The Banking Industry in Bangladesh

Whoever, being an individual firm, company or corporation generally dealing in the

business of money and credit is called a bank. In our country any institution that accepts
for the purpose of lending or investment deposits of money from public, repays on
demand or transfers by checks, draft orders & other means is called a bank. The purpose
of banking is to ensure transfer of money from surplus unit to deficit units. Banks in all
countries work as the repository of money. The owners look for safety and amount of
interest for their deposits with banks. Entrepreneurs try to obtain money from the banks
as working capital and for longterm investment. These entrepreneurs welcome effective
and forwardlooking advice for investment. Banking sector thus owe a great deal to the
deposit holders on the one hand and the entrepreneurs on the other. They are e!pected to
play the role of friend, philosopher and guide for the deposit holders and the
entrepreneurs.
Banking is the backbone of national economy. "ll sorts of economic and financial
activities revolve round the a!is of the bank. "s industries produces goods and
commodities, the banks create and controls money market and promotes formation of
capital. #rom this point of view, bankinga technical profession can be termed as
industry. $ervices to its customers are the products of banking industry besides being a
pivotal factor in promoting capital formation in the country. "s all economic and fiscal
activities revolve round this important Industry, the role of banking can hardly be over
emphasi%ed.
&ircumstances being such, it becomes imperative to find out the role that banks are now
playing in the country and analy%e its operational aspects so as to ascertain the
importance of this delicate financial sector and it's over all impact on our national
economy. In the global conte!t, the role of banks is far reaching and more penetrating in
the economic and fiscal discipline, trade, commerce, industry, e!port and import all
carried through the banks. Banks are the only media through which international trade &
commerce emanate the entire credit transactions, both national and international.
The number of schedule banks of Bangladesh are some where around () and among them
there are * states owned commercial banks, ( are speciali%ed banks, +, local private
commercial banks and )- foreign commercial banks. "mong the total branches of bank
there are around +.,/ branches of 0overnment owned commercial banks, )++/ private
banks, +) foreign banks and the branches of speciali%ed bank )-.(. Besides these
schedule bank there is one cooperative bank, one "nsar1234 development bank, )
employment bank and ) 0rameen Bank.
The Banking Industrys Features
It is e!tremely important for a firm to understand the dominant economic features of the
relevant industry, as the character and structure of different industries are significantly
different from each other. The basic economic traits in the banking industry are5
Market Size and Market Growth Rate
6arket si%e of an industry can be measured by many ways, such as Total 7evenue,
volume of production, 8umber of customers and so on.
Number and Types o Banks
The number of banks in all now stands at () in Bangladesh. 9ut of the () banks, four are
nationali%ed commercial banks, +, local private commercial banks, )- foreign banks and
the rest five are 3evelopment #inancial Institutions. $onali Bank is the largest among the
nationali%ed commercial banks while 4ubali Bank is leading in the private ones. "mong
the )- foreign banks, $tandard &hartered has become the largest in the country. Besides
the scheduled banks, $amabai :&ooperative; Bank, "nsar234 Bank, <armasansthan
:Employment; Bank and 0rameen bank are functioning in the financial sector. The
Bangladesh Bank regulates and supervises the activities of all banks. It is now carrying
out a reform program to ensure =uality services by the banks.
!eposit S"hemes
#urrent $""ount% 0enerally this sort of account is normally opened for business
purpose. &ustomers can withdraw money once or more against their deposit. If the
amount of deposit is below Tk. ),,,,, on average the bank has authority to cut Tk. (,
from each account as incidental charge after every si! months. "gainst this account loan
facility can be ensured. >sually, one can open this account with Tk. (,,. 9ne can open
this sort of account through cash or check?bill. "ll the banks in the industry follow almost
the same rules for opening current account.
Sa&ings Bank $""ount% >sually customers open this sort of account at a low interest for
only security purposes. This is also an initiative to create people@s savings tendency.
0enerally, this account is to be opened at Tk. ),,. Interest is to be paid after every si!
months. If money is withdrawn twice a week or more than Tk. ),,,,, is withdrawn :if
-(A more compared to total deposit; then interest is not paid. This account guarantees
loan. "lmost all the banks follow the same rules in the field of savings account, e!cept
the foreign banks for varying deposit.
Spe"ial Ser&i"es
$ome banks render special services to the customers to deter them from other banks.
These services include
Internet Banking: $ome banks in Bangladesh are offering internet banking services. But
still toady this service is limited in scope in Bangladesh, as the internet service provided
by the banks in this country is nowhere near the internet banking service provided by
banks in the developed countries.
'ome Banking% Bome banking frees customers of visiting branches and most
transactions will be automated to enable them to check their account activities transfer
fund and to open C?& sitting in their own desk with the help of a 4& and a telephone.
"pplication of this service is still limited in this country.
$utomated Teller Ma"hine ($TM)% "utomated Teller 6achine :"T6;, a new concept
in modern banking, has already been introduced to facilitate subscribers with -*hour
cash access through a plastic card. The network of "T6 installations has been e!tended
to a great e!tent to enable customers to nonbranch banking beyond banking. But still
there is room for improvements.
*le"troni" Banking Ser&i"es or +indows (*BS+)% Electronic Banking $ervice for
Windows :EB$W; provides a full range of reporting capabilities and a comprehensive
range of transaction initiation options. The customers using it are able to process all
payments as well as initiate C?&s and amendments through EB$W. They will be able to
view the balances of all accounts, whether with 4rime Bank, $tandard &hartered or with
any other banks using $WI#T. "dditionally, transactions may be approved by remote
authori%ation even if the approver is out of station.
S+IFT% $WI#T is a bank owned nonprofit cooperative based in Belgium, which serves
the financial community worldwide. It ensures secure messaging with a global reach of
.,*D( banks and financial institutions in )E/ countries, -* hours a day. $WI#T global
network carries an average * million message daily and estimated average value of
payment messages is >$3 - trillion. By having $WI#T facility, banks are now able to
serve its customers more profitable by providing C?&, 4ayment and other messages
efficiently and with utmost security. Especially it is of great help for clients dealing with
Imports, E!ports and 7emittances etc.
Tele Banking% Tele banking facility allows customers to get access into their respective
banking information -* hours a day. $ubscribers can update themselves by making a
phone call. They can transfer any amount of deposit to other accounts irrespective of
location either from home or office.
*,tent o -rodu"t !ierentiation in the Industry
Most o the banks in Bangladesh oer &ery mu"h similar inan"ial produ"ts with
little dierentiation. /nly Islami Banks produ"ts are dierent rom "on&entional
banks produ"ts. But an obser&able trend is that a lot o the lo"al pri&ate
"ommer"ial banks and e&er multi0national banks like0'SB# ha&e started oering
Shariar (Islami") banking produ"ts to some e,tent.
*"onomies o s"ale
It is present because all banks do not have similar cost of funds, as differences e!ist as
different banks deposits cost are different and amount of classified advances are different.
Those who have less classified advances have advantages in the cost of funds.
Industry -roitability
Industry profitably is largely dependent on the state of the national economy and
individual bank's ability to make good advance. Bowever, profitability for the banks in
the industry is above par.
The dri&ers o "hange in the Banking Industry
&hanges in the longterm industry growth rate
Industry's growth is moving upward and an upsurge in longterm demand attracts new
entrants to the market and encourages competition. There have been changes in who buys
the product and how they use it. &ustomers are using the same banking services in a new
way, for e!ample now they can do their banking transaction without moving to bank and
using new digital products like "T6, access card, credit card etc and this shift is forcing
banks to adFust their customer service offerings, opening new ways to market their
product.
4roduct innovation
4roduct innovation in this industry is shaking up the structure of the competition and as
well as the industry by broadening its customer base, reFuvenating the industry's growth
and widening the degree of product differentiation among competing banks. $uccessful
new product introduction will strengthen the market position of the innovative banks. It is
playing the role of a maFor driving force.
Technological change
The pace of technological development in electronic commerce :ecommerce; via the
Internet is fast changing the way business is conducted in the banking industry. 3igital
banking products like "T6, access card, credit card have entered into the market and
brought a dramatic change in industry's landscape. " technological development is also
producing significant changes in capital re=uirement and e!tra customer facilities and
services to maintain e!isting customers and attract new customers.
6arketing innovation
In today's banking industry, one of the key driving force is 6arketing innovation. When
banks are successful in introducing new ways to market their products and services they
can get the buyers as well as sellers interest, widen the industry demand, increase product
differentiation and lower their unit costs.
Entry & e!it of maFor firms
Entry & e!it of maFor firms will definitely bring some changes in the industry and it will
shake up the competitive condition. Entry of a new bank often produces new rules for
competition. But in the banking industry the entry barriers are really high. 3ue to high
regulations imposed by the 0overnment to enter this industry the threat of new entrants is
not that much in comparison to other industries. "lso the e!it barriers are also very high
and its really very hard for banks to leave the industry.
&hanges in cost and efficiency
3ifferences in the cost and efficiency among key competitors alter the position of the
banks. &onsumers have become very price sensitive and low price of products and
services attracts more customers.
&hanges in 7egulatory and 0overnment policy
The regulatory and government actions make significant changes in the industry practices
and strategic practices. Bangladesh Bank, which is the central bank and the 6inistry of
#inance, has the authority to take policies that will protect the interest of the public as
well as banks. "nd, whatever decisions they take all the banks are obliged to follow that.
&hanging societal concerns, attitudes and life styles
$ociety is changing rapidly with the change in people's life style and concerns. The
number of women workforce is increasing day by day. "s a result people are money rich
but time poor. &onsumers of the banks are asking for more and convenient facilities and
services. Banks those are providing "T6, credit card and convenient location are getting
more popularity and achieving more market share, this is specifically true for 3haka.