five agencies. Regrettably, the institution failed to initiate agency operations. Despite multiple communications between Janata Exchange and the central bank of Italy, there has been no progress on this front.

An official from a foreign bank speculated that European central banks consider various factors when granting a money transfer license to a company, including the management system, compliance issues, anti-money laundering efforts, and the overall status of risk-weighted assets and capital. The prolonged financial losses of Janata Exchange likely contributed significantly to its inability to obtain such a license.

The central bank's closure decision stemmed from the fact that Janata Exchange's losses continued to widen, even after the issuance of a business plan in 2020. The decision was also motivated by the need to protect the interests of Janata Bank depositors and maintain foreign exchange reserves. Furthermore, the central bank cited Janata Exchange's use of its cover fund to meet expenses without prior approval as a contributing factor to the decision.

In Italy, there are currently 77,133 Bangladeshi expatriates, according to data from the Bureau of Manpower Employment and Training. However, the actual number could exceed 2 lakh. Central bank data reveals that Italian expatriates sent $1,054 million in remittances during FY22, with $29 million, or 2.83%, flowing through Janata Bank's exchange house.