Banking Scenario of Bangladesh

Introduction

Banking sector of Bangladesh started its journey with a visionary dream and commitment for establishing equity and social justice along with growth and development after the independence in 16^th December, 1971. Central Bank was designated on the Dhaka branch of The State Bank of Pakistan renamed it as Bangladesh Bank under BangladeshBank Order 1972 (President’s order no 127 of1972),

where it said

WHEREAS, it is necessary to establish a central bank in Bangladesh to manage the monetary and credit system of Bangladesh with a view to stabilizing domestic monetary value and maintaining a competitive external par value of the Bangladesh Taka towards fostering growth and development of country’s productive resources in the best national interest.

Functions of Bangladesh Bank

Bangladesh Bank basically responsible for all the core functions that are done by all the monetary and financial sector regulators. Besides the core functions, Bangladesh Bank is also responsible for some other supporting functions. The functions of Bangladesh Bank are cited in below:

Bangladesh Bank

• To formulate and implement monetary and credit policies.
• To regulate and supervise and monitor financial intermediaries like banks and non-bank financial institutions.
• Currency issuance and circulation across the country.
• Payment system management.
• Holder and manager of FX reserve of the country.
• Bankers to the Government.
• To prevent money laundering.
• To implement Foreign exchange regulation Act.
• Preserve all credit information.

Besides this function, Bangladesh Bank also responsible for asset classification, loan concentration, setting up single borrower exposure limit, Licensing to the new bank and branch, impose penalty for non-compliances, intervention in the management for assistance if any bank face difficulties, prepare guidelines and issuance directives regarding banking operation, guidelines for core risk management, publication of different economic review etc.

 List of Governors in Bangladesh

Sl No	Name	Took office	Left office
1	A. N. M. Hamidullah	18 January 1972	18 November 1974
2	A. A. Najirauddina Ahmed	19 November 1974	13 July 1976
3	Mohammad Nurul Islam	13 July 1976	12 April 1987
4	Segufta bakhta Chowdhury	12 April 1987	19 December 1992
5	Mohammad Khorshed Alam	20 December 1992	21 November 1996
6	Md Lutfur Rahman Sarkar	21 November 1996	21 November 1998
7	Dr. Mohammad Farasuddin	24 November 1998	22 November 2001
8	Dr. Fakhruddin Ahmed	29 November 2001	30 April 2005
9	Dr. Salahuddin Ahmed	1 May 2005	30 April 2009
10	Dr. Atiur Rahman	1 May 2009	Present

Background of Banking Sector of Bangladesh

State Owned Commercial Banks

Bangladesh becomes independent after long nine months war. Before the liberation, most of the banking company were owned by the then west Pakistanis. So, the then Government of Bangladesh nationalized all the banks operating in Bangladesh except foreign Banks (Incorporated in abroad). All these banks were grouped into commercial banks through merger process. Among the six commercial banks, two banks namely Pubali bank and Uttara bank were shifted to private sector in January, 1985 and another bank Rupali bank was incorporated as public limited company with effect from December, 1986. The rest three banks namely Sonali bank, Agrani bank and Janata bank were also transferred as public limited company in 2007. So, now there are four state owned commercial banks operating in Bangladesh.

In a report of IMF, it has been stated that the initial focus on state-led banking imitate the Governments lively quest of industrial policies to inspire growth. SCBs were considered as the proper means of generating savings that could be facilitate industrial finance to the sectors of the economy with the best growth prospects. SCBs major drawbacks are the lack of corporate governance and undue political pressure even in loan disbursements without proper analyzing the prospects of the borrower. Despite recently some measures have been undertaken but this legacy is still visible in high NPL ratios and frail solvency. The Government of Bangladesh has indicated its desire to divest of the state owned banks, and took an initiative in late 2008 to make them limited liability companies. The Ministry of Finance, in consultation with the SEC and BB allowed the banks to move their accumulated losses into capital surpluses based on the notion of Goodwill. The accumulated losses were converted in a Goodwill asset that will be amortized out of future profits. This accounting treatment is questionable and concerns remain regarding the true financial condition of these banks [IMF, 2010].

Specialized Bank/Development Financial Institutions

After liberation, two specialized bank operating in Bangladesh were also nationalized and renamed as Bangladesh Krishi Bank and Bangladesh Shilpa Bank. But Bangladesh Krishi Bank was divided in 1987 and renamed as Rajshahi Krishi Unnayan Bank (RAKUB) for Rajshahi Division to promote agricultural development in that region and Bangladesh Krishi bank for the rest of part of the country. In 1988, another specialized bank name Bank of Small Industries and Commerce Bangladesh Ltd. (BASIC) was established as private bank to promote small and medium entrepreneurship. In 1993, the then Government of Bangladesh took the control of BASIC and was declared it as a specialized bank. Bangladesh Shilpa Bank was merged with Bangladesh Shilpa Rin Sangsta (BSRS) in 2010 and renamed as Bangladesh Development Bank Limited (BDBL). So, currently there are four specialized banks which are termed as Development Financial Institutions (DFIs) operating in Bangladesh.

Private Commercial Bank (PCBs).

Local private commercial bank started operation in the decades of 1980's. We can categorize local private bank in the following manner:

• First generation bank: Those established in the decades of 1980s.
• Second generation bank: These banks started operation in 1990 to 1995.
• Third generation bank: After 1998, these banks are established.

At present, there are thirty local private commercial banks operating in Bangladesh. PCBs dominate the banking sector of Bangladesh. More than fifty percent of total deposits and assets are covered by the PCBs. The performance of PCBs is much better than SCBs and DFIs in all respects. Client service innovation and banking service automation is one of the major reasons for their domination over the SCBs and PCBs. among the three generation of PCBs, third generation banks are more innovative and provide better client services through automation whereas first generation banks are little bit in backward position though they continuously improving their condition to compete in the market.

Foreign Commercial Banks (FCBs)

Before liberation, there were few FCBs operating in the country which was incorporated in abroad. Among those foreign banks, Grindlays Bank was merged with Standard Chartered Bank in 2003 and then American Express Bank further merged with Standard Chartered Bank in 2005. CreditAgricole Indosuez Bank was renamed as Commercial Bank of Ceylon Ltd. in 2003. Currently, there are nine foreign commercial banks operating in Bangladesh. Foreign Commercial Banks suffered for lack of wide spread branch network. Their operation is basically limited to capital city and some other municipal city corporation area.

Classification of Banks in Bangladesh

At present Banks in Bangladesh are primarily of two types

Scheduled Banks: The banks which get license to operate under Bank Company Act, 1991 (Amended in 2003) are termed as Scheduled Banks. As per Bangladesh Bank Order ( P.O. NO. 127 of 1972) Article 2 (j) 

“Scheduled Bank” means a bank for the time being included in the list of banks maintained under sub-clause (a) of clause (2) of Article 37;

sub-clause (a) of clause (2) of Article 37 says, the Bank shall, by notification, in the official Gazette-

(a) declare any bank to be scheduled bank which is carrying on the business of banking in Bangladesh and which-
(i) is a banking company  or a co-operative bank, or a corporation or a company incorporated by or established under any law in force in any place in or outside Bangladesh;
(ii) has a paid-up capital and reserves of an aggregate value of an amount not less than that required to be maintained under  ধারা ১৩ of ব্যাংক কোম্পানী আইন, ১৯৯১ (১৯৯১ সনের ১৪ নং আইন):

Provided that in the case of a co-operative bank, an exception may be made by the Bank;
(iii) satisfies the Bank that its affairs are not being conducted in a manner detrimental to the interests of its depositors

Non-Scheduled Banks: The banks which are established for special and definite objective and operate under the acts that are enacted for meeting up those objectives, are termed as Non-Scheduled Banks. These banks cannot perform all functions of scheduled banks.

Classification of Schedule Banks in Bangladesh

There are 56 scheduled banks in Bangladesh operating under full control and supervision of Bangladesh Bank which is empowered to do so through Bangladesh Bank Order, 1972 and Bank Company Act, 1991. Scheduled Banks are classified into following types

State Owned Commercial Banks (SOCBs): There are 5 SOCBs which are fully or majorly owned by the Government of Bangladesh.

1. Sonali Bank Limited
2. Janata Bank Limited
3. Agrani Bank Limited
4. Rupali Bank Limited
5. Bangladesh Krishi Bank Limited

Under  State Owned Commercial Banks (SOCBs) there are four specialized banks are now operating which were established for specific objectives such as social development,  like agricultural or industrial development. These banks are also fully or majorly owned by the Government of Bangladesh.

Four specialized banks are as follows

1. BASIC Bank Limited
2. BDBL (Bangladesh Development Bank Limited)
3. Rajsahi Krishi Unnoyon Bank (RKUB)
4. Bangladesh Krishi Bank Limited

Private Commercial Banks (PCBs): There are 39 private commercial banks which are majorly owned by the private entities where among them 31 PCBs perform their banking functions in conventional fashion i.e interest based operations and rest 8 banks operate under Islami Shariah i.e. Profit-Loss Sharing (PLS) mode.

1. AB Bank Limited
2. Bangladesh Commerce Bank Limited
3. Bank Asia Limited
4. BRAC Bank Limited
5. Dhaka Bank Limited
6. Dutch Bangla Bank Limited
7. Eastern Bank Limited
8. IFIC Bank Limited
9. Jamuna Bank Limited
10. Meghna Bank Limited
11. Mercantile Bank Limited
12. Midland Bank Limited
13. Modhumoti Bank Limited
14. Mutual Trust Bank Limited
15. National Bank Limited
16. NCC Bank Limited
17. NRB Bank Limited
18. NRB Commercial Bank Limited
19. NRB Global Bank Limited
20. One Bank Limited
21. Prime Bank Limited
22. Pubali Bank Limited
23. South Bangla Agriculture and Commerce Bank Limited
24. Southeast Bank Limited
25. Standard Bank Limited
26. The City Bank Limited
27. The Farmers Bank Limited
28. The Premier Bank Limited
29. Trust Bank Limited
30. United Commercial Bank Limited
31. Uttara Bank Limited

There are eight private Islamic Commercial Banks in Bangladesh:

1. Islami Bank Bangladesh Limited
2. Al-Arafah Islami Bank Limited
3. Export Import Bank of Bangladesh Limited
4. Social Islami Bank Limited
5. Shahjalal islami Bank Limited
6. First Security Islami Bank Limited
7. Union Bank Limited
8. ICB Islamic Bank Limited

Foreign Commercial Banks (FCBs):  9 FCBs are operating in Bangladesh as the branches of the banks which are incorporated in abroad.

1. Bank Al-Falah
2. Citibank NA
3. Commercial Bank of Ceylon
4. Habib Bank Limited
5. HSBC (The Hong Kong and Shanghai Banking Corporation Ltd.)
6. National Bank of Pakistan
7. Standard Chartered Bank
8. State Bank of India
9. Woori Bank

Non-Bank Financial Institutions

Non Bank Financial Institutions (FIs) are those types of financial institutions which are regulated under Financial Institution Act, 1993 and controlled by Bangladesh Bank. At present out of the total, 2 is fully government owned, 1 is the subsidiary of a SOCB, 13 were initiated by private domestic initiative and 15 were initiated by joint venture initiative. Major sources of funds of FIs are Term Deposit (at least six months tenure), Credit Facility from Banks and other FIs, Call Money as well as Bond and Securitization.

The major difference between banks and FIs are as follows:

• FIs cannot issue cheques, pay-orders or demand drafts.
• FIs cannot receive demand deposits,
• FIs cannot be involved in foreign exchange financing,
• FIs can conduct their business operations with diversified financing modes like syndicated financing, bridge financing, lease financing, securitization instruments, private placement of equity etc.

List of Non Bank Financial Institutions (FIs)

1. Investment Corporation of Bangladesh (ICB)
2. Uttara Finance and Investments Limited
3. United Leasing Company Limited
4. Union Capital Limited
5. The UAE-Bangladesh Investment Company Limited
6. Saudi-Bangladesh Industrial & Agricultural Investment Company Limited (SABINCO)
7. Reliance Finance Limited
8. Prime Finance & Investment Limited
9. Premier Leasing & Finance Limited
10. Phoenix Finance and Investments Limited
11. People's Leasing and Financial Services Limited
12. National Housing Finance and Investments Limited
13. National Finance Limited
14. MIDAS Financing Limited
15. LankaBangla Finance Limited
16. Islamic Finance and Investment Limited
17. International Leasing and Financial Services Limited
18. Infrastructure Development Company Limited (IDCOL)
19. Industrial Promotion and Development Company of Bangladesh (IPDC)
20. Industrial and Infrastructure Development Finance Company (IIDFC) Limited
21. IDLC Finance Limited
22. SUMON Bank
23. Hajj Finance Company Limited
24. GSP Finance Company (Bangladesh) Limited (GSPB)
25. First Lease Finance & Investment Limited
26. FAS Finance & Investment Limited
27. Fareast Finance & Investment Limited
28. Delta Brac Housing Finance Corporation Limited (DBH)
29. Bay Leasing & Investment Limited
30. Bangladesh Intitute of Finance Company Limited (BIFC)
31.  Bangladesh Finance & Investment Company Limited
32. Agrani SME Finance Company Limited
33. CAPM Venture Capital and Finance Limited
34. Meridian Finance and Investment Limited
35. Realistic Finance Bank Limited