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Banking Sector of Bangladesh

Financial sector of Bangladesh is majorly dominated by the banking sector. Banking industry is confronting the
challenge of both internal and external risks exposure. Some of these risks are beyond control. However, with
matured experience, the sector has witnessed various industry cycles, economic turmoil and hence has
developed and adjusted itself with a risk identification and mitigation framework that not only protects the
company from unfavorable conditions, but also helps to enhance operating viability and ensure sustainability.
A detail analysis of competitive intensity while operating in the dynamic and challenging banking sector and
responses to minimize the impact of these risks on the business model is depicted below to show our risk
framework through Michael Porter’s risk analysis structure.

PORTER’S FIVE FORCES MODEL OF COMPETITION


Competitive rivalry:

In Bangladesh, competition among banks has increased drastically. The banking industry faces stiff competition
from 59 banks and 34 NBFIs. The competition from 59 banks in the industry, along with the intense price war
had led to a decline in the number of loyal customers, making the banking industry extremely competitive.
Costumers switching cost is very low, they can easily switch from one bank to another bank and very little
loyalty exist. There is a little differentiation between competitors’ products and services. Brand awareness is
yet to develop in the industry. Private banks are now focusing on different and unique product and service
proposition as always to be on the race track to compete. On the other hand, for augmentation of brand value
several unique and innovative ways have undertaken with the seamless services with utmost care.

Supplier power:

Deposit customers are the key supplier of money due to lower switching cost of banking industry, customers
have strong bargaining power. Recent rate cuts in deposits, triggering from a highly competitive lending market
have directly impacted the number of deposit customers. This source of funds either from individual customer
or borrowings from other financial institutions are largely based on the market circumstances. Therefore, their
power is often considered to be fluctuated ranging from medium to high.

Buyer power:

Generally, borrowers of the banks are to be considered as the buyer and they exercise high bargaining power.
They create pressure for price cut with improve service quality i.e. lessen the rate of interest. In this particular
area, clients are a bit forceful to compel banks. Banks are often vulnerable towards selling loans and advances
to safeguard the interest of the Bank.

Threat of new entrants:

In the past few years a number of new banks and NBFIs have entered into an already matured & competitive
market as well as entering new banks will intensify the competition in near future. As a result, the threat of new
entrants is reasonably high.

Threat of substitute products: Some of the banking industry’s largest threats of substitution are not only from
rival banks but from nonbanking -financial institutions. Threats of substitute products are intense and shrinking
the opportunities for flourishes.

Performance Analysis of Banking Industry of Bangladesh:

Earnings as measured by ROA and ROE differ greatly within the banking industry. In terms of Return on Asset
(ROA) and Return on Equity (ROE), the performance of FCBs, PCBs, and FCBs have deteriorated.

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Analysis of these indicators reveals that the ROA of the SCBs was less than the Private Commercial Banks and
Foreign Commercial Banks. PCBs’ ROA showed a consistently strong position up to 2010, but it was in a
decreasing trend during 2011-2012 due to declining net profit. FCBs’ ROA had been consistently strong during
the last couple of years.

ROE of the SCBs was -19.04 percent in 2017, but improved compared to negative 12.3 percent in the current
year. ROE of the PCBs slightly increased till 2016.ROE of the FCBs declined to 10.81 percent in 2017 from
13.08 percent in 2016.

Most of the banks in Bangladesh made higher operating profits in the just concluded year amid swelling of bad
loans in the country’s banking sector. However, reduced corporate tax rates for banks in FY’2018-19 budget
can improve profitability due to lower current tax expenses. The new Finance Minister is committed to reducing
the bad loans significantly. So, we can expect that the industry will flourish gradually.

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Telecommunication Sector of Bangladesh
The telecommunication sector of Bangladesh has been witnessing tremendous growth in customer acquisition,
resulting in increased market penetration over the year. As the country is progressing towards increased
digitalization, with growth in per capita income and change in the life style of its citizens, mobile subscription
has become a part and parcel of everyday life of its population irrespective of the income level. Most people
now hold more than one mobile phone set and more than one subscription, which is also resulting in significant
growth in market penetration. Meanwhile, use of social media platforms like Facebook, WhatsApp, Viber etc.
and video streaming sites like YouTube now became part of everyday life for all classes of people mostly among
the young and middle-age group. And the use of such media is growing every day, ultimately resulting in more
and more use of internet data.

Porters Five Forces Model


Bargaining power of Buyers: There are four mobile telecom operators in Bangladesh and they offer almost
homogenous services which have low switching costs between operators and thus has provided buyers with
extremely high bargaining power. The bargaining power of buyers in this industry is very high, with the
exception of remote-area customers who have no alternative network available in their vicinity.
Bargaining power of suppliers:
Suppliers for telecommunication industries are telecom infrastructure providers (e.g. tower industry), telecom
equipment manufacturers (e.g. Network routers, transmission lines), government which allocates spectrum. The
bargaining power of suppliers in the industry is strong in some cases if not in all. If the telecom operators had
to design the products on the whims of the suppliers because their output is unique, then the suppliers would
enjoy absolute advantage in terms of bargaining power. But here this is not the case. Again, since the number
of suppliers is very limited say Huawei, NOKIA & Ericsson and a handful number of network administrators,
they (the suppliers) have this power to leverage on this, because this is limiting the choice of the operators and
making the switching cost very high for them.
Industry Substitutes: Mobile telecommunications is a high-tech industry and the substitutes that would replace
the products or services of today are strongly related to the factor of innovation. In case of Bangladesh mobile
telecom industry, substitutes exist in the form of government fixed-land lines and some upcoming PSTN
operators. Some additional substitutes include VoIP service providers (VSP), Skype, Google Talk, wireless
Internet providers such as WiMax based companies etc. However, there is no strong competitive substitute for
mobile telecom industry as the existing alternatives are either nearly obsolete or in embryonic stage and thus
poses very little threat to the industry. So, the threat from substitutes is weak in Bangladesh.
Threat of New Entrants: Mobile Telecom is capital and resource intensive business which poses a significant
entry barrier for potential players in Bangladesh. Existing companies have created significant brand positioning
and economies of scale in network coverage- which also act as entry barrier. Government rules and regulations-
like imposition of huge tax on SIM card, strong tariff control by the authority, can also create difficulties to
entrants; in addition, the price battle between the competitors brought the tariffs to its lowest in this region. But
the major barrier to entry in Bangladesh mobile telecom market is to obtain a radio spectrum license from
BTRC. So potential direct entry to the industry is relatively restricted at the moment, due to control over licenses.
Hence it seems that the threats of new entrants in mobile industry are moderate to weak.
Rivalry among competitors: There is an intense battle in price ground as each company is trying to increase
the market share by lowering call rate, superior network coverage and better Value-Added Services. The merger
of Robi-Airtel and the demise of Citycell added new dimensions to the competitive landscape. This could may
lead to authorities seek ways to instill further competition into the market.

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Operator Market Share(%)
Grameen Phone Ltd. (GP) 46
Robi Axiata Limited (Robi) 30
Banglalink 21
Teletalk Bangladesh Ltd. 2
Grameenphone is still dominating the industry holding 46% of the market share of this sector. With the
Herfindhal-Hirschman Index, (HHI) we try to measure the market concentration and competition among market
participants. With the market share of the market share of the industry we have found HHI score of 3500 that
indicates the industry is concentrated.
From the five forces analysis we can say the mobile telecom industry in Bangladesh is moderately attractive
with great growth potential.

The Telecom Sector Outlook of the Country:


The mobile telecommunication industry in Bangladesh will continue to experience hefty growth amidst
increased market penetration. The country has a large population base with steadily increasing disposable
income, consistent GDP growth, and low penetration of internet connectivity. The country is now undergoing a
transformation period towards going more digital, that will have a major contribution from telecommunication
industry and the industry will also enjoy a robust growth along with this transformation journey.
Growth in data service revenue: With increased smartphone market penetration and afterwards the launching
of 3G services in the country mobile internet subscription witnessed tremendous growth in the country along
with growth in overall internet penetration. Last 5 years CAGR in total number of Internet Subscribers in
Bangladesh was 20.05% and that of Mobile internet was 19.83%. Contribution of data revenue to total revenue
of the country’s leading mobile operator GP increased to 16.11% as on 2017 (up to 9 months) compared to
meagre 2.95% in the year 2017, reflecting the overall industry scenario.
“Digital Bangladesh” vision & the growth in telecommunication industry: The government of Bangladesh
is working towards accelerated use of information and digital communication systems to materialize its “Digital
Bangladesh” vision by 2021, which is directly driving the growth in internet uses in the country. Realization of
this vision remains a political priority and is supposed to enable significant growth in local telecom industry.
Meanwhile, 93% of the total internet subscription accounts for mobile internet and the market is growing due
to increased smart-phone penetration in the country, which is directly helping mobile operators. The government
is also working to take the rate of internet penetration in the country to 100% from present 47.9% by 2021.

 Voice ARPU may remain steady in next few years and may decline in the long run but data ARPU is
expected to grow further in the years to come due to increased data consumption and new data
subscriber addition.
 Introduction of 4G will further amplify data service growth as service quality will increase and result
in additional data subscribers from rural areas within the shortest period of time. According to
Grameenphone, 3G smartphone users have 34% and 4G smartphone users have 116% higher ARPU
than feature phone users due to higher uses of data volume. So, with the launch of 4G, ARPU of the
market operators are likely to increase significantly.

Performance Analysis of Telecom Industry:


The revenue of the sector is increasing steadily and Grameenphone is the undisputed market leader with solid
financial performance. With the acquisition of Airtel by Robi has increased their revenue and Banglalink is
losing their revenue with the increased competition among the firms.

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Performance of Grameenphone: Due to the growth in the data sales and increased 3G coverage with controlled
operating expenditures GP managed to maintain a healthy margin during the last 3 years.

As the market has become less competitive with the elimination of two operators, GP has the opportunity to
charge higher prices on its services with wider network coverage that will have a positive impact on the margin.
Besides, as the operator will no longer need to invest heavily for providing 4G services the margin for GP is
expected to experience an uptrend in the coming years due to comparatively reduced operating expenses.

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