Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
The business of banking is in many English common law countries not defined by statute but
by common law, the definition above. In other English common law jurisdictions there are
statutory definitions of the business of banking or banking business. When looking at these
definitions it is important to keep in minds that they are defining the business of banking for
the purposes of the legislation, and not necessarily in general. In particular, most of the
definitions are from legislation that has the purposes of entry regulating and supervising
banks rather than regulating the actual business of banking. However, in many cases the
statutory definition closely mirrors the common law one. Examples of statutory definitions:
Banking business means the business of receiving money on current or deposit account,
paying and collecting cheques drawn by or paid in by customers, the making of advances to
customers, and includes such other business as the Authority may prescribe for the purposes
of this Act; (Banking Act (Singapore), Section 2, Interpretation).
Banking business means the business of either or both of the following:
1.
1.
Receiving from the general public money on current, deposit, savings or other similar
account repayable on demand or within less than [3 months] or with a period of call or notice
of less than that period.
2.
2.
Paying or collecting cheques drawn by or paid in by customers.
The Indus Valley Civilization, the Roman Civilization, the Greek Civilization, the Egyptian
Civilization, the Mesopotamian Civilization, the Babylonian Civilization, the Vedic Indian
Civilization, the Muslim Civilization played important roles in giving birth to and flourishing of
Bank.
Overview of Banking System:
Whoever, being an individual firm, company or corporation generally deals in the business of
money and credit is called bank. In our country, any institution, which accepts, for the purpose
of lending or investment deposits of money from public, repayable on demand or otherwise,
and with transferable by checks draft order and otherwise can be termed as a bank.
The purpose of banking is to ensure transfer of money from surplus unit to deficit units. Bank
is 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 long-term investment. These entrepreneurs welcome effective and
forward-looking advice for investment. Banking sector thus owe a great to the deposit holders
on the hand and the entrepreneurs on the other. They are expected to play the role of friend,
philosopher, and guide for the deposit holders and the entrepreneurs. Since liberation,
Bangladesh passed through fragile phases of development in the banking sector. The
nationalization of banks in the post liberation period was intended to safe the institutions and
the interest of the depositors. Those handling the banking sector have borne the burden of
putting banks on reliable footings. Despite all that was done, some elements of irregularities
appeared. With the assertion of the role of the Central bank, The Bangladesh bank started
adopting measures for putting banking institutions on right track. Yet the performance of
public sector management of banks left some negative effects in the money market in
particular and the economy in general. The agility among the borrowers manipulates the
banking sector as a whole. In effect, a default culture appeared on the scene.
The opening of PRIVATE and FOREIGN participants to the banking sector was intended to
obtain desirable results from banking. The authorization of private banks was designed to
create competition among the banks and competition in the from of efficiency with and the
productivity in enterprises funded by banks. Unfortunately, for the people, at large banking
sector is yet to obtain the credit for efficiency, credibility, and growth. The clever, among the
user of banking services, have influenced the management of banks, for obtaining short-term
and long-term loans. They sometimes showed inflated to get money for investment in
business and industry. Few diverted their loan money to purposes different from the loan
proposals, and invested in non-profitable units have failed to repay their loans to the banks.
For this reason new entrepreneurs are not getting capital while defaulting entrepreneurs have
started obtaining either relief in the form of rescheduling of the repayment program or
additional inevitable money for diversified units.
Banking History of Bangladesh
The banking system at independence consisted of two branch offices of the former State
Bank of Pakistan and seventeen large commercial banks, two of which were controlled by
Bangladeshi interests and three by foreigners other than West Pakistanis. There were
fourteen smaller commercial banks. Virtually all banking services were concentrated in urban
areas. The newly independent government immediately designated the Dhaka branch of the
State Bank of Pakistan as the central bank and renamed it the Bangladesh Bank. The bank
was responsible for regulating currency, controlling credit and monetary policy, and
administering exchange control and the official foreign exchange reserves. The Bangladesh
government initially nationalized the entire domestic banking system and proceeded to
reorganize and rename the various banks. Foreign-owned banks were permitted to continue
doing business in Bangladesh. The insurance business was also nationalized and became a
source of potential investment funds. Cooperative credit systems and postal savings offices
handled service to small individual and rural accounts. The new banking system succeeded in
establishing reasonably efficient procedures for managing credit and foreign exchange. The
primary function of the credit system throughout the 1970s was to finance trade and the public
sector, which together absorbed 75 percent of total advances. The governments
encouragement during the late 1970s and early 1980s of agricultural development and private
industry brought changes in lending strategies. Managed by the Bangladesh Krishi Bank, a
specialized agricultural banking institution, lending to farmers and fishermen dramatically
expanded. The number of rural bank branches doubled between 1977 and 1985, to more
than 3,330. Denationalization and private industrial growth led the Bangladesh Bank and the
World Bank to focus their lending on the emerging private manufacturing sector. Scheduled
bank advances to private agriculture, as a percentage of sects oral GDP, rose from 2 percent
in FY 1979 to 11 percent in FY 1987, while advances to private manufacturing rose from 13
percent to 53 percent. The transformation of finance priorities has brought with it problems in
administration. No sound project-appraisal system was in place to identify viable borrowers
and projects. Lending institutions did not have adequate autonomy to choose borrowers and
projects and were often instructed by the political authorities. In addition, the incentive system
for the banks stressed disbursements rather than recoveries, and the accounting and debt
collection systems were inadequate to deal with the problems of loan recovery. It became
more common for borrowers to default on loans than to repay them; the lending system was
simply disbursing grant assistance to private individuals who qualified for loans more for
political than for economic reasons. The rate of recovery on agricultural loans was only 27
percent in FY 1986, and the rate on industrial loans was even worse. As a result of this poor
showing, major donors applied pressure to induce the government and banks to take firmer
action to strengthen internal bank management and credit discipline. As a consequence,
recovery rates began to improve in 1987. The National Commission on Money, Credit, and
Banking recommended broad structural changes in Bangladeshs system of financial
intermediation early in 1987, many of which were built into a three-year compensatory
financing facility signed by Bangladesh with the IMF in February 1987. One major exception
to the management problems of Bangladeshi banks was the Grameen Bank, begun as a
government project in 1976 and established in 1983 as an independent bank. In the late
1980s, the bank continued to provide financial resources to the poor on reasonable terms and
to generate productive self-employment without external assistance. Its customers were
landless persons who took small loans for all types of economic activities, including housing.
About 70 percent of the borrowers were women, who were otherwise not much represented in
institutional finance. Collective rural enterprises also could borrow from the Grameen Bank for
investments in tube wells, rice and oil mills, and power looms and for leasing land for joint
cultivation. The average loan by the Grameen Bank in the mid-1980s was around Tk 2,000
(US$65), and the maximum was just Tk18, 000 (for construction of a tin-roof house).
Repayment terms were 4 percent for rural housing and 8.5 percent for normal lending
operations. The Grameen Bank extended collateral-free loans to 200,000 landless people in
its first 10 years. Most of its customers had never dealt with formal lending institutions before.
The most remarkable accomplishment was the phenomenal recovery rate; amid the prevailing
pattern of bad debts throughout the Bangladeshi banking system, only 4 percent of Grameen
Bank loans were overdue. The bank had from the outset applied a specialized system of
intensive credit supervision that set it apart from others. Its success, though still on a rather
small scale, provided hope that it could continue to grow and that it could be replicated or
adapted to other development-related priorities. The Grameen Bank was expanding rapidly,
planning to have 500 branches throughout the country by the late 1980s. Beginning in late
1985, the government pursued a tight monetary policy aimed at limiting the growth of
domestic private credit and government borrowing from the banking system. The policy was
largely successful in reducing the growth of the money supply and total domestic credit. Net
credit to the government actually declined in FY 1986. The problem of credit recovery
remained a threat to monetary stability, responsible for serious resource misallocation and
harsh inequities. Although the government had begun effective measures to improve financial
discipline, the draconian contraction of credit availability contained the risk of inadvertently
discouraging new economic activity. Foreign exchange reserves at the end of FY 1986 were
US$476 million, equivalent to slightly more than 2 months worth of imports. This represented
a 20-percent increase of reserves over the previous year, largely the result of higher
remittances by Bangladeshi workers abroad. The country also reduced imports by about 10
percent to US$2.4 billion. Because of Bangladeshs status as a least developed country
receiving concession loans, private creditors accounted for only about 6 percent of
outstanding public debt. The external public debt was US$6.4 billion, and annual debt service
payments were US$467 million at the end of FY 1986.
THE BANKING INDUSTRY OF BANGLADESH
Introduction:
The gradual improvement in the overall policy environment has enabled Bangladesh to
improve its economic performance in recent years. Successive governments in Bangladesh
have been confronted with the problem of stimulating the economic growth rate in a country
where a substantial segment of the population lives below the subsistence level. Economic
policies are still guided by five year plans. Nevertheless, some progress has been made over
the years, such as self -sufficiency in food grain production, reducing the population growth
rate, poverty alleviation and boosting export income. The GDP growth per annum has been
about 5 percent on an average from 1994-2000; Per capita GDP was $363 in 1999-2000.
The prospect of economic growth in Bangladesh in the near future will depend on the pace of
economic reforms and the quality of macroeconomic management. Accelerating the rate of
economic growth will require higher levels of investment. This will primarily come from private
flows of foreign direct investment. This can be established by reforming the financial system
and continuing the process of financial deepening.
The financial system in Bangladesh is relatively small and less developed than in most
countries in South and East Asia. The sectors contribution to GDP has remained static at 1.5
percent during 1999-2000 periods. Commercial banks are at the heart of this financial sector
by contributing 80% of the total. The depth of the financial system, as measured by the ratio
of the broad money supply to GDP, has been growing slowly and was low at around 32% in
1999-2000.
However, as the government is often the owner and regulator as well as the supervisor and
customer of a bank, there has been ample opportunity for mismanagement over the years.
The banking sector is plagued with a lack of credit discipline, archaic loan recovery law,
corruption, inefficiency, overstaffing, etc. Several reform measures of the financial sector have
been taken to improve the situation. Relative stability achieved by the support extended by
both the central bank and the Government of Bangladesh in the past has restored public
confidence in the countrys banking sector. Moreover, Nationalized Commercial Banks
(NCBs) and old generation Private Commercial Banks (PCBs) would have to lower the rate of
NPAs in their portfolios. Failure to do so would mean re-capitalization, at least for the NCBs.
This may in turn lead to a further drain on the limited resources of the Government of
Bangladesh. At this time or in the immediate future this re-capitalization would not be feasible.
With these conditions in place, the World Bank anticipates the likelihood of a situation where
the ever-increasing burden of non-performing loans and growing rate of debt servicing would
place the economy under enormous strain and result in a crisis in the banking sector in the
long term.
Market Segment
The banking industry of Bangladesh is mainly divided into two sectors, such as Specialized
Banks (SBs) and Commercial Banks (CBs). The Specialized Banks are those banks that deal
with specific sectors or industry of an economy. For instance, Bangladesh Krishi Bank (BKB)
only deals with the agricultural sector of the economy; Bangladesh Shilpa Bank (BSB) only
deals with the industrial sector of the economy, etc.
On the other hand, Commercial Banks are Scheduled Banks that are operating in the country
under the rules and regulations of the Central Bank. Commercial banks in turn can be
grouped as Nationalized Commercial Banks (NCBs); Foreign Commercial Banks (FCBs) and
Private Commercial Banks (PCBs) with three different segments, such as 1 st Generation
Private Commercial Banks, 2nd Generation Private Commercial Banks, and 3 rd Generation
Private Commercial Banks.
The Bangladesh Bank (BB) Order created in 1972, authorized Bangladesh Bank (BB) as the
central bank of the country. Bangladesh Bank Order 1972 and the Banking / Companies Act
1991 mainly guide the commercial banks in Bangladesh. Commercial Banks in Bangladesh
are not allowed to do business other than just banking. Normal activities include borrowing,
raising or taking up of money, lending or advancing of money with or without security. They
are also authorized to issue letters of credit, trade in precious commodities and buying and
selling of foreign goods excluding foreign bank notes. They are also authorized to trade in
bills of exchange, promissory notes, coupons, drafts, debentures, certificates and other
instruments approved by Bangladesh Bank (BB). Banking companies are required to provide
safe vaults and are authorized to collect money and securities.
All banks operating in Bangladesh with different paid-up capital and reserves having a
minimum of an aggregate value of Tk. 5 million and conducting their affairs to the satisfaction
of the Bangladesh Bank have been declared as scheduled banks in terms of section 37(2) of
Bangladesh Bank Order 1972. Now in terms of section 13 of Bank Company Act, 1991, the
minimum aggregate capital is Tk. 200 million.
After liberation, the banks operating in Bangladesh (except those incorporated abroad) were
nationalized. These banks were merged and grouped into six commercial banks. Of the total
six commercial banks, Pubali Bank Ltd. and Uttara Bank Ltd. have subsequently been
transferred to the private sector with effect from January 1985. Moreover at present there are
51 scheduled banks operating allover the country. Out of these, 9 are state-owned (including
five specialized banks), 30 are private commercial banks (including four Islami banks) and the
remaining 12 are foreign commercial banks (including one Islami bank).
The name of all the banks operating in Bangladesh and their year of incorporation are given
in table 1.
Table 1. Name of the Banks operating in Bangladesh
NAME OF THE BANK
DATE OF
INCORPORATION
DATE OF
INCORPORATION
Specialized Banks
Sonali Bank
1972
BKB
1972
Janata Bank
1972
BSB
1972
Agrani Bank
1972
BSRS
1972
1972
RAKUB
1987
BASIC
1988
(1982 1988)
(1992 1996)
1982
1992
1983
1993
1983
1995
1983
1995
1983
1995
1983
1995
1983
1995
1984
1996
1987
rd
3 Generation Private
(1998 Present)
Banks
Bangladesh Commerce
Bank
1998
1905
1999
1948
1999
1996
1999
1975
1999
1976
1999
1994
1999
1994
1999
1995
1999
HSBC
1996
1999
1997
Jamuna Bank
2001
1997
Shahjalal Bank
2001
Hanvit Bank
1999
BRAC Bank
2001
Mashreq
2001
clearly defined, and it lacks autonomy in such core areas as the licensing of new banks,
monetary and exchange rate policies, and the supervision of NCBs. Banks are allowed to
operate even though some of them suffer from capital deficiency. Loan classification and
provisioning are not fully enforced, and no punitive measures are taken against banks that fail
to implement agreed corrective measures. BB would be unable to deal with a banking sector
crisis if one were to occur. With over 6,200 staff, of whom 1,720 are clerical, BB is significantly
overstaffed relative to the size of the financial system.
support
is
available
if
the
person
is
unable
to
make
repayment.
The
groups socialcollateral replaces the traditional economic collateral of assets and capital.
manpower resource.
To bring the disadvantaged people within the fields of some organizational format which
they can understand and operate, and can find socio political and economic strength in it
through mutual support.
To reverse the age-old vicious circle of law income, low savings, low investment, low
income into an expanding system of low income, credit, investment, more income.
credit facilities.
To maintain a motivated work-force through an appropriate system of human resource
management, training and development.
trade financing, collection of bills, money transfers, lease of equipment and consumers
durable, hire purchase and installment sale of capital goods, investment in low-cost housing
and real estate management, and financing projects in agriculture, transport, education and
health sectors. In the non-formal non-corporate sector, it is involved in opening and
introducing various savings and investment schemes for the unemployed poor and the
educated. In the voluntary sector, it is involved in the development and management of waqf
and mosque properties, management of inheritance properties, and joint venture projects
relating to religious affairs and charitable activities.
Total deposits of the bank amounted to Tk. 4,863.21 million in 2000 compared to Tk. 124.73
million in 1995 and included currency and other deposits, bills payable, term deposits and
savings deposits. On 31 December 2000, the loans and advances in various sectors stood at
Tk. 3,522.24 million as against Tk. 0.22 million in 1995. On 31 December 2000, the classified
investments (loans and investment) of the bank amounted to Tk. 173.1 million (4.91% of the
total). Foreign exchange business handled by the bank in 2000 accounted for Tk. 4,250
million, which comprised export servicing, import financing and remittance facilities. That year
the assets of the bank were valued at Tk. 5,672 million and the off-balance-sheet-items Tk.
1,060.04 million. The bank started having net profits since 1998 and the net profit after
adjusting all provisions for taxation and classified loans amounted to Tk. 38.1 million. The
profitability of the bank is severely affected by the fact that it has to maintain a substantial
amount of provision for its classified loans each year.
The management of the bank is vested in a 27-member board of directors headed by a
chairman. There is a 5-member Shariah Council of the bank to ensure the compliance of
Islamic rules in its activities. The bank has also a 13-member honorary foreign members
international advisory council to advice it on international business affairs, particularly in
Islamic countries. In December 2000, the bank had 13 branches and in all, 310 employees
including executives of different cadres.
Bangladesh Shilpa Bank
Bangladesh Shilpa Bank (BSB) established under the Bangladesh Shilpa Bank Order 1972
(Presidential Order No. 129 of 1972) on 31 October 1972, to provide credit facilities and
equity support to industrial enterprises in Bangladesh. It is the prime development financing
institution (DFI) in the country for extending financial assistance for industrialization. Initially,
the authorized capital of the bank was Tk. 1,000 million in 1972 and the paid up capital was
then Tk. 750 million, which was subscribed by the government of the Peoples Republic of
Bangladesh. Later, the authorized and paid up capital was enhanced. In 2000, the authorized
capital was Tk. 2,000 million divided into 2 million shares of Tk. 1,000 each. Tk. 1,320 million
(66%) was subscribed and paid up by the government while the rest were left for subscription
by Bangladeshi nationals or by financial institutions at home and abroad.
The bank created a reserve fund of Tk. 7 million in its first year of operations. In 1999-2000,
the total reserve fund and other reserves of the bank stood at Tk. 392.36 million. In 1982, the
bank created a special equity fund titled Quasi Equity by converting the 3rd, 5th, 6th and 8th
UK credits received by it immediately after independence in 1971. The prime objective of the
bank is to accelerate industrial growth in the country by financing industries, by providing
advisory services in setting up new projects, and by assisting in balancing, modernization,
replacement and expansion (BMRE) of existing industrial units.
The Bank provides long and medium-term loans both in local and foreign currencies,
guarantees repayment of loans raised by investors from other sources, and provides equity
support by way of outright purchase of shares and by underwriting the public issue of shares.
It also extends short-term bridge financing and working capital loans on a limited scale. BSB
provides free technical advice in respect of plant and machinery, product and process, raw
materials, market for products, and other related aspects to prospective entrepreneurs. It
prepares project profiles for private entrepreneurs. All industrial projects either in the public
sector or in the private sector are eligible for financial assistance from the bank. It follows a
policy of diversifying its lending portfolio for widespread geographical dispersal of industrial
enterprises, especially in less-developed areas of the country. With the view to bringing more
dynamism and diversity in its activities, BSB started full-fledged commercial banking in 199394. This enables bank-financed projects to obtain commercial banking services including
working capital loans, import of raw materials, etc.
On 31 December 2000, the total deposits of the bank were Tk. 725.67 million comprising
deposits received from banks (Tk. 154.67 million), current account (Tk. 72.24 million), bills
payable (Tk. 3.34 million), savings bank accounts (Tk. 130.54 million), fixed deposits (Tk.
267.01 million), and other deposits (Tk. 97.87 million). Rates of interests offered by BSB on
different deposit accounts varied between 7.75% and 9.75%, depending upon the duration of
deposits. Lending rates of the bank varied between 10% and 18%. Up to end 1999, the bank
financed a total of 1,573 industrial projects. The amount loaned to them was Tk. 27,342
million. Total loans and advances of the bank (after provision for bad and doubtful debts) were
Tk. 7,136.26 million in 1999-2000. The distribution of the loans and advances by types were
cash credit (Tk. 1,121.96 million), long-term loans (Tk. 19,242.87 million), overdraft (Tk.
140.73 million), bridge loan (Tk. 282.11 million), and staff loans (Tk. 533.89 million). At the
end of 2000, the cumulative amounts of the banks non-performing stuck-up loans stood at
Tk. 14,195.30 million, and were classified duly as substandard, doubtful, and bad, under the
loans classification rules of Bangladesh bank.
Shilpa Bank borrowed an amount of Tk. 8,604.48 million during 1999-2000 from various
internal and external sources. This includes F C Borrowing Accounts (Tk. 360.32 million),
BSCIC (Tk. 3.94 million), Saudi Grant (Tk. 11.80 million), KFW Counterpart Fund (Tk. 165.93
million), Long-term loan from Bangladesh Bank (Tk. 6405.57 million), KFW Loan (Tk. 15.38
million), Danish Credit Counterpart Fund (Tk. 7.49 million), and overdue installment interest
and exchange risk A/C (Tk. 1,634.04 million).
The foreign exchange business handled by Shilpa Bank in 1997-98 was Tk. 479 million, but
dropped to Tk. 25 million in the next year. This business covers export servicing, import
financing, and remittance facilities. In 2001, the bank had correspondent relationships with 35
foreign banks and other financial institutions. In June 2000, the BSB investments other than
lending stood at Tk. 1289.54 million and its investment portfolio comprised short and long
term treasury bills and bonds, prize bonds, shares and debentures and equity investments in
industrial units. Total assets of the bank were valued at Tk. 24,002.90 million in June 2000.
The bank demonstrated a deteriorating trend in profitability since 1994. The cumulative loss of
the bank stood at Tk. 3,285.60 million in 2000. The main reason for losses is the huge
amount of non-performing stuck-up loans for which the bank has to maintain large amount of
provision from its profit each year. Borrowed funds constitute a major source of the banks
lending assets and posting of accrued interest in interest suspense account has lowered its
net interest income.
The management of the bank is vested in a 9-member board of directors, including the
chairman and the managing director appointed by the government. However, there is a
provision that non-government shareholders of the bank shall elect 4 directors from amongst
themselves. But till now, there is no private subscription in the banks capital, and all directors
are appointed by the government. The managing director is the chief executive officer. The
bank has 16 branches. The total number of employees in the bank is 997. The head office of
the bank is at Dhaka and it has 3 zonal offices, one each at Chittagong, Rajshahi and Khulna.
It has six divisions and 23 departments.
Karmasangsthan Bank
Employment
Bank a
specialized
bank
established
in
1998
under
the
Act
for
The bank has its head office at Dhaka and 68 branches (up to 31 May 2001) in the district
headquarters including Dhaka city. A total of 285 employees including 127 officers of different
grades are now working in the bank.
Within the selected fields of economic activities, potential youths can undertake any incomegenerating project and receive financial support from the bank to run the approved projects.
According to its lending policy, the Employment Bank does limit loan size to any minimum
amount. The loan size depends upon the nature and size of projects but an individual may be
given a maximum Tk. 0.5 million as loan for a project. The youths may form groups to
undertake projects; a group-based project can avail itself of a maximum of Tk. 2 million in
credit. The repayment schedule is varied depending upon the nature of activity, size of
investments and flow of incomes from the projects. However a loan is to be repaid within a
maximum period of 5 years. Interest rates had been variable and during the banks
operational period up to December 2000; the maximum lending rate recorded was 14% per
annum. Upon repayment of installments on or before the expiry date, one receives a 3%
rebate on the total amount of interest accrued on a particular loan account.
Up to March 2000, the bank disbursed Tk. 42 million in loans to unemployed youths. During
the same period, total recovery stood at Tk. 7 million. Deposits collected by the bank during
1999 were Tk. 0.22 million and comprised savings deposits (Tk. 14,596), staff provident fund
(Tk. 66,808) and staff superannuation fund (Tk. 137,859).
The bank has no investment other than its lending. In 1999, its total assets were Tk. 1,007
million, total incomes Tk. 59 million, and total expenses Tk. 7 million. It earned a net profit of
Tk. 30.69 million in the business year 1998-99.