BANGLADESH

UNIVERSITY OF
BUSINESS AND
TECHNOLOGY
Assignment
On
Overview of Banking Sector of Bangladesh

Submitted By:
Group-Backbencher
Intake-45
Sec-02
Program-BBA
Submitted To:
Md. Sayeem Bin Hafiz
Department of Finance
 Introduction
Bank

The word “Bank” is said to be derived from the Italian word “banco” i.e. bench.
The early bankers, the Jews in Lombardy, transacted their business at benches
in the market place. When a banker failed, his banco used to be broken up by the
people. From such circumstance, the word “bankrupt” originated. There are
others, who are of the opinion that the word “bank” is originally derived from the
German word “back”, meaning a joint stock fund, which was, when most of the
Italy was under German occupation, Italianized into “banco”. This appears to be
more reasonable.

Whoever, being an individual, firm, company or corporation, generally deals in

the business of money and credit is called a bank. In our country, any institution
which accepts, from the public, repayable on demand or otherwise, and withdraw
able by cheque, draft, order or otherwise, is called a bank.

A narrower and more common definition of a bank is a financial intermediary that

accepts, transfers, and, most important, creates deposits. This includes such
depository institutions as central banks, commercial banks, savings and loan
associations, and mutual savings banks.

Banking

Ordinarily, all functions of a bank in the course of its business may be termed as
banking. In the Banking Companies Act, 1991 (Act 14 of 1991), the word
“banking” has been defined to mean the accepting, for the purpose of lending or
investment, of deposits of money from the public, repayable on demand or
otherwise, and withdraw able by cheque, draft, order or otherwise. But
any company which is engaged in the manufacture of goods or carries on any
trade and which accepts deposits of money from the public merely for the
purpose of financing its business is excluded from being deemed to transact the
business of banking.

Banking, transactions carried on by any individual or firm engaged in providing

financial services to consumers, businesses, or government enterprises. In the
broadest sense, a bank is a financial intermediary that performs one or more of
the following functions: safeguards and transfers funds, lends or facilitates
lending, guarantees creditworthiness, and exchanges money. These services are
provided by such institutions as commercial banks, central banks, savings banks,
trust companies, finance companies, life insurers, and investment bankers.

Banker

Beginning of Banking in Bangladesh

The people of Bangladesh, having proclaimed independence by the proclamation

of independence of independence established the independent Sovereign
peoples Republic of Bangladesh. After the surrender of the occupied forces on
the 16th day of December, 1971, the Government of the people’s Republic of
Bangladesh formally took over the charge of the administration of the territories
now constitutes Bangladesh. In an attempt to rehabilitate the war devastated
banking of Bangladesh, the Government promulgated a law called the
Bangladesh Bank Order, 1971. By this order The State Bank of Pakistan was
declared to be deemed as Bangladesh Bank and the offices, branches, and
assets of the said State Bank was declared to be deemed as offices, branches
and assets of the Bangladesh Bank. It was also declared by the said acting
presidents Order No.2 of 1972 that all currency notes and coins issued by the
said state Bank and Government of Pakistan and were in circulation in
Bangladesh shall be deemed to have issued by the Bangladesh and continue as
legal tender in Bangladesh until otherwise directed. With what has been stated
above, the banking life of Bangladesh started with a legal shape.
 Banking Sector in 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 government’s 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 sect 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 Bangladesh’s
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 Tk2,000 (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.

The commercial banking system dominates Bangladesh’s financial sector.

Bangladesh Bank is the Central Bank of Bangladesh and the chief regulatory
authority in the sector. The banking system is composed of four state-owned
commercial banks, five specialized development banks, thirty private commercial
Banks and nine foreign commercial banks. The Nobel-prize winning Grameen
Bank is a specialized micro-finance institution, which revolutionized the concept
of micro-credit and contributed greatly towards poverty reduction and the
empowerment of women in Bangladesh.

Number and Types of Banks

Central Bank:

   1. Bangladesh Bank

Pursuant to Bangladesh Bank Order, 1972 the Government of Bangladesh

reorganized the Dhaka branch of the State Bank of Pakistan as the central bank
of the country, and named it Bangladesh Bank with retrospective effect from 16
December 1971.

State-owned Commercial Banks:

The banking system of Bangladesh is dominated by the 3 Nationalized

Commercial Banks, which together controlled more than 54% of deposits and
operated 3388 branches (54% of the total) as of December 31, 2004. The
nationalized commercial banks are:

1.                       Specialized Bank of Bangladesh:

1. Rajshahi Krishi Unnoyan Bank

 2. Bangladesh Krishi Bank

3. BDBL

4. Basic Bank Ltd.

ii.             Private Commercial Ban

Private Banks are the highest growth sector due to the dismal performances of
government banks (above). They tend to offer better service and products.

1. Agrani Bank Limited

2. Krishi Bank

3. BRAC Bank Limited

4. Eastern Bank Limited

5. Dutch Bangla Bank Limited

6. Dhaka Bank Limited

7. Islami Bank Bangladesh Ltd

8. Pubali Bank Limited

9. Uttara Bank Limited

10. IFIC Bank Limited

11. National Bank Limited

12. The City Bank Limited

13. United Commercial Bank Limited

14. NCC Bank Limited

15. Prime Bank Limited

16. SouthEast Bank Limited

17. Al-Arafah Islami Bank Limited

18. Social Islami Bank Limited

19. Standard Bank Limited

20. One Bank Limited

21. Exim Bank Limited

22. Mercantile Bank Limited

23. Bangladesh Commerce Bank Limited

24. Mutual Trust Bank Limited

25. First Security Islami Bank Limited

26. The Premier Bank Limited

27. Bank Asia Limited

28. Trust Bank Limited

29. Shahjalal Islami Bank Limited

30. Jamuna Bank Limited

31. ICB Islami Bank

 32. AB Bank Limited

33. BASIC Bank Limited (Bangladesh Small Industries and Commerce Bank Limited)

iii.            Foreign Commercial Banks:

1. Citibank

2. HSBC

3. Standard Chartered Bank

4. Commercial Bank of Ceylon

5. State Bank of India

6. Habib Bank

7. National Bank of Pakistan

8. Woori Bank

9. Bank Alfalah

Specialized Development Banks:

Out of the specialized banks, two (Bangladesh Krishi Bank and Rajshahi Krishi
Unnayan Bank) were created to meet the credit needs of the agricultural sector
while the other two (Bangladesh Shilpa Bank (BSB) & Bangladesh Shilpa Rin
Sangtha (BSRS) are for extending term loans to the industrial sector. The
Specialized banks are:

1. Grameen Bank

2. Bangladesh Krishi Bank

3. Bangladesh Development Bank Ltd

 4. Rajshahi Krishi Unnayan Bank

5. BASIC Bank Limited (Bangladesh Small Industries and Commerce Bank Limited)

6. Bangladesh Somobay Bank Limited (Cooperative Bank)

7. Ansar VDP Unnyan Bank

MAJOR BANK IN BANGLADESH:

 PUBLIC BANK:

 I. Sonali Bank:

Sonali Bank is a state-owned commercial bank in Bangladesh. It is the largest

bank of the country. A fully state-owned enterprise, the bank has been
discharging its nation-building responsibilities by undertaking government
entrusted different socio-economic schemes as well as money market activities
of its own volition, covering all spheres of the economy. Sonali Bank Limited
singularly enjoys the prestige of being the agent of the Central Bank of
Bangladesh in such places where the guardian of the money market has chosen
not to act by itself.

History:

Sonali Bank was established in 1972 under the Bangladesh Banks

(Nationalization) Order, through the amalgamation and nationalization of the
branches of National Bank of Pakistan, Bank of Bhowalpur and Premier Bank
branches located in East Pakistan until the 1971 Bangladesh Liberation War.
When it was established, Sonali Bank had a paid-up capital of 30 million taka.

Functions:

Sonali Bank performs all traditional banking functions including deposit

mobilization and lending. The bank discharges the treasury functions as the
agent of the Bangladesh Bank. It collects tax, stamp duty and registration fees,
operates special savings accounts, pays salaries to the teachers of schools,
madrasahs, and colleges and pension to retired government employees. The
bank provides funding to some income generating and economic development
projects namely, Poverty Alleviation Credit Program, Female Special Credit
Program, and Agro-based Industrial Credit Program in the rural areas. It has a
large participation in foreign exchange business and off-balance sheet activities.
The total volume of foreign exchange business handled by the bank in 1979 was
Tk 14.91 billion and in 2000, it was Tk 67.847 billion, 25.87% of which was
related to exports, 32.2% to imports, and 41.93% to remittances. At present, the
bank has correspondent relationships with 380 foreign banks/bank offices
throughout the world.

Sonali Bank monitors its work through a performance budget. It has a marketing
intelligence unit and conducts a program of human resources development
through training and motivation. It introduced the Lending Risk Analysis
suggested by the Financial Sector Reform Program. Business policies of the
bank in the 1990s included fulfilling capital adequacy requirement, mobilizing
deposits in large amounts, and making investments in more profitable ways. The
bank diversified its activities in off-balance sheet items to expand its area of
operations and increase non-interest-based incomes.

 II. Agrani Bank:

History:

Agrani Bank is a state-owned commercial bank of Bangladesh established in

1972. It’s headquarter is situated at Motijheel in Dhaka, the capital city of
Bangladesh. Agrani Bank Limited, a leading commercial bank with 867 outlets
strategically located in almost all the commercial areas throughout Bangladesh,
overseas Exchange Houses and hundreds of overseas Correspondents, came
into being in 1972 immediately after the emergence of Bangladesh as an
independent state. It started functioning as nationalized commercial bank taking
over assets and liabilities of the east while Habib Bank ltd and commerce Bank
ltd. functioning in the East Pakistan.

Functions:

In addition to traditional deposit taking in various accounts and providing loans to

almost all sectors of the economy, the bank offers many other services through
its schemes of school banking, inland traveler’s cheques, pension funds,
industrial development bond and inland remittance. The bank operates some
income generating and economic development projects such as the Productive
Employment Project, Netrokona Integrated Agri-product and Water Management
Project, IFAD Project for poverty Alleviation through Employment Creation,
Kurigram Poverty Alleviation Project, Crop Intensification Project, National Micro
Irrigation Development Project, Micro Entrepreneurship Development Project,
and Agricultural Diversification and Intensification Project. The bank participates
actively in foreign exchange business including overseas remittance services.

Key developments:

Money Gram and Agrani Bank Announce Alliance to Begin Money Transfer
Services Across Bangladesh 08/16/2009 Moneygram International Inc. and
Agrani Bank Limited launched MoneyGram International Money Transfer
services at 867 Agrani bank locations. Adding MoneyGram’s money transfer
service will add value to customers and widen the array of services that offer
through branches. Government Moves Fast on SoEs Privatization 09/14/2008
The Caretaker Government of Bangladesh has speeded up its pace to privatize a
number of state-owned enterprises (SoEs) by December of 2008. The
Privatization Commission has invited international tenders to sell 21 non-financial
sector SoEs either in open bidding process or by offloading shares. “We could
have achieved further success, if some cases pending with the Court, had not
forced us to hold up some decisions,” an official of the Commission said.

PRIVATE COMMERCIAL BANK:

i. ICB Islami Bank:

The ICB Islami Bank has been incorporated on April, 1987 as a public limited
company under the Companies Act, 1913 to undertake and carry out all kinds of
banking, financial and business activities, transactions and operations in strict
compliance with the principles of Islamic Law (Shariah) relating to business
activities in particular avoiding usury in credit and sales transactions and any
practice which amounts to usury. Certificate for commencement of business has
been issued to the bank on April 30, 1987. The Bank has been authorized by the
Bangladesh Bank to carry on the banking business in Bangladesh with effect
from May 4, 1987. However, actual banking operations commenced on May 20,
1987.

Nature of Business:

All kinds of commercial banking services are provided by the bank to the
customers observing the provisions of the Bank Company Act 1991, Bangladesh
Bank’s directives and the principles of Islamic Shariah.

Functions:
The accompanying financial statements, comprising Balance Sheet, Profit and
Loss Account and Notes thereto have been prepared according to Banking
Companies Act, 1991 and Bangladesh Bank circulars applicable to accounts, on
a going concern basis, under historical cost convention and are based on
generally accepted accounting principles.

Balances with foreign banks at year-end are translated at the average of

telegraphic transfer of buying and selling rates. Excess/shortage of translated
figures over book figures at year-end is transferred to Profit and Loss Account.

Investments:

Investment are stated at amount as reduced by balance of Profit suspense

account and provision for bad and doubtful debts; Profit is not charged on bad
and doubtful investments from the date of filing money suits against the
borrowers; Income which were charged on Investment classified by Bangladesh
Bank Inspection Team and by the Bank management as sub-standard, doubtful
and bad were kept in profit suspense account as per Bangladesh Bank BCD
Circulars and such income is not accounted for as profit until realized from
borrowers.

 ii. National Bank LTD:

The National Bank LTD is the first private sector Bank fully owned by
Bangladeshi entrepreneurs. The bank was opened on March 28, 1983 but the
first branch at 48, Dilkusha Commercial Area, Dhaka started commercial
operation on March 23, 1983. The 2nd Branch was opened on 11 May 1983 at
Khatungonj, Chittagong.

At present, NBL has been carrying on business through its 106 branches spread
all over the country. Besides, the Bank has drawn arrangement with 415
correspondents in 75 countries of the world as well as with 32 overseas
Exchange Companies. NBL was the first domestic bank to establish agency
arrangement with the world-famous Western Union in order to facilitate quick and
safe remittance of the valuable foreign exchanges earned by the expatriate
Bangladeshi nationals. NBL was also the first among domestic banks to
introduce international Master Card in Bangladesh. In the meantime, NBL has
also introduced the Visa Card and Power Card. The Bank has in its use the latest
information technology services of SWIFT and REUTERS. NBL has been
continuing its small credit programmed for disbursement of collateral free
agricultural loans among the poor farmers of Barindra area in Rajshahi district for
improving their lot. Alongside banking activities, NBL is actively involved in sports
and games as well as in various Socio-Cultural activities. Up to September 2006,
the total number of workforce of NBL stood at 2239, which include 1689 officers
and executives and 550 staff. Total assets of the Bank were Tk. 4483 core on
30.09. 2006.The Bank invested 25% equity in Gulf Overseas Exchange
Company LLC, a joint venture Exchange Company in Oman.

FOREIGN COMMERCIAL BANK:

  i. HSBC:

HSBC Holdings plc. is a United Kingdom-based public limited company

incorporated in the UK in 1990 following its name change from The Hong Kong
and Shanghai Banking Corporation, and headquartered in London since 1993.
As of 2009, it is both the world’s largest banking group and the world’s 6th largest
company according to a composite measure by Forbes magazine. Hong Kong
served as the bank’s headquarters until 1992 when it moved to London as a
condition of completing the acquisition of Midland Bank and as the handover of
Hong Kong’s sovereignty approached. Today, whilst no single geographical area
dominates the group’s earnings, Hong Kong still continues to be a significant
source of its income. Recent acquisitions and expansion in China are returning
HSBC to part of its roots. HSBC has an enormous operational base in Asia and
significant lending, investment, and insurance activities around the world. The
company has a global reach and financial fundamentals matched by few other
banking or financial multinationals.

History:

HSBC (originally the “The Hongkong and Shanghai Banking Corporation”) was
founded in Hong Kong (March) and Shanghai (one month later) in 1865. HSBC
Holdings was established in 1990 and became the parent company to The
Hongkong and Shanghai Banking Corporation in preparation for its purchase of
Midland Bank and a change of domicile for the transfer of sovereignty of Hong
Kong.

HSBC World Headquarters designed by Norman Foster in London, United

Kingdom.

In May 1999 HSBC embarked on a major acquisition in the United States with
the purchase of Republic National Bank of New York for $10. 3bn.Expansion into
Continental Europe took place in April 2000 with the acquisition of Crédit
Commercial de France.

Functions, Corporate profile:

HSBC’s Hong Kong head office

As 2010accoing to Forbes magazine, HSBC was the fourth largest bank in the
world in terms of assets ($2,348.98 billion), the second largest in terms of sales
($146.50 billion), the largest in terms of market value ($180.81 billion). It was also
the most profitable bank in the world with $19.13 billion in net income in 2007
(compared to Citigroup’s $3.62 billion and Bank of America’s $14.98 billion in the
same period).

HSBC is by far the largest bank both in the United Kingdom and in Hong Kong
and prints most of Hong Kong’s local currency in its own name. Since the end of
2005, HSBC has been rated the largest banking group in the world by Tier 1
capital.

The HSBC Group has a significant presence in each of the world’s major
financial markets, with the Americas, Asia Pacific and Europe each representing
around one third of the business. With 8,500 offices in 86 countries, 210,000
shareholders, 300,000 staff and 128 million customers worldwide, HSBC
arguably has the most international presence among the world’s multinational
banking giants.

ii. Standard Chartered Bank:

Standard Chartered Bank is a British bank headquartered in London with

operations in more than seventy countries. It operates a network of over 1,700
branches and outlets (including subsidiaries, associates and joint ventures) and
employs 73,000 people.

Despite its British base, it has few customers in the United Kingdom and 90% of
its profits come from Asia, Africa, and the Middle East. Because the bank’s
history is entwined with the development of the British Empire, its operations lie
predominantly in former British colonies, though over the past two decades it has
expanded into countries that have historically had little British influence. It aims to
provide a safe regulatory bridge between these developing economies. It now
focuses on consumer, corporate, and institutional banking, and on the provision
of treasury services—areas in which the Group had particular strength and
expertise. Standard Chartered is listed on the London Stock Exchange and the
Hong Kong Stock Exchange and is a constituent of the FTSE 100 Index. Its
largest shareholder is Temasek Holdings.

History:
The name Standard Chartered comes from the two original banks from which it
was founded and which merged in 1969 — The Chartered Bank of India,
Australia and China, and The Standard Bank of British South Africa. The
Chartered Bank was founded by Scotsman James Wilson following the grant of a
Royal Charter by Queen Victoria in 1853, while The Standard Bank was founded
in the Cape Province of South Africa in 1862 by another Scotsman John
Paterson. Both companies were keen to capitalize on the huge expansion of
trade and to earn the handsome profits to be made from financing the movement
of goods from Europe to the East and to Africa.

Standard Chartered Bank has a major branch in Kolkata. Chartered opened its

first branches in Mumbai, Kolkata and Shanghai in 1858, followed by Hong Kong
and Singapore in 1859.With the opening of the Suez Canal in 1869 and the
extension of the telegraph to China in 1871, Chartered was well placed to
expand and develop its business. In South Africa, Standard, having established a
considerable number of branches, was prominent in financing the development
of the diamond fields of Kimberley from 1867 and later extended its network
further north to the new town of Johannesburg when gold was discovered there
in 1885.Half the output of the second largest gold field in the world passed
through The Standard Bank on its way to London.

Standard Chartered in Gurgaon, India

Specialized Development Banks

Grameen Bank

The literary meaning of Grameen Bank is ‘village bank’ which is a specialized

micro-finance institution that has already received credible reputation for its
successful approach to provide the rural poor with an institutional credit
mechanism and has established the fact that rural poor are generally sincerer in
repaying loans where the urban rich are, in many cases, defaulters.

Micro credit is the “extension of small loans to groups of poor people, especially
women, for the purpose of investing in self-employment programs” to improve
earning capacity and standard of living. It fills the “money gap” left by traditional
banking that excludes non-conventional, poor borrowers. Micro credit programs
either lend to individuals or create group lending whereby solidarity groups are
formed. Group members receive individual loans but group support is available if
the person is unable to make repayment. The group’s social collateral replaces
the traditional economic collateral of assets and capital.
Objectives of Grameen Bank:

  To extend the banking facilities to the poor men and women.
  To eliminate the exploitation of the money lenders.
  To create opportunities for self-employment for the vast un-utilized and under-
utilized 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.

Bangladesh Krishi Bank

It is 100% Government owned specialized bank engaged in agriculture financing.

It provides loan with very low interest rate to the farmers for the development of
agriculture. Krishi Bank is the successor of the agricultural Development Bank of
Bangladesh. It may be pointed out that, in order to make better provision for
affording credit facilities to agriculturists and persons engaged in cottage
industries in the rural areas, the Agricultural Development Bank of Pakistan was
established under the Agricultural Development Bank Ordinance, 1961. This
Pakistani Bank had its regional office in Dhaka, which was after the
independence of Bangladesh, renamed as Agricultural Development Bank of
Bangladesh. It continued Function as a full-fledged bank for the aforesaid
purposes till the establishment of the Bangladesh Krishi Bank under discussion.

Objectives of the Krishi Bank: the main objectives of Krishi bank may be
classified under the heads namely-

1.To provide credit facilities for all kinds of agricultural and agro-based economic
activities keeping in view the needs of small and marginal farmers.
2.To promote cottage and other allied industries in rural and urban areas.
3.To assist farmers in adopting appropriate technologies.
4.To ensure availability of agricultural inputs e.g. seeds, agricultural machineries,
equipment’s, fertilizers etc.
 5.To earn a normal profit for meeting the operational expenses, building of reserve and
expansion of activities to cover wider geo-graphical area.
6.To develop and introduce system of research and development to improve operational
efficiency by policy planning and program review.
7.To extend counseling and advisory services to the lances/entrepreneurs, etc. in
utilizing credit facilities.
 To maintain a motivated work-force through an appropriate system of human resource
management, training and development.

Social Investment Bank

Social Investment Bank Limited an interest-free Shariah bank in Bangladesh

incorporated as a banking company on 5 July 1995 under the companies act
1994. It commenced banking operations on 22 November 1995 with an
authorized capital of Tk. 1,000 million divided into 1 million ordinary shares of Tk.
1,000 each. The initial paid up capital was Tk. 118.36 million fully subscribed by
its 38 sponsors including 3 Arab nationals. The paid-up capital was enhanced
several times and stood at Tk. 260 million on 31 December 2000. The bank is
listed with the Dhaka Stock Exchange. In 2000, total liabilities and shareholders’
equity of the bank stood at Tk. 5,671.99 million.

The bank provides all types of commercial banking services and it conducts
business on the Islamic principles of musharaka, murabaha, bai-muazzal and
hire purchase transactions. The broad-spectrum operational aspects of the bank
have been set out to encompass three sectors – formal, non-formal and
voluntary – in a comprehensive program. In the formal corporate sector, the bank
offers banking services through deposit and investment accounts, 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 advise 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.

COVID-19 and its impact on Bangladesh banking

sector and economy
In June 2020, World Bank published the Global Economic Prospects that describes
both the immediate and near-term outlook for the impact of the pandemic and the
long-term damage it has dealt with prospects for growth. The baseline forecast
envisions a 5.2 percent contraction in global GDP in 2020, using market exchange
rate weights—the deepest global recession in decades, despite the extraordinary
efforts of governments to counter the downturn with fiscal and monetary policy
support. Over the longer horizon, the deep recessions triggered by the pandemic are
expected to leave lasting scars through lower investment, an erosion of human
capital through lost work and schooling, and fragmentation of global trade and
supply linkages.

The pandemic is expected to plunge most countries into recession in 2020, with per
capita income contracting in the largest fraction of countries globally since 1870.
Advanced economies are projected to shrink 7 percent. That weakness will spill
over to the outlook for emerging market and developing economies, which are
forecast to contract by 2.5 percent as they cope with their own domestic outbreaks
of the virus. This would represent the weakest showing by this group of economies
in at least sixty years.
The impact of COVID-19 upon the Bangladesh economy has been no less dramatic in
the first two months of lockdown. The economic impact has been felt in three main
avenues: first, a drop in domestic economic activity, after the shutdown announced
on March 26; the second is a decline in exports of ready-made garments, which
represent more than 80 percent of Bangladesh’s exports and have been strongly
impacted (overall exports fell by 83 percent year-on-year in April). Finally, there has
been a fall in remittances from Bangladeshis living mostly in Middle Eastern
countries, affected not just by the pandemic but also by the decline in oil prices.

According to the World Bank, only 15% of the Bangladeshi population earn over $6
a day, and over 90% of the workforce belongs to the informal sector. After the
nationwide lockdown commenced on March 26, millions of rickshaw-pullers, day
laborers, and factory workers rushed for their villages, leaving the streets of Dhaka
with a ghostly look.

The Bangladesh Economic Association (BEA) estimates that nearly 36 million jobs

were axed during the 66 days of general holidays announced by the government in a
bid to contain the coronavirus. Most of the job losses were in the agriculture,
industry, and service sectors. According to Dr. Abul Barkat, current President of the
BEA, some 59.5 million Bangladeshi have been relegated into lower/different socio-
economic strata during this period. Of these, 25.5 million people are now living in
extreme poverty. Bangladesh’s national poverty rate rose to 35 percent in 2020
from 24.3 percent in 2016 due to the adverse impacts of the coronavirus pandemic,
according to an analysis of the Centre for Policy Dialogue (CPD). The country’s GDP
growth rate is also expected to significantly decline (latest provisional estimate by
BBS is 5.6%, although some of the figures are questionable). The CPD also expects
income inequality, measured by the Gini coefficient, which might increase to 0.52 in
2020 from 0.48 in 2016.

A large assistance program of four packages totaling some BDT 677.5 billion has
been announced by Prime Minister Sheikh Hasina since April 05, 2020. The first
package of BDT 300 billion was targeted at the large corporates affected by the
crisis with an interest rate of 4.5 percent. Small business enterprises will be able to
access a package of BDT 200 billion in credit at an interest rate of 4 percent. The
Export Development Fund was expanded by US$1.5 billion at a reduced interest rate
of 2 percent. The fourth package includes the Import Refinancing Scheme, which
will provide struggling importers with BDT 50 billion at an interest rate of 7
percent. Shortly after, another package worth BDT 50 billion credit has been made
available for the agricultural sector at an interest rate of 4 percent. This credit
package will be granted and disbursed by commercial banks. This brought the entire
assistance program amount to BDT 727.5 billion.

Unfortunately, the stimulus package is yet to get the desired outcome. Prior to
COVID-19, the Banking sector was already struggling with high levels of Non-
Performing Loans and liquidity issues. Bangladesh Bank has considerably relaxed
the repo rate and slashed CRR and SLR rates that have markedly improved the
liquidity position of most banks. However, the banks are cagey in lending to
borrowers given their past experience and the uncertainty surrounding the future
prospects of repayment post-Covid. A similar situation exists regarding the SME
sector. Commercial Banks do not have the appetite to lend to such an unorganized
sector with little or no collaterals and poor financial reports. It is easier to lend to
large corporates who are smaller in number, have collaterals, and can present
requisite financials which, unfortunately, in most cases, have to be taken with a
pinch of salt. As we speak, Bangladesh bank is working with a Credit Guarantee
Scheme for the SME sector that will make it easier for banks to lend. However, no
such scheme, which is common across all advanced economies, is being envisaged
for the big corporates.

Agriculture employs 40% of the workforce. The government has reduced duties on
some agricultural equipment that will encourage mechanization. The above is a
good move but will lead to a decline in jobs for farm laborers. No separate subsidy
has been announced for this sector. The crying need of the hour for this sector is
agricultural marketing since farmers are not getting a fair price for their produce.
Digitization and e-commerce have to be encouraged along with auction houses for
agricultural produce, as is prevalent in our neighboring country.
The Informal sector employs more than 5 crore people and is 90% of the total
workforce in Bangladesh. This sector embraces manual labor, mechanics,
construction workers, rickshaw pullers, cart pullers, taxi, auto cab, truck drivers,
street vendors, restaurant employees, personal service employees. During the
lockdown, other than kitchen markets and superstores selling food items, all other
sectors have seen a drastic decline. With fewer people traveling on the roads, there
was a sharp decline in the income of rickshaw puller and auto drivers. Almost 6
million people are involved in this occupation. Shopping malls, restaurants, hotels,
holiday resorts, long-distance buses, airlines, etc. took a massive hit. Most of the
employment in Bangladesh are contractual workers in towns and villages. 

The government has announced 50 lac families for vulnerable sector of 2.5k each.
Each family has been considered as four members, which means 2 crore population
will be covered through cash subsidy. This is woefully inadequate, considering that
the poverty level has gone up to 35% from the earlier levels of 20%.

The crisis highlights the need for urgent action to cushion the pandemic’s health and
economic consequences, protect vulnerable populations, and set the stage for a
lasting recovery. For emerging markets such as Bangladesh, it is critical to
strengthen public health systems, address the challenges posed by informality, and
implement reforms that will support strong and sustainable growth once the health
crisis abates.

The Economy Going Forward

Bangladesh is a resilient country that has always hogged world news for natural
disasters or humanitarian crises. Since independence in 1971, the fledgling nation
has experienced and successfully overcome many natural calamities, including
floods and cyclones, as well as economic crises such as the Asian Financial Crisis in
1997 and the Global Financial Crisis in 2008. The South Asian riverine nation is on
the frontline of the adversities of climate change and is home to one of the World’s
largest refugee camps, housing more than 1 million Rohingya victims of genocide in
Myanmar. However, the COVID-19 pandemic presents an unforeseen challenge in
terms of intensity and enormity.

Despite a global recession which is shaping up to be historic in scale, Bangladesh

might be one of only two ASEAN and South Asian economies – the other being
Vietnam – to register a positive growth in 2020. A low ratio of public debt to the
gross domestic product, which is 33-34 percent, leaves Bangladesh with a fiscal
headroom to borrow low-cost funds from the global financial market. The US dollar-
Taka exchange rate is very stable, and foreign exchange reserves have climbed to an
all-time high of $37 billion.

Remittances have seen an all-time record in the month of July. However, this may be
a blip since a large number of migrant workers are returning to Bangladesh with the
oil price crash and general meltdown in economies of those countries they were
employed.

Another encouraging sign has been in the export of readymade garments, which are
seeing signs of recovery with orders coming in from export destinations, although
the numbers are not at the earlier normal levels. Part of this could be attributed to
the replenishment of depleted stocks during the lockdown, with most of the in-store
stocks being damaged due to lockdown. However, there are troubling signs in this
sector with competition heating up; Vietnam has just taken over the second spot
from Bangladesh and seems to be surging ahead buoyed by duty-free access to US
and EU markets.

With the easing of lockdown, Bangladesh’s domestic economic scenario is changing

rapidly. The initial fear of the virus seems to be ebbing despite the fact that it shows
no signs of withdrawing with the no of positive cases compared to the tests still
above 20% compared to the neighboring countries having around 10%. The number
of people in the streets and the bazaars seems to be back to the pre-Covid levels.
Shopping malls have opened with most corporate houses reporting very strong
levels of sales during the Eid month. As a result, the hawkers, daily laborers, and
small shop keepers are back to their trade, albeit at lower levels. However, the
presence in restaurants and people traveling for leisure, attending the gym, going to
salons, or any other place of public gathering is still thin. But the situation is
changing rapidly, and we can expect normalcy in the next two to three months.

COVID-19 and the ensuing lockdown has brought to the forefront some radical
changes in the business scenario in Bangladesh. When the lockdown was imposed,
people were forced to think of alternatives to grocery shopping from kitchen
markets and brick and mortar stores. The current crisis has been regarded as the
biggest opportunity for online grocers. Super shops in urban areas saw a 50 percent
spike in sales since March after the first confirmed case. 

With the onset of COVID-19, some studies claimed that paper money could carry
more germs than a household toilet and hence the risk of being infected by using
banknotes and coins in financial transactions. Besides, in Bangladesh, the banks also
have limited reach in rural areas of our country. This has created a unique
opportunity for the growing MFS sector to lead the way for a financially inclusive
future. The Prime Minister announced BDT 2,500 cash incentive to 5 million poor
families as part of measures taken to keep the economy stable will be paid out using
MFS services directly to the families to ensure transparency. Since April, around
1.92 million MFS accounts have been created to provide the workers of Ready Made
Garments sectors using the stimulus package announced by the government.

The hitherto unexplored telemedicine sector also saw a resurgence during the
lockdown with people consulting doctors online on Covid or other health-related
issues.

The lockdown has also seen a resurgence of the IT sector. Since the 2008 recession
to early 2020, there has been a meteoric rise led by the FANG stocks (Initially
Facebook, Amazon, Netflix, and Google, now including Microsoft and Apple). Even
after the COVID-19 outbreak, the stocks of Big Tech companies like Amazon kept
soaring. Social distancing and lockdown measures have pushed most white-collar
workers around the world to ‘Work-from-home’. This has presented the Video
Conferencing Market with a unique opportunity to grow. The industry is forecasted
to grow at a CAGR of 9.2 percent during the forecast period of 2020 to 2026. Among
them, Zoom has become a household name in the first quarter of 2020. Its daily user
count has gone up to 300 Million in April 2020 from only 10 Million in December
2019. In Bangladesh too, some of the big IT companies have seen an upsurge in
orders both locally and globally.

In fact, the world in the future will see more of this “work from home” syndrome.
Most of the big companies globally have announced that they will continue this
practice even after the pandemic has abated. The benefits are enormous for both
corporates as well as employees. There will be major cost savings due to the
descaling of expensive offices, the travel cost of employees, lesser rentals, and better
quality of work with work-life balance. Talents can be sourced from any corner of
the world by the FANG companies without the need for visas and physical travel. 

Online education that was hitherto unexplored, suddenly saw a spurt during the
lockdown both globally and locally. However, online education in Bangladesh has its
limitations in terms of internet availability in remote areas and the consequent cost.

Home entertainment providers are witnessing boom days with half the world’s
population put under lockdown. People lapped up video streaming and gaming
platforms with sports events canceled/postponed around the world. Streaming has
surged dramatically around the world, with all countries under lockdown. The end
of 2019 marked the beginning of streaming wars as Disney and Apple launched
their own streaming services, respectively. Regardless of that, Netflix reigns
supreme. Bangladeshi tech firms have been trying to capitalize on this opportunity
as well. Recently, Red Dot Digital, a subsidiary of Robi Axiata Limited, launched
‘Binge’. ‘Binge’ is being promoted as a mix of Internet Protocol TV and online
streaming platform. ‘Binge’ joins Hoichoi, iflix, Bioscope, ZEE5, and others in the
growing streaming platform market of Bangladesh.

COVID-19 has exposed the glaring weakness of corporates of not having robust
supply chains and reliance on a single source such as China. In future, the world and
indeed Bangladesh will see greater reliance on domestic sources to ensure
uninterrupted supplies of inputs meaning that the era of free trade could again be
facing roadblocks.

To summarise, Bangladesh economy is expected to bounce back this year with the
8% growth. It is too early to predict, but an encouraging sign has been the revival of
the moribund stock market buoyed with the change in BSEC management that have
taken some strong steps to bring the erring stock market manipulators to book, the
sharp drop in the deposit rates of banks and the government’s tax incentive to
whiten black money in the stock market. However, a lot will depend upon how the
financial sector evolves and the steps taken by the Bangladesh bank to bring
governance back to the fold.

Once money starts flowing to the households and aggregate demand picks up, the
economy will revive again backed by the 17 crores odd population. It is, however,
important at this stage to support the vulnerable group, such as people below
poverty levels, the informal sector, and the SME who provide the backbone of the
economy. The sooner these sectors are incentivized, the quicker the economy will
quickly start.

The changes described above in the business world order will surely make their
presence felt in Bangladesh with the new generation who are already used to the
pleasure of home entertainment and IT. It is also expected that businesses will
awake to the new normal and embrace the opportunities unlocked by COVID-19 in
terms of e-commerce and work from home that will allow them to cut costs. Online
business will continue to flourish as well as IT that will open new avenues for
employment and may open new fronts in terms of online agricultural marketing
which has now begun on a limited scale but is yet to see its full potential.
 Conclusion
No financial system can operate if banks do not function according to commercial
criteria. While supervisory and regulatory measures can help in this regard, on
their own they will not be enough. They must be accompanied by a Government
commitment, publicly announced and backed at the highest political level, that
banks will be allowed to operate without any direct Government interference in
their commercial decisions and that banking laws and financial discipline must be
rigorously enforced without regard to persons. Implementation of reforms may
involve pain and costs. But experience elsewhere in the world suggests that the
longer the delay, the greater the pain, sacrifice and costs.