Banking Industry in Bangladesh

The commercial banking system dominates Bangladesh's financial sector. Bangladesh Bank is the Central Bank of Bangladesh and the chief regulatory authority in the sector. The banking system is composed of four state-owned commercial banks, five specialized development banks, thirty private commercial Banks and nine foreign commercial banks. The obel-prize winning !rameen Bank is a specialized microfinance institution, which revolutionized the concept of micro-credit and contributed greatly towards poverty reduction and the empowerment of women in Bangladesh. BANGLADESH BANK Bangladesh Bank "BB# has been working as the central bank since the country's independence. $ts prime %obs include issuing of currency, maintaining foreign e&change reserve and providing transaction facilities of all public monetary matters. BB is also Bangladesh Bank "BB# has been working as the central bank since the country's independence. $ts prime %obs include issuing of currency, maintaining foreign e&change reserve and providing transaction facilities of all public monetary matters. BB is also responsible for planning the government's monetary policy and implementing it thereby. The BB has a governing body comprising of nine members with the !overnor as its chief. 'part from the head office in (haka, it has nine more branches, of which two in (haka and one each in Chittagong, )a%shahi, *hulna, Bogra, +ylhet, )angpur and Barisal.

Number and Types o Banks! State"o#ned $ommer%ial Banks

The banking system of Bangladesh is dominated by the , ationalized Commercial Banks , which together controlled more than -./ of deposits and operated ,,00 branches "-./ of the total# as of (ecember ,1, 233.. The nationalized commercial banks are4 +pecialised Bank of Bangladesh4

*armosangesthan Bank Bangladesh *rishi Bank +onali Bank 5anata Bank

)upali Bank

&ri'ate $ommer%ial Banks

6rivate Banks are the highest growth sector due to the dismal performances of government banks "above#. They tend to offer better service and products.

'grani Bank 7imited 829 *rishi Bank B)'C Bank 7imited :astern Bank 7imited (utch Bangla Bank 7imited (haka Bank 7imited $slami Bank Bangladesh 7td 6ubali Bank 7imited ;ttara Bank 7imited $<$C Bank 7imited ational Bank 7imited The City Bank 7imited ;nited Commercial Bank 7imited CC Bank 7imited 6rime Bank 7imited +outh :ast Bank 7imited 'l-'rafah $slami Bank 7imited +ocial $slami Bank 7imited +tandard Bank 7imited =ne Bank 7imited :&im Bank 7imited >ercantile Bank 7imited Bangladesh Commerce Bank 7imited

>utual Trust Bank 7imited <irst +ecurity $slami Bank 7imited The 6remier Bank 7imited Bank 'sia 7imited Trust Bank 7imited +hah%alal $slami Bank 7imited 5amuna Bank 7imited $CB $slami Bank 'B Bank 7imited B'+$C Bank 7imited "Bangladesh +mall $ndustries and Commerce Bank 7imited#

(oreign $ommer%ial Banks

Citibank ?+BC +tandard Chartered Bank Commercial Bank of Ceylon +tate Bank of $ndia ?abib Bank ational Bank of 6akistan @oori Bank Bank 'lfalah

Spe%iali)ed De'elopment Banks

=ut of the specialized banks, two "Bangladesh *rishi Bank and )a%shahi *rishi ;nnayan Bank# were created to meet the credit needs of the agricultural sector while the other two " Bangladesh +hilpa Bank "B+B# A Bangladesh +hilpa )in +angtha "B+)+# are for e&tending term loans to the industrial sector. 819 The +pecialized banks are4

!rameen Bank Bangladesh *rishi Bank

Bangladesh (evelopment Bank 7td )a%shahi *rishi ;nnayan Bank B'+$C Bank 7imited "Bangladesh +mall $ndustries and Commerce Bank 7imited# Bangladesh +omobay Bank 7imited"Cooperative Bank# 'nsar B(6 ;nnyan Bank *+NETA,- . $,EDIT &+LI$-! The monetary and credit policy for the financial year that ended in 5une, 2333 was formulated with the ob%ective of full utilization of domestic resources and rapid economic growth through priorities for agriculture, industry, e&port, and e&pansion and strengthening of the private sector, at the same time keeping inflation within tolerable limits. ' modern e&pansionary monetary and credit policy was adopted in order to make good the losses to agriculture, industry, and infrastructure by the devastating floods of 1CC0. 'fter the flood the economy remained sluggish in the first Duarter of 1CCC-2333 and the private sector demand for credit shrank. $n view of this, the 'nnual (evelopment 6rogram "'(6# was e&panded and development activities in the private sector were geared up. 's a result, the public sector absorbed credit at an accelerated rate. Though credit to the private sector picked up towards the end of the year, the overall annual growth was smaller than programmed, although gross domestic credit e&panded a little faster than pro%ected. >oney supply increased by 1-.,/ in 1CCC-2333 compared to the e&pansion of 0.E/ in the preceding year. arrow >oney increased by Tk. 2,E,1.C3 crores or 1-.,/ to Tk.1C001.,3 crores in 1CCC-2333. =f the components of arrow >oney, currency outside banks went up by Tk.1.0C..3 crores or 1F.2/ to Tk.131FE.33 crores, and demand deposits went up by Tk.11.2.-3 crores or 1,.,/ to Tk.CF3-.,3 crores.

B)='( >= :G4 Broad >oney increased by Tk.11F,-.F3 crores or 10.E/ to Tk. F.,FE2..3 crores in 1CCC-2333 compared to the increase of 12.0/ in the preceding year. =f the components of Broad >oney, arrow >oney increased by 1-.,/ and time deposits rose by 1C.C/ compared to the increase of 0.E/ in arrow >oney and 1..-/ in time deposits in the preceding year. The shares of currency outside banks, demand deposits and time deposits in Broad >oney stood at 1,.E/, 1,.3/, and F,../ respectively on ,3th 5une, 2333 compared to 1,.0/, 1,.E/ and F2.E/ respectively on ,3th 5une, 1CCC. :&pansion of credit to the private sector, government sector "net#, public sector, and other assets "net#, along with a surplus in net foreign assets contributed to the e&pansion of Broad >oney. ):+:)B: >= :G4 )eserve >oney increased by Tk.2,21.03 crores or 1-.F/ to Tk.1F3E..-3 crores in 1CCC-2333 compared to the increase of 0.,/ during the preceding year. =f the

components of )eserve >oney, currency outside banks increased by Tk.1.0C..3 crores or 1F.1/ compared to the increase of Tk.-,,.,3 crores or E.-/ during the preceding year. +cheduled banks balances with the Bangladesh Bank increased by Tk.FF3.C3 crores or 1-.,/ in 1CCC-2333 compared to the increase of Tk..00.23 crores or 13.0/ in the preceding year. Their cash in tills increased by Tk.E1.-3 crores or E.3/ as against the increase of Tk.13,.E3 crores or 11.2/ in the preceding year. The increase in Bangladesh Bank's credit to the government "net# by Tk.1,F,0.13 crores and net surplus in the foreign sector by Tk.1,2E2..3 crores played the main role in e&erting e&pansionary influence on the )eserve >oney. ?owever the decline of Tk.,,,.E3 crores and Tk....C3 crores in the borrowings by the scheduled banks and other financial institutions respectively along with the fall of Tk.,33.23 crores in other assets "net# partly offset the e&pansionary impact of those sectors. (=>:+T$C C):($T4 Total domestic credit increased by Tk.0-01.23 crores or 1,.E/ to Tk. F1,.0C.33 crores "including ad%ustment of bonds issued by the government# in 1CCC- 2333 as compared to the increase of Tk.F2EF.E3 crores or 1,.1/ in the preceding year. :&pansion of credit to the government, private, and public sectors to the e&tent of Tk.,-2..,3 crores ",1.,/#, Tk..C3E.13 crores "13.F/#, and Tk.1-3.03 crores "2.-/# respectively contributed to the e&pansion in total domestic credit in 1CCC-2333. Credit to the government and private sector had increased by 21.,/ and 1,.0/ respectively, while credit to the public sector declined by ,.F/ in the preceding year. B' * C):($T4 The outstanding level of bank credit "e&cluding foreign bills and inter-bank items# increased by Tk.-,12,.,3 crores or 13.,/ to Tk.-.,E.E.13 crores in 1CCC- 2333 as compared to the increase of 12../ in the preceding year. =f the components of bank credit, advances increased by Tk..0C2.F3 crores or 13.,/ and the bills purchased and discounted went up by Tk.2,3.E3 crores or 11.,/.

B' * (:6=+$T+4 Bank deposits "e&cluding inter-bank items# increased by Tk.113...F3 crores or 10.E/ to Tk.F3,2F0.F3 crores in 1CCC-2333 compared to the increase of 1..2/ in the preceding year. =f this increase , time deposits went up by Tk.C,13,.03 crores or 1C.C/ to Tk.-.,001.13 crores, government deposits by Tk.F2,.E3 crores or 1..0/ to Tk.-,E1-.23 crores and demand deposits by Tk. 1,1.2.-3 crores or 1,.,/ to Tk.C,F3-.,3 crores. =n the other hand, restricted deposits increased by Tk.F..03 crores in 1CCC-2333. C'+? ):+:)B: ):H;$):>: T+ "C))#4 +tatutory C)) with Bangladesh Bank was lowered for the scheduled banks to ..3/ of their liabilities "demand plus time deposits# "e&cluding inter-bank deposits# from -/ with effect from 1st =ctober, 1CCC.

B' * )'T:4 The Bank )ate was lowered from 0.3/ to F.3/ on 2Cth 'ugust, 1CCC and remained unchanged through ,3th 5une, 2333.

Banking se%tor %hallenges in Bangladesh

The banking industry in Bangladesh has flourished over the years, making double-digit profit percentages, sustaining growth and surviving cut-throat competition while providing attractive returns to shareholders. ?owever, the greed for more without befitting platform and fundamentals, brings its own challenges and Duestions in people's minds. ews about bank directors and chairmen's involvement in politics and underhand deals using banks' goodwill raises Duestion about the banks' independence in running their operations. $t also makes usthink whether all the disclosures in the annual reports and other regulatory paperwork are only the glowing shell over a huge hollow. $ at times Duestion myself whether e&cessive regulation is the reason behind the veneer of goodness or whether there are other regulatory malpractices, disconnects or deficiencies that allow these banks to take advantage of the situation. The image of the banking industry has many times been tarnished by several stories regarding the owners in recent media releases. (espite the considerable progress made, foreign countries are still somehow treating our banking industry activities as Duestionable. Countering the image issue is not the only block in the road to developing a respectable and successful institution, there are also the problems of 2 6s ,Cs and a T-- people, product, compliance and ethics, competition, change management and technology among others. Though someone may differ, competition in Bangladesh seems to be the deadliest of all. $t not only brings in positive developments but also encourages malpractice. There is competition not only from other banks but also from non-bank financial institutions " B<$# and micro finance institutions "><$#. ot only are the institutions competing, the regulators and customers are also pitting one against the other, making the situation e&tremely difficult giving usthe feeling of being stuck between a rock and a hard wall. ' customer will often try to make the best out of the situation by not complying with the regulatory reDuirement, referring to the service provided by another bank or banks. The reDuirement of bankers to meet steep targets often results in succumbing to the demand of these corporates, resulting in bypassing of the regulation. =ne bypass

results in another and then another resulting in a whole network of malpractices, which often becomes the norm. Competition in the banking industry is also hitting from the capital market end, with the corporates increasingly going to the eDuity market to raise funding. This not only hits the banks in the belly by affecting their core business but also indirectly affects their contribution to market cap which dropped from -C/ in 233F to less than 2-/ in 5une 2313. >ore importantly it forces them to risk their position by over e&posing them to volatile capital market through proprietary trading and position taking in order to maintain profitability. 'll of us feel that the banking industry badly needs skilled human resources who will not only service old products but will also create and launch new innovative products. :ducating the market remains the first reDuirement towards creating new products and developing skilled human resources. Besides people and product issues, you need to be ever vigilant about the ever-changing technology and regulatory reDuirements. The new offering in the market which has got all banks running are the reDuirements of B'+:7 $$ A 'utomated Clearing ?ouse. The ma%or challenge with change of regulation is that often the regulators are in a hurry to implement a sudden decision, rolling out action plans without proper research or understanding the broad implications and capabilities of the banks to comply with it. The outcome is delay in implementation, confusion among stakeholders and new techniDues to bypass these regulations. This in its turn creates a non-level playing field for those who comply with the regulation versus those cleverly ImanagingI the situation without having to comply. Too much noise and less action, at times, creates doubt about the sincerity of the purpose. 's a law-abiding citizen we wonder why it is so easy to ImanageI non-complianceJ The final Duestion remains -- who is losing out by thisJ ;ltimately, every citizen of the country, as our country suffers. The banking sector could be our pride and a ma%or growth engine of the economy. )egulators are taking appropriate decisions to implement proper regulations at the right time. 'n appropriate e&ample is when several financial institutions shifted towards the riskier capital market to counter the lower growth in their core businesses using the depositors money, the regulators aptly stepped in to make merchant banks separate subsidiaries. The regulations are there. The problem is enforcing them in an honest manner. $f the regulators and the legal system were honest then all these recurring image issues and malpractices could have been avoided. <acing the challenges head-on in a compliant manner should be our goal towards creating a sustainable, profitable and forward-looking banking sector. @e need to do more and run faster with clear visibility about the destination. 6erhaps, it also has to do a lot with the overall governance and accountability situation in the country.