EXECUTIVE SUMMARY

Financial System is very much crucial for the development of a sound economy for any country.
The financial system is a set of organized institutional set-up through which surplus units transfer
their funds to deficit units. Definition a financial system fair narrowly, to consist of a set of
markets, individuals and institutions, which trade in those markets and the supervisory bodies
responsible for their regulation. The end-users of the system are people and firms whose desire is
to lend and to borrow. Throughout the report we have discussed about the Financial Systems of
angladesh, its growth its threats and opportunities. !fter that, the report has focused about the
origin " structure of Financial Systems. The report also describe about the ma#or players of
Financial $arkets.
%n the latter part of the report % have discussed about the performance of $oney $arket of the
&ountry. The financial services industry has e'perienced drastic changes over the past few years.
For this % have discussed the performance of anking Sector and (on-anking Financial sector.
)erformance and financial conditions of the anks a n d (F % s are evaluated through
&!$*+S rating system, which involves analysis and evaluation of the si' crucial dimensions of
banking operations. The si' indicators used in the rating system are ,i- &apital !de.uacy, ,ii-
!sset /uality, , iii- $anagement *fficiency ,including implementation status of &ore 0isk
$anagement 1ui del i nes -, ,%2- *arnings, ,2- +i.uidity, and ,2i- Sensitivity to $arket 0isk. 3e
have discussed the performance considering the about parameters.
This report also shows the opportunities and threat for our Financial System. %n this paper % have the threats and
future opportunities for both the $oney $arket and &apital $arket.
5
OBJECTIVE OF THE STUDY
There had been some ob#ectives set forward in doing this report so that it can be shown the
overall Financial $arket condition of the country. These ob#ectives were not influenced by
thought or feeling. These ob#ectives are described in the following4
BROAD OBJECTIVES:
To show origin the Financial System of angladesh
To know structure of the Financial System of angladesh
To show the ma#or players of Financial $arkets
To show the recent performance
To know the current threats and future opportunities.
SPECIFIC OBJECTIVE:
Specific 5b#ective of the report is to fulfill the partial re.uirement of the course.
LIMITATION OF THE STUDY
The study is not assumed to be free from limitations. !lthough ade.uate precautionary
measures have taken in collecting data for the present study, it is not supposed to be co-
placement in the matter of reliability of those data. (aturally some limitations will
remain.
Despite my sincerest endeavor, the study suffers from some limitations due to various reasons,
such as4
Due to shortage of time, % could not collect enough necessary data about the study to
prepare the term paper.
3orking pressure is too much high so that it is difficult for us to make the term paper.
Data is not up to date. So % had to do an e'tensive search for finding relevant data. So,
altogether % had a tough time to collect recent data.
ORIGIN OF THE FINANCIAL SYSTEM OF BANGLADESH
6
efore liberation of angladesh, the banking and finance industries in erstwhile *ast )akistan
was owned and controlled by erstwhile 3est )akistani owners. !fter the liberation, angladesh
ank came into e'istence under the angladesh ank 5rder 6789 ,)residential 5rder (o. 698 of
6789- which took effect on 6: December 6786. Through this order, the entire operation of the
former State ank of )akistan in the eastern wing was transferred to angladesh ank. %n the
first years after liberation, the primary target of monetary policy was to regulate not the .uantity
of money, but the direction of the flow of money and credit in support of the government
financial program. %n 678;, angladesh entered into a standby-arrangement with %$F and the
country<s monetary policy got a changed shape, which fi'ed an e'plicit target of safe limit of
monetary e'pansion on annual basis.
!fter the independence, establishment of Dhaka Stock *'change ,formerly *ast )akistan Stock
*'change- initiated the pathway of capital market intermediaries in angladesh. %n 678:,
formation of %nvestment &orporation of angladesh opened the door of professional portfolio
management in institutional form. %n last two decades, capital market witnessed number of
institutional and regulatory advancements which has resulted diversified capital market
intermediaries. !t present, capital market intermediaries are Stock *'changes ,situated in Dhaka
and in &hittagong-, Stock Dealer=Sock roker, $erchant anker " )ortfolio $anage, !sset
$anagement &ompanies, &redit 0ating &ompanies, and %nvestment &orporation of angladesh
which established in 678:. To regulate the capital market efficiently Securities and *'change
&ommission ,S*&- was formed. S*& performs the functions to regulate the capital market
intermediaries and issuance of capital and financial instruments by public limited companies. %t
was established on >une ?, 677@ under the Securities and *'change &ommission !ct, 677@.
(ow, there are A8 scheduled banks and there are now A non-scheduled banks in angladesh who
operate under full control and supervision of angladesh ank which is empowered to do so
through angladesh ank 5rder, 6789 and ank &ompany !ct, 6776. !nd !s of 6? !ugust
9B6B, the Dhaka Stock *'change had over 8;B listed companies with a combined market
capitalization of C;B.9? billion. (ow, there are @6 (on ank Financial %nstitutions ,F%s- are
operating in angladesh while the maiden one was established in 67?6.
7
STRUCTURE OF THE FINANCIAL MARKETS OF BANGLADESH
The $ain &onstituents of 5ur &ountries Financial System !re4
B6. Financial %nstitutions=%ntermediaries.
B9. Financial %nstruments.
B@. Financial $arkets.
REGULATORS OF THE FINANCIAL SYSTEM
Central Ban: angladesh ank acts as the &entral ank of angladesh which was established
on December 6:, 6789 through the enactment of angladesh ank 5rder 6789- )residentDs
8
5rder (o. 698 of 6789 ,!mended in 9BB@-.
The general superintendence and direction of the affairs and business of have been entrusted
to a 7 members< oard of Directors which is headed by the 1overnor who is the &hief *'ecutive
5fficer of this institution as well. has AB departments and 7 branch offices. %n Strategic )lan
,9B6B-9B6A-, the vision of has been stated as, ETo develop continually as a forward looking
central bank with competent and committed professionals of high ethical standards, conducting
monetary management and financial sector supervision to maintain price stability and financial
system robustness, supporting rapid broad based inclusive economic growth, employment
generation and poverty eradication in angladeshF.The main functions of are ,Section 8! of
5rder, 6789- G
6. to formulate and implement monetary policyH
9. to formulate and implement intervention policies in the foreign e'change marketH
@. to give advice to the 1overnment on the interaction of monetary policy with fiscal and
e'change rate policy, on the impact of various policy measures on the economy and to
propose legislative measures it considers necessary or appropriate to attain its ob#ectives
and perform its functionsH
A. to hold and manage the official foreign reserves of angladeshH
;. to promote, regulate and ensure a secure and efficient payment system, including the
issue of bank notesH
:. to regulate and supervise banking companies and financial institutions.
C!re P!l"#"e$ !% Central Ban &
M!netar' (!l"#'
The main ob#ectives of monetary policy of angladesh ank are4
)rice stability both internal " e'ternal
Sustainable growth " development
9
Iigh employment
*conomic and efficient use of resources
Stability of financial " payment system
Re$er)e Mana*e+ent Strate*'
angladesh ank maintains the foreign e'change reserve of the country in different currencies to
minimize the risk emerging from widespread fluctuation in e'change rate of ma#or currencies
and very irregular movement in interest rates in the global money market. has established
(ostro account arrangements with different &entral anks. Funds accumulated in these accounts
are invested in Treasury bills, repos and other government papers in the respective currencies. %t
also makes investment in the form of short term deposits with different high rated and reputed
commercial banks and purchase of high rated sovereign=supranational=corporate bonds. !
separate department of performs the operational functions regarding investment which is
guided by investment policy set by the <s %nvestment &ommittee headed by a Deputy
1overnor. The underlying principle of the investment policy is to ensure the optimum return on
investment with minimum market risk.
Intere$t Rate P!l"#'
Jnder the Financial sector reform program, a fle'ible interest policy was formulated. !ccording
to that, banks are free to charge=fi' their deposit ,ank =Financial %nstitutes- and +ending
,ank =Financial %nstitutes- rates other than *'port &redit. !t present, e'cept )re-shipment
e'port credit and agricultural lending, there is no interest rate cap on lending for banks. Ket,
banks can differentiate interest rate up to @L considering comparative risk elements involved
among borrowers in same lending category. 3ith progressive deregulation of interest rates,
banks have been advised to announce the mid-rate of the limit ,if any- for different sectors and
the banks may change interest 6.;L more or less than the announced mid-rate on the basis of the
10
comparative credit risk. anks upload their deposit and lending interest rate in their respective
website.
Ca("tal A,e-.a#' %!r Ban$ an, FI$
3ith a view to strengthening the capital base of banks " F%s, asel-%% !ccord has been
introduced in both of these sectors. For banks, full implementation of asel-%% was started in
>anuary B6, 9B6B ,1uidelines on 0isk ased &apital !de.uacy for banks-. (ow, scheduled banks
in angladesh are re.uired to maintain Tk. A billion or 6BL of Total 0isk 3eighted !ssets as
capital, whichever is higher. For F%s, full implementation of asel-%% has been started in >anuary
B6, 9B69 ,)rudential 1uidelines on &apital !de.uacy and $arket Discipline ,&!$D- for
Financial %nstitutions-. (ow, F%s in angladesh are re.uired to maintain Tk. 6 billion or 6BL of
Total 0isk 3eighted !ssets as capital, whichever is higher.
De(!$"t In$.ran#e
The deposit insurance scheme ,D%S- was introduced in angladesh in !ugust 67?A to act as a
safety net for the depositors. !ll the scheduled banks angladesh are the member of this scheme
ank Deposit %nsurance !ct 9BBB. The purpose of D%S is to help to increase market discipline,
reduce moral hazard in the financial sector and provide safety nets at the minimum cost to the
public in the event of bank failure. ! Deposit %nsurance Trust Fund ,D%TF- has also been created
for providing limited protection ,not e'ceeding Taka B.B6 million- to a small depositor in case of
winding up of any bank. The oard of Directors of is the Trustee oard for the D%TF. has
adopted a system of risk based deposit insurance premium rates applicable for all scheduled
banks effective from >anuary - >une 9BB8. !ccording to new instruction regarding premium rates,
problem banks are re.uired to pay B.B7 percent and private banks other than the problem banks
and state owned commercial banks are re.uired to pay B.B8 percent where the percent coverage
of the deposits is taka one hundred thousand per depositor per bank. 3ith this end in view,
11
has already advised the banks for bringing D%S into the notice of the public through displaying
the same in their display board.
In$.ran#e A.t/!r"t'
%nsurance Development and 0egulatory !uthority ,%D0!- was instituted on >anuary 9:, 9B66 as
the regulator of insurance industry being empowered by %nsurance Development and 0egulatory
!ct, 9B6B by replacing its predecessor, &hief &ontroller of %nsurance. This institution is operated
under $inistry of Finance and a A member e'ecutive body headed by &hairman is responsible
for its general supervision and direction of business.
%D0! has been established to make the insurance industry as the premier financial service
provider in the country by structuring on an efficient corporate environment, by securing
embryonic aspiration of society and by penetrating deep into all segments for high economic
growth. The mission of %D0! is to protect the interest of the policy holders and other
stakeholders under insurance policy, supervise and regulate the insurance industry effectively,
ensure orderly and systematic growth of the insurance industry and for matters connected
therewith or incidental thereto.
Re*.lat!r !% Ca("tal Maret Inter+e,"ar"e$
Securities and *'change &ommission ,S*&- performs the functions to regulate the capital
market intermediaries and issuance of capital and financial instruments by public limited
companies. %t was established on >une ?, 677@ under the Securities and *'change &ommission
!ct, 677@. ! ; member commission headed by a &hairman has the overall responsibility to
administer securities legislation and the &ommission is attached to the $inistry of Finance.
The mission of S*& is to protect the interests of securities investors, to develop and maintain
fair, transparent and efficient securities markets and to ensure proper issuance of securities and
compliance with securities laws.
12
Re*.lat!r !% M"#r! F"nan#e In$t"t.t"!n$
To bring (on-government $icrofinance %nstitutions ,(15-$F%s- under a regulatory framework,
the 1overnment of angladesh enacted M$icrocredit 0egulatory !uthority !ct, 9BB:DM ,!ct no.
@9 of 9BB:- which came into effect from !ugust 98, 9BB:. Jnder this !ct, the 1overnment
established $icrocredit 0egulatory !uthority ,$0!- with a view to ensuring transparency and
accountability of microcredit activities of the (15-$F%s in the country. The !uthority is
empowered and responsible to implement the said act and to bring the microcredit sector of the
country under a full-fledged regulatory framework.
$0!Ds mission is to ensure transparency and accountability of microfinance operations of (15-
$F%s as well as foster sustainable growth of this sector. %n order to achieve its mission, $0! has
set itself the task to attain the following goals4
To formulate as well as implement the policies to ensure good governance and
transparent financial systems of $F%s.
To conduct in-depth research on critical microfinance issues and provide policy inputs to
the government consistent with the national strategy for poverty eradication.
To provide training of (15-$F%s and linking them with the broader financial market to
facilitate sustainable resources and efficient management.
To assist the government to build up an inclusive financial market for economic
development of the country.
To identify the priorities in the microfinance sector for policy guidance and dissemination
of information to attain the $0!Ds social responsibility.
MAJOR PLAYERS OF FINANCIAL MARKETS
13
%n the financial markets, there is a flow of funds from one group of parties ,funds-surplus units-
known as investors to another group ,funds-deficit units- which re.uire funds. $arket
intermediaries provide different types of financial services to the investors. They provide
e'pertise to the securities issuers. They are constantly operating in the financial market. Some
financial intermediaries may have strong position or some may have weak or moderate position
in the financial market in term of their ability to influence the financial market. There is a very
large number of players and participants in the financial market. These can be grouped as
follows4
Ban$: anking is essentially based on the debtor-creditor relationship between the depositors
and the bank on the one hand and between the borrowers and the bank on the other. %nterest is
considered to be the price of credit, reflecting the opportunity cost of money. The commercial
banking system dominates angladesh<s financial sector. angladesh ank is the &entral ank of
angladesh and the chief regulatory authority in the sector. The banking system is composed of
four )ublic commercial banks, five specialized development banks, thirty private commercial
anks and nine foreign commercial banks.
5ut of :;:9 scheduled bank branches operating in the country, up to end December 9BB: the
(&s operate @@?A branches, of which 96A: are in rural areas and 69@? are in urban areasH Ss
have 6@;A branches of which 69BB are in rural areas and 6;A are in urban areasH )&s have 688:
branches of which A?? are in rural areas and 69?? are in urban areasH and F&s have A? branches
e'clusively in urban areas. 5ut of @B )&s, si' have been operating as %slamic banks. !fter the
year 9BB: those total numbers of branches are increasing rapidly up to 9BB7.
+ist of !ll types of banking sectors are4
N &entral ank
N )rivate &ommercial anks
N )ublic &ommercial anks
N Foreign &ommercial anks
N Specialized Development anks
14
In$.ran#e C!+(an"e$: The insurance sector is regulated by the %nsurance !ct, 67@? with
regulatory oversight provided by the &ontroller of %nsurance on authority under the $inistry of
&ommerce. ! separate %nsurance 0egulatory !uthority is being established. ! total of :9
insurance companies have been operating in angladesh, of which 67 provide life insurance and
A@ are in the general insurance field. !mong the life insurance companies, e'cept the state-
owned >iban ima &orporation ,1&- foreign owned !merican +ife %nsurance &ompany
,!+l&5-, and the rest of the private. !mong the general insurance companies, state-owned
Shadharan ima &orporation ,S&- is the most active in the insurance sector. ! total of @6
insurance companies are listed in the capital market, of which ? offer life insurances.
Se#.r"t' F"r+$4 Financial institutions that underwrite securities and engage in related activities
such as securities brokerage, securities trading and making a market in which securities can
trade.
In)e$t+ent Ban$: %t primarily helps net suppliers of funds transfer funds to net users of funds
at a low cost and with ma'imum degree of efficiency. !n investment bank is a financial
institution that assists individuals, corporations and governments in raising capital by
underwriting and=or acting as the client<s agent in the issuance of securities. !n investment bank
may also assist companies involved in mergers and ac.uisitions, and provide ancillary services
such as market making, trading of derivatives, fi'ed income instruments, foreign e'change,
commodities, and e.uity securities. Jnlike commercial banks and retail banks, investment banks
do not take deposits.
F"nan#"al C!+(an"e$: The primary function of finance companies is to make loans to both
individuals and business. Finance companies provide such services as consumer lending,
business lending and mortgage financing.
M.t.al F.n,$: $utual funds are portfolios of different securities such as stocks, bonds,
treasuries, derivatives, etc. $utual funds are professionally managed investment schemes that
collect funds from small investors and invest in stocks, bonds, short term money market
instruments, and other securities. This ensures a diversified portfolio for the investors at much
less efforts than through purchasing individual stocks and bonds. Fund managers who undertake
15
trading of the pooled money and are responsible for managing the portfolio of holdings usually
manage mutual funds. 1enerally, mutual funds are organized under the law as companies or
business trusts and managed by separate entities. $utual funds fall into two categories4 open-end
funds and closed-end funds.
Pen$"!n F.n,$: )ension funds are analyzed as financial intermediaries using a functional
approach to finance, which encompasses traditional theories of intermediation. Funds fulfill a
number of the functions of the financial system more efficiently than banks or direct holdings.
Their growth complements that of capital markets and they have acted as ma#or catalysts of
change in the financial landscape. Financial efficiency in this functional sense is not the only
reason for growth. %t is also a conse.uence of fiscal incentives and benefits to employers, as well
as growing demand arising from the ageing of the population.
*mployers, such as companies, public corporations, and industry or trade groups, typically
sponsor pension fundsH accordingly, employers as well as employees typically contribute. Funds
may be internally or e'ternally managed. 0eturns to members of pension plans backed by such
funds may be purely dependent on the market ,defined contribution funds- or may be overlaid by
a guarantee of the rate of return by the sponsor ,defined benefit funds-.
RECENT PERFORMANCE

3e mainly have showed the performance of $oney $arket for the report. Therefore, this section is
classified into 9 ,two- parts4 01 )erformance of anking Sector and 21 )erformance of (on-
anking Financial Sector.
01 BANKING SECTOR
010 BANKING SECTOR3SOME INTRODUCTION
16
(billion Taka)
Ban
t'(e$
2445 2404
N!1 !%
Ban$
N!1 !%
Bran#/e$
T!tal
A$$et$
Per#ent !%
In,.$tr'
a$$et$
De(!$"t$
Per#ent
!%
De(!$"t$
N!1
!%
Ban$
N!1
!%
Bran#/e$
T!tal
A$$et$
6 !%
In,.$
tr'
a$$et$
De(!$"t$
6 !%
De(!
$"t$
SCBs 4 3387 1135.6 28.6 869.1 28.6 4 3447 1384.3 28.5 1044.9 28.1
DFIs 5 1365 261.9 6.6 161.1 5.3 4 1382 295.4 6.1 183.4 4.9
PCBs 30 2285 2275.7 57.4 1792.4 59.0 30 2828 2854.6 58.8 2266.5 60.9
FCBs 9 58 292.6 7.4 215.0 7.0 9 72 320.8 6.6 227.1 6.1
Total 48 7095 3965.8 100.0 3037.6 100.0 47 7729 4855.1 100.0 3721.9 100.0
anking sector in angladesh demonstrated a moderate level of resilience in FK66, attributable
to improvement in key financial indicators of the banking industry with a view to maintaining
soundness, solvency, efficiency and stability in the financial system.
The b a n k i n g s e c t o r o f a n g l a d e s h comprises four categories of scheduled banks.
These are state-owned commercial banks ,S&s-, state-owned development financial
institutions ,DF%s-, private commercial banks ,)&s- and foreign commercial banks
,F&s-. The number of banks declined from A? in 9BB7 to A8 in 9B6B. These banks had a total
number of 8,897 branches as of December 9B6B. The number of bank branches increased
from 8,B7; in 9BB7 to 8,897 in 9B6B due mainly to opening of new branches by the )&s
during the year. !t the end of FK66, the total number of bank branches increased to ?,;99,
with total number of banks remained unchanged at A8. Structure of the banking sector with
breakdown by type of banks is shown in Table 64
Table 1: Banking System Structure
%n 9B6B, the S&s held 9?.; percent of the total industry assets as against 9?.: percent in
9BB7. )&sD share rose to ;?.? percent in 9B6B as against ;8.A percent in 9BB7. The F&s
h e l d :. : per cent o f the industry assets in 9B6B, showing a declining trend of B.?
percentage point over the previous year. The DF%s< share of assets was :.6 percent in 9B6B
against :.: percent in 9BB7.
Total deposits of the banks in 9B6B rose to Taka @,896.7 billion from Taka @,B@8.: billion in
17
9BB7 showing an overall increase by 99.; percent. The S&s< ,comprising the largest A banks-
share in deposits decreased from 9?.: percent in 9BB7 to 9?.6 percent in 9B6B. 5n the other hand,
)&s< deposits in 9B6B amounted to Taka 9,9::.; billion or :B.7 percent of the total industry
deposit against Taka 6,879.A billion or ;7.B percent in 9BB7. F&sD deposits in 9B6B rose only by
Taka 69.6 billion over the year. The DF%s< deposits in 9B6B were Taka 6?@.A billion against
Taka 6:6.6 billion in 9BB7 showing an increase of 6@.? percent over the year.
A**re*ate Balan#e S/eet
A$$et$: !ggregate industry assets in 9B6B registered an overall increase by 99.A percent over
9BB7. During this period, S&s< assets increased by 96.7 percent and those of the )&s<
increased by 9;.A percent. +oans and advances played a ma#or role on the uses of fund. +oans
and advances amounting to Taka @699.6 billion out of aggregate assets of Taka A,?;;.6 billion
constituted the most significant portion of the asset ,:A.@ percent-. &ash in tills were Taka ;9.B
billion ,6.6 percent-H deposits with were Taka @BB.: billion ,:.9 percent-H other assets
were Taka ??7.: billion ,6?.@ percent- and investment in government bills and bonds were
Taka A7B.? billion ,6B.6 percent-.
L"a7"l"t"e$: The aggregate liability portfolio ,including e.uities- of the banking industry in
9B6B was Taka A,?;;.6 billion of which deposits constituted Taka @,896.7 billion ,8:.8 percent-.
Deposits continued to be the main sources of fund of the banking industry. &apital and reserves
of the banks were Taka A6?.? billion ,?.: percent- in 9B6B, as against Taka 9?9.9 billion ,8.6
percent- in 9BB7. &apital and reserves of the banks increased further and stood at Taka A:6.9
billion at end >une 9B66.
012 PERFORMANCE OF BANKS
)erformance and financial conditions of the scheduled banks are evaluated through &!$*+S
rating system, which involves analysis and evaluation of the si' crucial dimensions of banking
operations. The si' indicators used in the rating system are ,i- &apital !de.uacy, ,ii- !sset
/uality, , iii- $anagement *fficiency ,including implementation status of &ore 0isk
$anagement 1ui del i nes -, ,%2- *arnings, ,2- +i.uidity, and ,2i- Sensitivity to $arket 0isk.
18
8"9 Ca("tal A,e-.a#'
&apital !de.uacy focuses on the total position of banks< capital and protection of depositors
and other creditors from the potential shocks of losses that a bank might incur. %t helps
absorbing all possible financial risks like credit risk a n d o t h e r c o r e risks, market risk,
o p e r a t i o n a l risk, residual risk, credit concentration risk, interest rate risk, li.uidity risk,
reputation risk, settlement risk, strategic risk, environmental " climate change risk etc. Jnder
asel-%%, banks in angladesh are instructed to maintain minimum capital re.uirement ,$&0-
at 6B.B percent of the risk weighted assets ,03!- or Taka A.B billion as capital, whichever is
higher, with effect from >uly-September 9B66 .uarter. %t may be mentioned that in the
fourth .uarter of 9B6B banks were re.uired to maintain $&0 at 7.B percent of 03! or Taka
9.B billion, whichever was higher.
,)ercent-
Ban t'(e$ 244: 244; 244< 244= 2445 2404
S&s -B.A 6.6 8.7 :.7 7.B ?.7
DF%s -8.; -:.8 -;.; -;.@ B.A -8.@
)&s 7.6 7.? 6B.: 66.A 69.6 6B.6
F&s 9:.B 99.8 99.8 9A.B 9?.6 6;.:
T!tal :1; ;1< 51; 0410 001; 51>
Table 2: Capital to Risk Weighted Assets Ratio by Type of Banks
Table 9 shows that as on @6 December 9B6B the S&s, DF%s, )&s and F&s maintained &!0
of ?.7, -8.@, 6B.6 and 6;.: percent respectively. 9 S&s, 9 DF%s and A )&s could not
maintain minimum re.uired &!0. The &!0 of the banking industry was 7.@ percent at end
9B6B as against 66.: percent at end 9BB7. !ll foreign banks maintained minimum re.uired
capital. (oteworthy that industry &!0 stood at 7.8 percent at end >une 9B66.
8""9 A$$et ?.al"t'
19
The asset composition of all commercial banks shows the concentration of loans and advances
,:;.7 percent-. The high concentration of loans and advances indicates vulnerability of
assets to credit risk, specially because of having significant portion of non-performing assets. !
huge non- performing loan portfolio has been the ma#or predicament of banks particularly of the
S&s and DF%s. Iowever, investment of banks in bills, bonds, shares etc. also demonstrates
somewhat concentration, which is 69.6 percent of total assets.
The most important indicator intended to identify problems with asset .uality in the loan
portfolio is the ratio of gross non- performing loans ,()+s- to total loans and net ()+s to net
total loans. %n 9B6B, F&s have the lowest and DF%s have the highest ratio of gross ()+s to total
loans. S&s had gross ()+s to total loans ratio of 6;.8 percent whereas in case of )&s,
F&s and DF%s, the ratios were @.9, @.B and 9A.9 percent respectively at end December 9B6B.
The gross ()+s to total loans ratios for the S&s, )&s, F&s and DF%s were 6A.6, @.;, @.6 and
96.? percent respectively a t end FK66.
,)ercent-
Ban t'(e$ 244: 244; 244< 244= 2445 2404
S&s 96.A 99.7 97.7 9;.A 96.A 6;.8
DF%s @A.7 @@.8 9?.: 9;.; 9;.7 9A.9
)&s ;.: ;.; ;.B A.A @.7 @.9
F&s 6.@ B.? 6.A 6.7 9.@ @.B
T!tal 0>1; 0>12 0>12 041= 512 <1>
Table : !"#s to Total #oans Ratios by Type of Banks
The ratio of ()+ to total loans of all the banks shows an encouraging trend since its decline
from the peak ,@A.7 percent- in 9BBB, although the aggregate ratio was still as high as 8.@
percent in December 9B6B. The reason is being high ()+ of the S&s and the DF%s. The ratio
ended up 8.6 percent at end FK66.
The S&s and DF%s continue to e'perience high level of ()+s mainly due to substantial
20
loans provided by them on considerations other than commercial and under directed
credit programmes during the 8Bs and ?Bs. )oor appraisal and inade.uate follow-up and
supervision of the loans disbursed by the S&s and DF%s in the past eventually resulted in
massive booking of poor .uality assets remained significant in the portfolio of these banks.
Furthermore, these banks were reluctant to write-off the historically accumulated bad loans
because of poor .uality of underlying collaterals. 0ecovery of ()+s, however, witnessed some
signs of improvement mainly because of the steps taken with regard to internal restructuring of
these banks to strengthen their loan recovery mechanism and recovery drive and write-off
measures initiated in recent years.
%t is shown in the Table A that the ratio of net ()+s ,net of provisions and interest suspense- to
net total loans ,net of provisions and interest suspense- stood at 6.7 percent ,S&s-,
6:.B percent ,DF%s- and 6.@ percent ,banking sector- in 9B6B. %t is evident from the table
that DF%s< non-performing portfolios were still high after ad#ustment of actual provision and
interest suspense, whereas F&s and )&s had e'cess provision against their ()+s. The net
()+s to net total loans ratios were 9.B, 6@.;, B.9, -6.; and 6.@ percent for the S&s, DF%s,
)&s, F&s and all banks respectively at end FK66.
,)ercent-
Ban t'(e$ 244
:
244
;
244
<
244= 2445 2404
S&s 6@.
9
6A.
;
69.
7
;.7 6.7 6.7
DF%s 99.
:
9@.
:
67.
B
68.B 6?.@ 6:.B
)&s 6.
?
6.
?
6.A B.7 B.; B.B
F&s -
9.9
-
9.:
-
6.7
-9.B -9.@ -6.8
T!tal <1
2
<1
0
:10 21= 01< 01>
Table $: Ratio of net !"#s to net Total #oans by Type of Banks
@e"*/te, A)era*e De(!$"t an, Len,"n* Rate$
anks< weighted average deposit rate increased from :.B8 percent to 8.98 percent and weighted
average lending rate increased from 66.67 percent to 69.A9 percent during the second half of
21
FK66 ,B6=B6=9B66 to @B=B:=9B66-. The spread between lending and deposit rates remained
more or less stable at ;.6; percent during the same period. 3eighted average deposit and
lending rates along with the spread during @B=B:=9BB9 to @B=B:=9B66 are shown in table ;.: and
chart ;.8.
,)ercent-
Date
3eighted average
Spread
Deposit +ending
@B=B:=B9 :.8A 6@.6: :.A9
@6=69=B9 :.A7 6@.B7 :.:B
@B=B:=B@ :.@B 69.8? :.A?
@6=69=B@ :.9; 69.@: :.66
@B=B:=BA ;.:; 66.B6 ;.@:
@6=69=BA ;.;: 6B.?@ ;.98
@B=B:=B; ;.:9 6B.76 ;.@6
@6=69=B; ;.7B 66.9; ;.@;
@B=B:=B: :.:? 69.B: ;.@?
@6=69=B: :.77 69.:B ;.:6
@B=B:=B8 :.?; 69.88 ;.79
@6=69=B8 :.88 69.8; ;.7?
@B=B:=B? :.7A 69.97 ;.@7
@6=69=B? 8.@6 69.@6 ;.BB
@B=B:=B7 8.B6 66.?8 A.;:
Table %: Weighted a&erage deposit and lending rates
8"""9 Mana*e+ent E%%"#"en#'
Sound management is the most important pre-re.uisite for the strength and growth of any
financial institution. Since indicators of management .uality are primarily specific to individual
institution, these cannot be easily aggregated across the sector. %n addition, it is difficult to draw
any conclusion regarding management soundness based on monetary indicators, as
characteristics of a good management are rather .ualitative in nature. (evertheless, the total
e'penditure to total income, operating e'penses to total e'penses, earnings and operating
e'penses per employee, and interest rate spread are generallyused to gauge management
soundness. %n particular, a high and increasing e'penditure to income ratio indicates the
operating inefficiency that could be due to flaws in management.
22
!s evident from Table : in 9B6B, e'penditure-income ,*%- ratio of the DF%s was the highest
among the shown bank clusters due to huge operating loss incurred by O and 0!OJ. The
*% ratio of the S&s was ?B.8 which could mainly attributable to high administrative and
overhead e'penses and suspension of income against ()+s. *% ratio of )&s was also
substantially high due to deduction of loan loss provision, other assets and corporate ta' from
current income.
,)ercent-
Ban t'(e$ 244A 244
:
244; 244< 244= 2445 2404
S&s 6B9.@ 6B6.
7
6BB 6B
B
?7.: 8;.: ?B.8
DF%s 6BA 6B@.
7
6B@.; 6B8.8 6B@.8 669.6 ?8.?
)&s ?8.6 ?7.
@
7B.9 ??.? ??.A 89.: :8.:
F&s 8:.@ 8B.
?
86.6 89.7 8;.? ;7.B :A.8
T!tal 5415 521
0
501A 541A =<15 <21; <415
Table ': ()penditure*income Ratio by Type of Banks
8")9 Earn"n* B Pr!%"ta7"l"t'
Strong earnings and profitability profile of a bank reflect its ability to support present and future
operations. $ore specifically, this determines the capacity to absorb losses by building an
ade.uate capital base, finance its e'pansion and pay ade.uate dividends to its shareholders.
!lthough there are various measures of earning and profitability, the best and widely used
indicator is return on assets ,05!-, which is supplemented by return on e.uity ,05*- and net
interest margin ,(%$-.
*arnings as measured by return on assets ,05!- and return on e.uity ,05*- differ largely
within the industry. Table 8 shows 05! and 05* by type of banks !nalysis of these
indicators reveals that the 05! of the S&s was less than industry average considering huge
provision shortfall and that of the DF%s even worse. )&s< 05! shows consistently strong
position during last five years. F&s< 05! has been consistently strong during the last couple
of years.
23
,)ercent-
Ban
t'(e$
Ret.rn !n a$$et$ 8ROA9 Ret.rn !n e-."t' 8ROE9
244: 244
;
24
4<
244= 244
5
2404 244: 244; 244< 244= 2445 2404
S&s -B.6 B.B B.
B
B.8 6.B 6.6 -:.7 B.B B.B 99.; 9:.9 6?.A
DF%s -B.6 -B.9 -
B.@
-B.: B.A B.9 -9.B -9.B -@.A -:.7 -686.8 -@.9
)&s 6.6 6.6 6.
@
6.A 6.: 9.6 6?.6 6;.9 6:.8 6:.A 96.B 9B.7
F&s @.6 9.9 @.
6
9.7 @.9 9.7 6?.A 96.; 9B.A 68.? 99.A 68.B
T!tal 41; 41= 41
5
012 01A 01= 021A 0A10 0>1= 0:1; 201< 2014
Table +: "rofitability Ratios by Type of Banks
Net Intere$t In#!+e
!ggregate net interest income ,(%%- of the industry has consistently increased from Taka 6:.:
billion in 9BB@ to Taka 696.7 billion in 9B6B. Iowever, the (%% of the S&s was a negative
amount of Taka B.@ billion in 9BB@ and had become positive ,Taka 8.8 billion- in 9BB;. The
positive trend continued till 9B6B. %n 9B6B, the (%% of S&s was Taka 67.? billion. The DF%s had
a positive trend since 9BB9 and it was Taka :.9 billion in 9B6B.
Since 9BB;, S&s have been able to increase their net interest income ,(%%- by reducing their
cost of fund. The (%% of the )&s has been incredibly high over the period from 9BB@ through
9B6B. 5verall industry (%% shows a consistently upward trend. The trend of (%% indicates that
the interest spread of )&s and F&s is higher than that of S&s and DF%s.
,illion Taka-
Ban t'(e$ 244: 244; 244< 244= 2445 2404
S&s 8.8 7.B 8.A 8.7 69.6 67.?
DF%s 6.B 6.8 6.A 6.7 6.7 :.9
)&s 96.B 9;.A @:.6 A?.; ;:.8 ?9.?
F&s ;.: ?.9 7.7 69.: 6B.8 6@.B
T!tal >:1> AA1> :A1= <415 =01: 02015
Table ,: !et -nterest -ncome by Type of Banks
24
8)9 L"-.","t'
&ommercial banks< demand and time liabilities are at present sub#ect to a statutory li.uidity
re.uirement ,S+0- of 67.B percent inclusive of average :.B percent ,at least ;.; percent in any
day- cash reserve ratio ,&00- on bi-weekly basis. The &00 is to be kept with the and the
remainder as .ualifying secured assets under the S+0, either in cash or in 1overnment
securities. S+0 for the banks operating under the %slamic Shariah is 66.; percent. The
specialised banks ,e'cept asic ank +td.- are e'empted from maintaining the S+0.
+i.uidity indicators measured as percentage of demand and time liabilities ,e'cluding inter-bank
items- of the banks indicate that although all the banks had e'cess li.uidity but the amount was
lower than the previous two years.
Table 7 shows that the F&s are having the highest li.uidity ratios followed by the S&s.
This situation of lower surplus of li.uidity made the money market volatile.
,)ercent-
Ban
t'(e$
L"-.", a$$et$ EC#e$$ l"-.","t'
244: 244
;
244< 244= 2445 2404 244: 244; 244< 244= 2445 2404
S&s 9B.B 9B.6 9A.7 @9.7 9;.6 98.9 9.B 9.6 :.7 6A.7 68.: ?.9
DF%s 66.9 66.
7
6A.9 6@.8 7.: 96.@ :.9 @.? ;.: A.7 8.6 9.@
)&s 96.B 96.A 99.9 9B.8 6?.9 96.; ;.6 ;.: :.A A.8 ;.@ A.:
F&s A6.; @A.A 97.9 @6.@ @6.? @9.6 9@.: 6:.A 66.9 6@.@ 96.? 6@.9
T!tal 201< 201: 2>12 2A1= 241; 2>14 :1> :10 ;15 =1A 514 ;14
Table .: #i/uidity Ratio by Type of Banks
21 NON3BANKING FINANCIAL INSTITUTIONS 8NBFIS9
210 NON3BANKING FINANCIAL SECTOR3SOME INTRODUCTION
(on ank Financial %nstitutions ,(F%s- in angladesh have been playing a significant role in
the financial system of the country. This sector has emerged as increasingly important segment
of the financial system because of the rapidly rising demand for long term financing and e.uity
25
type services. (F%s added differentiation to the bank based financial market of angladesh.
This sector has turned increasingly into rival of the banking sector in terms of firm size
and also offering dynamic services in line with the traditional services.
(F%s in angladesh
play ma#or role in filling
gaps in financial intermediation by providing diversified investment
instruments and risk polling services. (F%s have achieved impressive growth in recent
years reflecting the process of financial innovation and holding the promise of deepening
financial intermediation in long term financing needs.
B.$"ne$$ Gr!Dt/
O.trea#/: )resently, out of @B (F%s
two are 1overnment-owned, eight are #oint venture and
the rest 9B are locally private- owned (F%s. $eanwhile, the branch network increased to 6;?
as on @B >une 9B66. There is no (F% incorporated outside angladesh. Structure of (F%s is
shown in Table 6B.
Table 10: Structure of !B1-s
A$$et$: The asset base increased
substantially in 9B6B. !ggregate industry assets stood at
Taka 9;6.; billion in 9B6B from Taka 67@.? billion in 9BB7, showing a growth of 97.? percent.
Total asset was Taka 98@.A billion at the end of >une 9B66 ,Table 66-.
26
Table 11: Assets2 liabilities and deposits of !B1-s
In)e$t+ent: (F%s are investing in different sectors of the economy, but their %nvestments are
mostly concentrated in industrial sector. %n 9B6B, (F%s investment in different sectors are
industry ,AA.:L-, real estate ,68.;L-, margin loan ,69.6L-, trade and commerce ,;.?L-,
merchant banking 9.?L-, agriculture sector ,6.;L- and others ,6;.8L-
L"a7"l"t"e$ an, E-."t': The aggregate liability of the industry in 9B6B increased to Taka 9B:.?
billion from Taka 6:A.A billion in 9BB7 while e.uity increased to Taka AA.8 billion in 9B6B
compared to Taka 97.@ billion in 9BB7 showing an overall increase of 9;.? percent and ;9.:
percent respectively. Total liabilities and e.uity were Taka 996.8 billion and Taka ;6.8 billion
respectively at the end of >une 9B66 ,Table 66-.
De(!$"t$: Total deposits of the (F%s in 9B6B rose to Taka 7A.A billion ,A;.8 percent of total
liabilities- from Taka ?B.? billion ,A7.9 percent of total liabilities- in 9BB7 showing an overall
increase by 6:.? percent. !s on @B >une 9B66, total deposit stood at Taka 6B:.@ billion ,A?.B
percent of total liabilities- ,Table 66-.
212 PERFORMANCE OF NBFIS
)erformance of this sector has been evaluated through &!$*+ rating which involves
analysis and evaluation of the five crucial dimensions of (F%s< operations. The five indicators
27
used in the rating system are ,i- &apital !de.uacy, ,ii- !sset /uality, ,iii- $anagement
*fficiency, ,iv- *arnings and ,v- +i.uidity.
8"9 Ca("tal A,e-.a#'
&apital ade.uacy focuses on the total position of (F%sD capital and protects the depositors
from the potential shocks of losses that a (F% might incur. %t helps absorb ma#or financial risks
,credit risk, market risk, interest rate risk, etc.-. (F%s in angladesh have been instructed
under the asel !ccord for Financial %nstitutions ,!F%- to maintain &apital !de.uacy 0atio
,&!0- of not less than 6B.B percent with at least ;.B percent in core capital, on test run of asel
!ccord in the year 9B66. !t end December 9B6B out of 97 (F%s, ? are M6 or StrongM, 6 are M9
or SatisfactoryM, 66 are M@ or FairM and rest 7 are M; or JnsatisfactoryM in capital ade.uacy rating
in &!$*+ rating matri'.
8""9 A$$et ?.al"t'
The most important indicator intended to identify problems with asset .uality in the loan
portfolio is the ratio of gross non- performing loans=lease to total loans=lease. %n 9B6B, the ratio
for (F% is ;.7 which is lower than last five years due mainly to proper monitoring and it was
highest ,8.6- in 9BB8.
%n the total asset composition of all (F%s concentration of loans, lease and advances is 8B.?
percent. !t end December 9B6B, out of 97 (F%s, 7 are M6 or StrongM, @ are M9 or SatisfactoryM,
6@ are M@ or FairM and rest A are MA or $arginalM in asset .uality rating in &!$*+ rating matri'.
8"""9 Mana*e+ent E%%"#"en#'
Sound management is the most important prere.uisite for the strength and growth of any
(F%. The total e'penditure to total income, operating e'penses to total e'penses, earnings and
operating e'penses per employee, and interest rate spread are generally used to gauge
management efficiency. !t end December 9B6B, out of 97 (F%s, 6A are M9 or SatisfactoryM
28
and 6; are M@ or FairM in $anagement &apacity rating in &!$*+ rating matri'.
8")9 Earn"n*$ an, Pr!%"ta7"l"t'
*arnings and profitability of an (F% reflects its efficiency in managing resources and its long
term sustainability. These indicators determine the capacity to absorb probable l oss es by
bui l di ng an ade.uat e capital base, finance its e'pansion and pay ade.uate dividends to its
shareholders. !mong various measures of earning and profitability, the best and widely used
indicator is return on assets ,05!-, which is supplemented by return on e.uity ,05*-
and net interest margin ,(%$-. 05!, 05* and (%$ of all the (F%s in December 9B6B were
A.@, 9A.A and A.A percent respectively. %n December, 9B6B weighted average deposit and
lending rate of the (F%s are 7.: and 6@.6 percent respectively. !s of December 9B6B, out
of 97 (F%s, @ are M6 or StrongM, 9; are M9 or SatisfactoryM and 6 is M@ or FairM in earning ability
rating in &!$*+ rating matri'.
244: 244; 244<
244= 2445 2404
Ret.rn !n E-."t' 8ROE9 6A.9 69.A 6@.?
69.7 9B.7 9A.A
Ret.rn !n A$$et$ 8ROA9 9.A 9.9 9.@
9.6 @.9 A.@
S!.r#e: De(art+ent !% F"nan#"al In$t"t.t"!n$ an, Maret$E Ban*la,e$/ Ban1
Table 12: "rofitability of !B1-S
8)9 L"-.","t'
(F%s are allowed to mobilize term deposit only. !t present term liabilities are sub#ect to a
statutory li.uidity re.uirement ,S+0- of ; percent inclusive of average 9.; percent ,at least 9
percent in each day- cash reserve ratio ,&00- on bi-weekly basis. S+0 for the (F%s operating
without taking term deposit is 9.; percent. The %nfrastructure Development &ompany +imited
,%D&5+- established by the 1overnment of angladesh is e'empted from maintaining the
S+0. !t end December 9B6B, out of 97 (F%s, @ are M6 or StrongM, : are M9 or
SatisfactoryM and 9B is M@ or FairM in li.uidity position rating in &!$*+ rating matri'.
29
CURRENT THREATS AND FUTURE OPPORTUNITIES
THREATS TO MONEY MARKET
&all money market in angladesh was basically developed under competitive environment of
the financial market. Iowever, the market could not develop as e'pectedH rather it showed a
wide range of seasonal fluctuations. The study reveals that in most cases, whenever e'cess
reserve falls, the rate of interest in call money market rises and vice versa. %t also shows that
(on-bank Financial %nstitutions ,(F%s- have played a ma#or role in the recent fluctuations.
Some )rivate &ommercial anks ,)&s- have taken the opportunity of borrowing money at
low rates on the same day, thereby making the market volatile. 5ther reasons for the recent
fluctuations are the e'pansion of credit and withdrawal of deposit by the public during *id-
festival. Demand for &ash by banks and financial institutions hit the inter bank repo market.
esides, some banksD borrowing of foreign currency from inter bank money market
contributed to the increase in both e'change and call money rates.
$any opine that progressive involvement of the commercial banks in the share market will
#eopardize the share market as well as money market. The serious concern is that if the
offenders have political blessings, then the market will have little chance of revival.
&onflicting decisions of angladesh ank and imprudent government interventions are only
creating tension and indiscipline in the banking sector and the countryDs money market is
poised for a threat to its stability.
1overnmentDs large borrowing from banks has already created li.uidity crisis in the banking
sector and thus raised interest on government saving instruments would lure depositors to
purchase the governmentDs saving instruments which would the be treated as fresh borrowing
by the government. *'perts say this is going to emerge as a big threat to the stability.
$a#or commercial banks are already sitting idle with huge amount of unsold government
bonds unable to cash to ease their li.uidity crisis.
THREATS TO CAPITAL MARKET
30
The une'pected rise and fall in security prices mostly followed from general confidence of the
investors about political satiability, euphoria of investment in shares, prospect of .uick capital
gains, a vacuum in respect of institutional presence in the share market, monopolistic dominance
of member of brokers, inefficiency of the S*&, absence of proper application of circuit breaker
etc. !lthough there are increasing trends in all the indicators, DS*, &S* are not free from
problems, the problems of DS*, &S* " other may be summarized as under4
I+(r!(er %"nan#"al $tate+ent: $any companies do not focus real position of the company
as some audit firms involve incorruption while preparing financial statements. !s a result the
shareholders as well as investors do not have any idea about position of that company.
Irre*.lat"!n$ "n D")",en,$: Some companies do not hold !nnual 1eneral $eeting ,!1$-
and eventually declare dividends that confused the shareholders about the financial positions
of the company.
Pr"#e +an"(.lat"!n: %t has been observed that the share values of some profitable companies
has been increased fictitiously some items that hampers the smooth operation of Stock
market.
Dela'$ "n Settle+ent: Financing procedures and delivery of securities sometimes take an
unusual long time for which the money is blocked from nothing.
Sele#t"!n !% Me+7er$/"(: Some members being the directors of listed companies of DS*,
&S* look for their own interest using their internal information of share market.
T/e P!l"t"#al S"t.at"!n: The )eopleDs 0epublic of angladesh has been a parliamentary
democracy since September 6776. The present government is headed by the !wami +eague
which has an absolute ma#ority, but the opposition party has stepped up its nationwide
program of strikes, processions, and mass meetings. These activities have weakened the
governmentDs intentions to foster changes such as the development of the financial market. %n
addition, certain commercial and financial regulations are outdated in that they tend to focus
on institutions rather than functions. 1overnance and accountability are lacking in certain
31
areas, and there are elements of inefficiency in the financial system, mainly concerning the
state-owned banking sector. !lthough the government is aware of these problems, it has been
slow to improve governance and develop strong institutional capacity. The problems created
by these weak institutions are compounded by an increasingly confrontational.
La# !% tran$(aren#' "n (.7l"# $e#t!r 7!rr!D"n*: )ublic sector borrowing has been
riddled with lack of transparency that failed to eventually proffer any reliable demand-supply
scenario in which an efficient debt market can function. ecause of the fre.uent shifts and
adhoc culture and volatility of demand, many of the debt instruments could not be designed
to be publicly traded that could fuel a vibrant market. *fforts are now on to issue tradable
instruments and bring fiscal discipline.
Re*.lat!r$ an, Re*.lat"!n$: 5ne impediment at the regulator and regulation level is the
overlapping authority between the two financial market regulators, angladesh ank and the
Securities and *'change &ommission ,S*&-, and no clear #urisdiction over the fi'ed-income
market. %n general, regulates the commercial banks and their activities, while the S*&
regulates the (F%s, the two stock e'changes, and the capital market. ! second problem is
that the S*& has no authority to issue rules and regulations, and the procedure as a whole is
long and drawn out. !s a result, the S*& has not proposed any regulations for the issuance of
bonds or debentures. !ll rule proposals must first be submitted to the $inister of Finance for
approval and then passed on for approval from $inistry of +aw. Furthermore, potential
issuers have to look at various sets of regulations and follow a long and cumbersome
procedure.
In)e$t!r$: 5n the investor side, few investors are sophisticated enough to think about
investing in bonds. $ost of them donDt have even financial literacy.
Inter+e,"ar"e$: %ntermediaries in angladesh lack many of the skills needed to foster an
active local corporate bond market. !s mentioned earlier, commercial banks dominate the
financial sector and not enough intermediaries are skilled in securities. Few are able to
32
identify issuers and investors and bring them to the market. They provide little or no research
analysis on industries or companies to encourage investment in the local debt market. Too
few private merchant banks are able to conduct financial advisory and trust services. (or do
any feel motivated to become a market maker for an issue. Ience the market is illi.uid, with
large spreads. !t the same time, the fee structure and pricing are high enough to allow
intermediaries to make money, but because transactions are so limited, the intermediaries
seldom make money. *ven if they are able to participate, intermediaries are reluctant to take
any risk in dealing.
$any companies of DS* donDt focus real position of the company as some audit firms
involve in corruption while preparing financial statements.
OPPORTUNITIES OF MONEY MARKET B CAPITAL MARKET
$oney market is an integral part of the financial market of a country. %t provides a medium for
the redistribution of short term loanable funds among financial institutions. The capital market is
the engine of growth for an economy, and performs a critical role in acting as an intermediary
between savers and companies seeking additional financing for business e'pansion. 2ibrant
capital is likely to support a robust economy. 3hile lending by commercial banks provides
valuable initial support for corporate growth, a developed stock-market is an important pre-
re.uisite for moving into a more mature growth phase with more sophisticated conglomerates.
Today, with a C :? billion economy and per capita income of roughly C8BB, angladesh should
really focus on improving governance and developing advanced market products, such as
derivatives, swaps etc.
! large number of new investors from across the country are entering the market.
%nstitutional investors are active in the market. !sset management companies are growing
and their activities are visible. ! number of proposals for new mutual funds are awaiting
approval.
33
0egulatory policies should be framed with long term vision. %n recent months,
some policy decisions are being taken to address current problems at the cost of long
term market interest. These policy changes include fi'ation of minimum size of new
public issue, imposing restriction on private placements, dis.ualifying private sector
companies under direct listing and discouraging new mutual funds.
angladesh ank has given permission to newer anks which is definitely a symbol of
improvement for the $oney $arket of the country.
)eople are becoming more saver than past and thus increased deposit helps the anks "
(F%s to lend more thus having a solid business.
$any of the stocks are overpriced and this is a serious risk factor for the ine'perienced
investors. *ntry of new companies in the market can help reduce gap between demand
and supply and help bring stability in the market.
T&+ with its huge asset is another public sector company that could make immense
contribution to supply side of the market.
)rivate placements have been stopped in case of smaller companies. %t is true that scope
of private placement has been misused in some cases recently and the problem called
for intervention.
%n the interest of improving supply of shares in the market, direct listing could also be
allowed for the private sector companies with some modifications. There should be an
improved price discovery mechanism so that general investors get the shares at an
acceptable price and manipulations are controlled.
34
S*& has taken very crucial initiatives to publicize and educate the investors about
fundamentals to deal in share transactions.
S*& is also contemplating the introduction of the book-building method in the valuation
of %)5s in order to ensure a fair price within this year. This will encourage companies
with sound financial health to come into the market.
CONCLUSION
! financial system is a system that to channels funds from lenders to borrowers, to create
li.uidity and money, to provide a payments mechanism, to provide financial services such as
insurance " pensions and to offers portfolio ad#ustment facilities. %t comprises a set of comple'
and closely interconnected financial institutions, markets, instruments, services, practices and
transactions. (o country can deny the importance of Financial $arket in the economy of that
country.
Today there are more opportunities for the $oney $arket " &apital $arket to improve more
and thus give more contribution to the economy. !lthough being a small country angladesh has
strong base of Financial $arket and if the threats are faced in time then the Financial $arket of
the country will be more strong and able to give more contribution for the development of the
economy. The pro-active measures taken in the financial sector in recent years have put salutary
impact on the financial system. Iopefully, the on-going reform process in the financial system of
angladesh will bring more stability and transparency. %n this regard, proper care should be taken
in the reform process so that reforms in the financial sector embrace the socio- economic realities
in angladesh
Re%eren#e
6. http4==www.bangladesh-bank.org
35
9. http4==www.bdresearch.org=home=attachments=article=;6A=)PFPSector.pdf
@. http4==www.banglapedia.org=httpdocs=IT=PB6;@.IT$
A. http4==en.wikipedia.org=wiki=DhakaPStockP*'change
;. http4==mof.gov.bd
:. http4==wikipedia.org
36