[🇧🇩] Banking System in Bangladesh

[Saif]

Deposits in full-fledged Islamic banks fall

Savers are increasingly parking their funds at Islamic banking branches and windows of commercial banks in Bangladesh in a move away from full-fledged Shariah based banks, which were mired by irregularities during the tenure of previous government ousted in August this year.

www.thedailystar.net

Deposits in full-fledged Islamic banks fall

Savers are increasingly parking their funds at Islamic banking branches and windows of commercial banks in Bangladesh in a move away from full-fledged Shariah based banks, which were mired by irregularities during the tenure of previous government ousted in August this year.

Deposits at 10 full-fledged Islamic banks fell 2.9 percent to Tk 390,760 crore at the end of September this year from Tk 402,541 crore at the end of June.

Year-on-year, these banks lost 1.11 percent of their deposits amounting to Tk 395,142 crore in September 2023, according to a Bangladesh Bank quarterly report on Islamic banking.

On the other hand, conventional banks with Islamic banking branches recorded roughly 3 percent growth in deposits to Tk 20,582 crore at the end of September from Tk 19,986 crore at the end of June.

Similarly, banks that have Islamic banking windows recorded growth in the flow of savings during the July-September period, data showed.

It is because these banks are relatively in better health and have not faced any major allegations of irregularities like some of the full-fledged Shariah based banks have, said Syed Mahbubur Rahman managing director and CEO of Mutual Trust Bank, which also offers Islamic banking services.

He said the financial health of full-fledged Islamic banks was not good for many days even before the political changeover in August.

The central bank data showed that as a result of the decline in deposits at fully Shariah based banks, total deposits in the Islamic banking system dropped to Tk 436,667 crore at the end of September this year, down 1.94 percent from Tk 445,309 crore in June.

As such, the share of deposits at Islamic banks compared to total deposits dropped by 25.08 percent as of September from 25.56 percent in June.​

 

[Bilal9]

Bangladeshi credit card usage increasing in Thailand, decreasing in India by 40%​

Ittefaq Digital Desk
Published: 18 December 2024, 01:28




As the political landscape has changed in the country after the anti-discrimination student uprising, so has the use of Bangladeshi credit cards. The use of Bangladeshi credit cards is gradually increasing in Thailand. On the contrary, the use of Bangladeshi credit cards in India is decreasing.

This information was revealed from Bangladesh Bank's updated report on credit card transactions at home and abroad.

Analysis of the report shows that the United States is in first place in credit card usage by Bangladeshis. This was the case before. However, the second place has changed. Previously, India was in second place. Thailand rose to second place in October. In the country, Bangladeshi credit card spending increased by 160 million taka in a span of 1 month. India has dropped to third place. And Singapore has risen to fourth place.

According to the central bank, Bangladeshis abroad spent Tk 4.989 billion on credit cards in October this year to purchase various services and products. On the other hand, foreigners in Bangladesh spent Tk 1.29 billion on credit cards.

Earlier, a large number of Bangladeshis used to travel to India every month for travel and medical treatment and spent the most money on credit cards in the country. But after the change in the political situation in the country, there has been a radical change in the use of credit cards by Bangladeshis abroad. Last September, Bangladeshis spent 420 million taka on credit cards in Thailand. In October, this expenditure increased to 570 million taka. As a result, the country came in second place in the use of credit cards by Bangladeshis abroad. India was also in second place in September. In October, Bangladeshi spending on credit cards in India moved to third place.

Industry insiders say that after the August change of policy, India has tightened visas for Bangladeshis, including travel and medical. Due to which, the number of Bangladeshis traveling to the country has decreased significantly. As a result, the use of credit cards by Bangladeshis in the country has also decreased. Now, Bangladeshis are choosing Thailand, Malaysia and Singapore instead of India for medical treatment and travel. Due to this, the use of credit cards by Bangladeshis in these countries has also increased.

According to Bangladesh Bank data, the use of credit cards at home and abroad increased significantly in October. In the space of one month, credit card spending within the country increased by 197 million taka, or about 7.5 percent. And spending abroad increased by 780 million taka, or more than 18.5 percent.

According to the data, in October, 2,866 crore taka was spent on credit cards within the country. In September, the amount was 2,669 crore taka. And in October, Bangladeshis spent 4.99 billion taka on credit cards in different countries of the world. In September, the amount was 4.21 billion taka. The highest use of Bangladeshi credit cards abroad is now in the United States. In October, 840 million taka was spent in the country, compared to 770 million taka in September. Accordingly, in the space of one month, Bangladeshi credit card spending in the United States increased by 70 million taka or more than 8.15 percent.

According to Bangladesh Bank data, more than 28 percent, or almost one-third, of the money Bangladeshis spend abroad on credit cards is currently spent in the United States and Thailand. Of the 4.99 billion taka spent abroad in October, 1.41 billion taka was spent in these two countries. India was in third place in terms of credit card spending. Bangladeshis spent 540 million taka in the country in October, which is 40 million taka more than the previous month.

Singapore has seen the biggest growth in credit card spending abroad after Thailand. Bangladeshis spent Tk 430 million in the country in October, up from Tk 300 million in September. That means credit card spending in the country has increased by Tk 130 million in a month.

Meanwhile, cash withdrawals from credit cards have increased. In September, the amount of cash withdrawals was Tk 38 crore. In October, it increased to Tk 46 crore 8 million. Among the different types of cards, Visa card is being used more. Because this card can naturally be used in the international arena. Next are Master Card, Unipay, and Amex.

 

[Saif]

Potential of a green bank

If the sponsors can convince foreign investors to come up with money to form a huge primary capital, there is no reason why it should not be given the go-ahead Even the very nomenclature, 'climate bank' that is, is innovative and highly appealing. Much as the public and priva

thefinancialexpress.com.bd

Potential of a green bank
FE
Published :
Dec 25, 2024 22:01
Updated :
Dec 25, 2024 22:01

If the sponsors can convince foreign investors to come up with money to form a huge primary capital, there is no reason why it should not be given the go-ahead

Even the very nomenclature, 'climate bank' that is, is innovative and highly appealing. Much as the public and private commercial banks may find themselves pitted against overwhelming odds---some of those in an intractable imbroglio, this unique idea of a green bank catering only to the environmental issues demands a closer scrutiny. First of its kind not only in this country but perhaps in the wider world, the bank primarily proposes to help build a green economy. The other important objective it wants to serve is play a crucial role in attaining the country's sustainable development goals (SDGs) scheduled for 2030. An organisation named the Water and Essential (WE) has already submitted its proposal for a licence to the Ministry of Environment, Forest and Climate Change (MoEFC) and the latter has forwarded it to the financial institution division (FID) but not before suggesting the formation of a committee for a feasibility study. But it is the Bangladesh Bank which has the authority to approve a bank.

Notwithstanding the rosy picture the sponsor of the proposed bank paints in favour of mitigating the increasingly growing fragile environment, the details of how its financing will serve the objectives are yet to be available. Even if the bank comes into being, there is no guarantee investors from home and abroad will beeline for investment up to 95 per cent ceiling of capital on offer. More importantly, green banking does not automatically translate into green projects, the majority of which are supposed to be in the energy sector. Production of green energy certainly has immense potential but the technology and set-ups are still costlier than the conventional methods that use fossil fuels. Private companies may not feel particularly encouraged to take up the challenge in this unproven territory of energy. Banks can finance but if there is no taker of loan for investment in power generation or other green initiatives such as developing alternatives to plastic, the green bankability is likely to fall through.

So the sponsors have to convince both the approving authorities and the would-be clientele of the merit of not only green banking but also of gainful use of the capital. One of the veteran economists of the country is reportedly not at all convinced. He has dismissed the idea, saying that at the time of organising a bank or financial institute, its organisers make tall promises only to prove unsubstantial when in practice.

Even without being as much dismissive as this, it is impossible to deny the obtaining reality in the banking sector. The liquidity crisis is acuter now with the exchange rate overshooting the crawling peg of a dollar at Tk120 by Tk6.0-7.0 i.e 1.0 dollar sells at Tk126-127. In such a crunch time, the addition of another bank to the existing 62, far higher than the size of the country's economy can afford, is unlikely to inspire enough enthusiasm much as it may sound appealing. Even its paid-up capital amounting to Tk3.24 billion may not prove lucrative to investors. But if the sponsors can convince foreign investors to come up with money to form a huge primary capital, there is no reason why it should not be given the go-ahead. In that case foreign investors will study every detail before outlaying their money in the venture.​

 

[Saif]

A rush to heal exposed banking wounds

In October, a video on social media showed the manager of Social Islami Bank’s Agargaon branch breaking down in tears after enduring harsh verbal abuse from frustrated customers seeking to withdraw cash.

www.thedailystar.net

A rush to heal exposed banking wounds

In October, a video on social media showed the manager of Social Islami Bank's Agargaon branch breaking down in tears after enduring harsh verbal abuse from frustrated customers seeking to withdraw cash.

It didn't take long to go viral.

The severe cash crunch at Social Islami Bank was far from an isolated incident. Throughout October and November, protests erupted inside the branches of several banks, with angry clients blocking branch managers to recover their money.

The social media footage itself was a testament to the fragile state of the banking sector — a system teetering under the weight of corruption, mismanagement and a crisis of confidence.

At the heart of the turmoil were several Shariah-based banks heavily controlled by S Alam Group, a controversial business conglomerate whose governance failures and financial irregularities cast a shadow over the entire sector.

For years, the true state of Bangladesh's banking system remained obscured by political interference and flawed policies during Sheikh Hasina's 15-year rule.

After her fall in early August, the extent of the dysfunction became painfully clear.

In 2024, the banking sector faced a perfect storm of challenges: liquidity shortages in Shariah-based lenders, foreign exchange instability, soaring inflation, ill-conceived mergers and a seismic increase in non-performing loans.

As part of its $4.7 billion loan programme for Bangladesh, the International Monetary Fund (IMF) made financial sector reforms a key condition.

While the previous government had resisted the demands for reform, the interim administration that came after Hasina's exit moved swiftly to address systemic irregularities and implement a broad reform agenda.

Towards the end of the year, a slew of steps had been taken, though the path to stability remained fraught with difficulty.

A GLOOMY START

The year began under a cloud of economic uncertainty.

Inflation surged to 11.66 percent in July -- the highest in 13 years. The price pressure has been hovering above the 9 percent mark since March 2023.

Despite the government and the central bank's efforts, including multiple policy rate hikes, inflationary pressures showed little sign of easing.

To make things worse, the foreign exchange market faced unrelenting volatility for months.

Over two years, the country's dollar stocks had halved and local currency Taka had depreciated by about 28 percent.

These burdens further strained the banking sector, specially for Shariah-based lenders already wrestling with governance failures and liquidity shortfalls.

BB's LIQUIDITY SUPPORT ALL THROUGH 2024

To protect the banking sector from a collapse, the Bangladesh Bank (BB) injected fresh funds into struggling banks throughout the year.

The lack of securities tied to these liquidity supports fueled inflation and drew criticism for making things difficult in the long run.

Critics argued that such measures merely postponed the reckoning, without addressing the structural flaws undermining the sector.

At the end of 2023, the central bank provided Tk 22,000 crore in emergency funds to seven beleaguered banks, including five Islamic ones, to dress up their balance sheets before the year closed.

Then, in January, the banking regulator provided Tk 12,000 crore to six banks against the special purpose treasury bond issued by the government to settle outstanding payments for fertiliser and power.

Economists came down heavily on these fund injections, arguing that those fueled inflation by "printing money".

Under the interim government, the central bank also extended Tk 22,500 crore as liquidity support to six crisis-hit banks in November.

FAULTY MERGER MOVE

As per the instruction of the previous government, Abdur Rouf Talukder, former governor of the central bank, took an initiative to merge five weak banks with sound ones.

The move prompted massive instability in the banking sector as depositors of the weak banks rushed to withdraw cash.

The decision to merge the weak and problematic Padma Bank with the EXIM Bank in March was the first merger initiative.

Later, names of a few more banks came to light for merger, which eventually caused the lenders to face a liquidity crisis due to massive deposit withdrawals.

However, after the political changeover, the merger decision was cancelled.

THE RETURN OF MARKET-BASED INTERESTS

In May this year, the BB was forced to reintroduce market-based interest rates after shelving it for four years.

The reintroduction was to meet the conditions of the IMF.

The central bank, in line with the government instruction in 2020, introduced a single-digit lending rate which allowed banks to charge a maximum 9 percent interest rate on lending.

Economists criticised the single-digit lending rate policy as it created an opportunity for bad borrowers to take funds at a cheap rate and launder it abroad. The single-digit lending rate also contributed to high inflation.

In July 2023, the central bank withdrew the 9 percent lending rate cap and introduced the Six-Months Moving Average Rate of Treasury bills (SMART) formula for setting the interest rate.

In May this year, the banking regulator scrapped the SMART formula to let the market decide interest rates on commercial lending.

At the same time, the BB introduced a crawling peg exchange rate system for buying and selling foreign currencies and allowed banks to buy and sell US dollars at around Tk 117.

BAD LOANS REACHED RECORD HIGH

At the end of September this year, non-performing loans (NPLs) in the banking sector reached Tk 2,84,977 crore.

The figure included a massive Tk 73,586 crore defaulted in just three months.

Between July and September, bad debts soared by 34.8 percent, according to the BB.

Industry insiders said that the actual scenario of the sector came to light less than two months after the fall of Sheikh Hasina on August 5.

The actual bad loans will likely cross Tk 5,00,000 crore when rescheduled and written-off loans are added, according to them.

BANKING HAMSTRUNG IN MASS UPRISING

Student-led nationwide movement in July and the anti-government campaign in August largely disrupted the banking services.

To quell the movement, the Awami League-led government suspended internet facilities nationwide for almost a week.

These internet outages crippled digital banking, internet banking and remittance earnings.

After the fall of the Awami League government in early August, there were also cash withdrawal restrictions throughout the month.

Besides, most of the automated teller machines (ATMs) were closed for a prolonged period due to security concerns.

BANKING SECTOR UNDER THE INTERIM GOVT

After the formation of the interim government, Ahsan H Mansur, a reputed economist, became the governor of the Bangladesh Bank by replacing Abdur Rouf Talukder.

After assuming office, new governor Mansur restructured the boards of eleven banks, six of which were dominated by the controversial S Alam Group.

The banking regulator also formed three taskforces on non-performing loan management, strengthening project and legal frameworks to continue and accelerate reforms.

Meanwhile, the interim government appointed a pool of experts to prepare a report on the state of the economy.

The expert team submitted their white paper on the economic state of Bangladesh to the chief adviser in December, which dedicated a chapter, titled "Deep into a Black Hole," elaborating on banking irregularities.

The BB initiated forensic audits in crisis-hit banks, efforts to bring back laundered money and strengthening the capacity of the central bank with the help of the World Bank and IMF.

Besides, a government taskforce was formed to investigate money laundering and other misdeeds allegedly carried out by 10 major business groups in the country: S Alam Group, Beximco Group, Summit Group, Bashundhara Group, Gemcon Group, Orion Group, Nabil Group, Nassa Group, Sikder Group and Aramit Group.

While these reform measures marked a critical point to restore public confidence and strengthen regulatory oversight, the road to recovery remains long and uncertain.​

 

[Saif]

Economy can’t go forward without Islami Bank: BB governor

Ahsan H Mansur opens a branch of the bank in Ghatail of Tangail

www.thedailystar.net

Economy can’t go forward without Islami Bank: BB governor
Ahsan H Mansur opens a branch of the bank in Ghatail of Tangail

Bangladesh Bank Governor Ahsan H Mansur opens the 400th branch of Islami Bank Bangladesh in Ghatail of Tangail today. Photo: Islami Bank Bangladesh

Bangladesh economy cannot go forward without Islami Bank and people of the country have confidence on the financial institution, Bangladesh Bank Governor Ahsan H Mansur said today.

"Islami Bank is the number one bank of the country. The bank has turned around within the shortest time and is now going forward smoothly. This bank will not look back anymore," he said.

The central bank governor made the comments while inaugurating a new branch of Islami Bank in Ghatail upazila of Tangail as the chief guest.

"One-fourth of the country's population is closely connected with Islami Bank. The opening of the 400th branch is a significant achievement for the bank," the governor said.

"We have been working to recover the banking sector from its previously devastating situation. Islami Bank has made remarkable progress compared to its condition five months ago."

Mansur said Islami Bank was established as an international bank with the involvement of foreign investors.

The governor hoped Islami Bank will come back as an international bank again, as the financial institution has the potential to be 10 times larger.

Islami Bank has a countrywide network of 400 branches, 265 sub-branches, 2,800 agent outlets and more than 3,000 automated teller machines/cash recycling machines, said Obayed Ullah Al Masud, chairman of Islami Bank.

"It is a symbol of its popularity. The employees of this bank work with honesty and sincerity. It is very rare to find so many honest and competent people under the same umbrella," Masud said while presiding over the programme.

He also stated that Islami Bank has been contributing to the development of the rural economy through its rural development scheme, which operates across 34,000 villages in the country.

"We want to extend this service to 68,000 villages."

Md Abdul Jalil, chairman of the executive committee of the bank; M Masud Rahman, chairman of the risk management committee; Md Abdus Salam, chairman of the audit committee, and Mohammad Khurshid Wahab, independent director, were present at the opening of the branch as special guests.

Mohammed Monirul Moula, managing director of the bank, delivered a welcome speech at the programme, where Mohammad Abdus Samad, member secretary of Shariah supervisory committee, presented a keynote speech on welfare-oriented banking.

Md Omar Faruk Khan, Md Altaf Hossain and Mohammad Jamal Uddin Mazumder, additional managing directors; Md Hosni Mobarak Babul, principal of AIM City Residential School and College; Md Russell Mia, owner of the bank's Brahman Shasan bazar agent outlet, and Md Rafiqul Islam, a local businessman, along with executives and officials of the bank, were also present.​

 

[Saif]

Financial services sector yet to reach full potential

The financial services sector of Bangladesh is yet to reach its full potential despite the significant advancements seen so far, according to Ahsan H Mansur, governor of the Bangladesh Bank.

www.thedailystar.net

Financial services sector yet to reach full potential
Governor says

The financial services sector of Bangladesh is yet to reach its full potential despite the significant advancements seen so far, according to Ahsan H Mansur, governor of the Bangladesh Bank.

"There is no single entity behind this failure. Maybe we could have worked with more dedication. Maybe there was a deviation. But nonetheless, we should self-analyse our failures," he said.

Mansur was speaking as chief guest at the golden jubilee of the Bangladesh Institute of Bank Management (BIBM) in the Mirpur area of Dhaka yesterday.

The event, presided over by BIBM Director General Md Akhtaruzzaman, opened with a discussion on the challenges and potential for financial services in the country.

The inaugural session was moderated by Shah Md Ahsan Habib, a professor at the BIBM.

Mansur said no institution can stand alone and must cooperate with others in order to succeed, with the same being applicable for financial service providers.

He also said the financial services sector is by no means small, as subsets like the banking industry are a major part of it.

Against this backdrop, he warned that the financial services sector may eventually be brought to the brink of destruction if the interests of depositors and investors are not properly protected.

Regarding opportunities in the banking industry, he said it could increase contributions towards addressing both new and existing challenges through initiatives to finance sustainable and environmental projects.

Mansur informed that while all the banks have predetermined goals in terms of investing in various sectors, most bank officials do not know how the money will actually be spent.

"Therefore, the BIBM can work to increase the understanding of bank officials on these issues," he said, adding that innovative ideas like green bonds should also be brought forward.

The Bangladesh Bank governor further said small and medium enterprises as well as emerging and unconventional industries, such as those focusing green and climate finance, are not well suited for availing financing from banks.

"Funds are being given to numerous sectors, but they are not being transferred. The people in charge of banks and other financial institutions are either not very excited about these industries or are not willing to take chances," he said.

"Here, we must adopt a new perspective," Mansur added, conveying his hope that the country's financial institutions will play a stronger role in funding the non-conventional and new sectors.

Mansur, also chairman of the BIBM governing board, urged for addressing new challenges in the banking sector, such as that involving climate financing, green financing, developments in financial services and technological innovations.

Noting that such institutions are much needed for developing the banking industry, he said the BIBM has been able to play an important role in building human resources for this segment.

Furthermore, Mansur asked the BIBM to focus on attracting foreign students and spreading its name in the international arena.

Masrur Arefin, vice chairman of the Association of Bankers Bangladesh, said the banking industry must move forward with the times.

"We need to increase our understanding on various topics, such as artificial intelligence, machine learning and blockchain," he added.

Arefin, also the managing director of City Bank, further said the country's digital banking services have reached a certain threshold, as every bank now provides digital support to their customers.

He expressed hope that Bangladesh Bank will look into the extent of digital lending services provided by banks.​

 

[Saif]

End political influence on the banking sector

The ongoing crisis has been caused by the last one and a half decades of grand-scale deviation of governance in the banking industry.

www.thedailystar.net

End political influence on the banking sector
political influence on Bangladesh banking sector

FILE VISUAL: STAR

The banking industry of Bangladesh is going through a critical period marked by significant challenges, including the largest amount of non-performing loans (NPLs) ever, extreme liquidity problems in stressed banks, capital flight through trade-based money laundering, a substantial lack of corporate governance, provisioning shortfalls, and a foreign currency crisis. The ongoing crisis has been caused by the last one and a half decades of grand-scale deviation of governance in the banking industry. Since inception, the Bangladesh Bank has issued licences to 62 scheduled banks (including six state-owned commercial banks, three specialised banks, 43 private commercial banks, one digital bank, and nine foreign commercial banks) and 34 non-bank financial institutions. However, there is a controversy regarding whether the size of the economy can sustain so many banks. In this context, unipolar decisions made by different political regimes, without considering the sector's sustainability, are primarily responsible for the current crisis.

If we look at other Asian countries, in Malaysia, there were 42 banks operating against a GDP size of $399.71 billion in 2023. In Indonesia and Thailand, the numbers are 106 and 30, respectively, against GDP sizes of $1,371.17 billion and $514.97 billion. Similarly, India has 95 scheduled banks with a GDP size of $3,567.55 billion. In Pakistan, the number of banks stood at 41 in 2023, with a recorded GDP size of $337.91 billion. Meanwhile, in Bangladesh, there were 62 banks in 2023, against a GDP size of $437.42 billion. Similarly, Myanmar has 48 banks against a GDP size of $66.76 billion. Myanmar and Bangladesh have the highest numbers of banks with respect to their GDP sizes in the South-Southeast Asian region.

Since Bangladesh's independence and its transition to an open market economic system through trade liberalisation (1971-1990), the banking industry experienced a slow pace of growth. However, after globalisation and the advent of technological advancements, the industry gained momentum. After the independence, the banking industry started its journey with six nationalised commercial banks, three state-owned specialised banks, and nine foreign banks. In the 1980s, the sector saw a significant expansion with the launch of private banks, starting with the licensing of the Arab-Bangladesh Bank Limited in 1981. The Awami League-led government approved the licence of 26 private commercial banks throughout their entire tenure, while the BNP-led government licensed eight banks, and nine banks were approved under other governments.

Issuing licences for banks under political consideration has caused a significant havoc in our banking industry. Previously, the minimum paid-up capital for a bank licence was Tk 400 crore, which has now been raised to Tk 500 crore, paid in white money by the directors. If a bank has assets worth Tk 20,000 crore, it effectively generates 40 times more assets than the paid-up capital injected by its real owners. It is the prime responsibility of banks to safeguard public money rather than prioritise loaned clients. When a bank licence is granted to a politically affiliated individual who assumes the role of a director or chairperson of the board, and that individual simultaneously holds a legislative or cabinet position, they can influence the bank through state mechanisms, often overriding even the central bank's regulatory norms. Such a scenario creates an extreme conflict of interest, undermining the bank's ownership structure, corporate governance, and management integrity. Furthermore, due to the lack of strong demutualisation in banking, the board of directors often interferes with the bank management's decision-making, ultimately undermining professional governance. Over the last one and a half decades, a significant number of banking professionals have left the profession prematurely due to this lack of professional freedom.

According to a World Bank report titled Bangladesh Development Update (October 2023), the total of NPLs, rescheduled loans, and outstanding written-off loans rose to nearly Tk 3.78 lakh crore by the end of 2022, compared to Tk 3.14 lakh crore in 2021. The report also shows the stressed asset ratio (including NPLs, rescheduled loans and written-off loans) to be 20.5 percent in 2018, 24.2 percent in 2019, 23.6 percent in 2020, 23.1 percent in 2021, and 22.8 percent in 2022. Very recently, the White Paper on the State of the Bangladesh Economy revealed that the total amount of stressed assets stood, as of June 2024, at Tk 6.75 lakh crore. It includes recognised NPLs of Tk 2.11 lakh crore, rescheduled and restructured loans of Tk 2.73 lakh crore, outstanding written-off loans of Tk 75,389 crore, special mention accounts (SMA) worth Tk 39,209 crore, and loans under court stay order worth Tk 76,185 crore.

In Bangladesh, over the last decade, there has been a troubling practice of bank directors sanctioning loans for their own business ventures, prioritising personal interests over the bank's interests. The board of directors, which holds the highest authority to approve loans in a bank, has often been involved in such conflicts of interest. The Chattogram-based S Alam Group, for example, has reportedly exercised exclusive controls over six banks, one insurance and one NBFI over the last decade. Through this influence, the group allegedly diverted Tk 2 lakh crore from the banks under their control by creating shell companies or falsifying corporate identities, using intercompany fund transfer, and undermining the legal framework and due diligence process of credit sanctioning.

Through trade-based money laundering in the forms of under-invoicing, over-invoicing, multiple invoicing, and false invoicing, significant amounts of money were syphoned off through cross-border transactions. According to a report by the Global Financial Integrity (GFI), $61.6 billion was smuggled out of Bangladesh from 2005 to 2014. Bangladesh loses $8.27 billion annually to trade misinvoicing. By 2030, GFI predicts this could exceed $14 billion per year.

During the aforementioned crisis, the Bangladesh Bank, the apex banking regulatory body in the country, failed to play a decisive role in rescuing the sector. Notably, the tenure of one former governor was controversially extended through an amendment of the Bangladesh Bank Order. Similarly, the role of the immediate last governor was widely criticised, as he disappeared from public view following the fall of the Awami League government in August. These two controversial appointments undermined the regulatory integrity of the central bank. Furthermore, lenient policies, particularly circulars on loan classification and restructuring, facilitated easy credit access for oligarchs, exacerbating the situation. During the pandemic, the monetary stimulus provided by the central bank disproportionately benefited businessmen and bank owners, which further deepened the financial inequities.

Most fourth-generation banks are in critical financial health. A corrupt nexus of oligarchic politicians, bureaucrats, and businessmen is primarily responsible for the dire state of the banking sector. What's encouraging is that the new authorities have taken immediate bold steps to rescue the financial sector, such as disbanding the boards of directors of banks controlled by S Alam Group, imposing limits on cash withdrawals to balance liquidity, introducing market-determined interest rates, abolishing LC margins for essential commodity importers, maintaining strong provisions against impaired assets, and issuing a master circular aligned with IFRS-9 and international best practices for loan classification and guidelines. Now is the time for the Bangladesh Bank to strengthen the financial sector and elevate it to greater heights, setting an example of resilience.

Md Mehdi Hasan Khan and Md Kamrul Hasan are currently pursuing an internal auditor certification with the Institute of Internal Auditors Bangladesh (IIA).​

 

[Saif]

Liquidity support for weak banks: BB under pressure

The emergency liquidity support to scam hit banks against the backdrop of high presence of printing money in the economy due to record borrowing by the ousted Awami League regime...

www.newagebd.net

Liquidity support for weak banks: BB under pressure
Shakahwat Hossain 31 December, 2024, 01:28

The emergency liquidity support to scam hit banks against the backdrop of high presence of printing money in the economy due to record borrowing by the ousted Awami League regime has made the task of containing inflation challenging for the interim government.

Calling the borrowing from Bangladesh Bank as the worst form of credit to meet the resources crunch and revenue shortfall, economists said that such borrowing by the previous regime shot up to more than 1.5 lakh crore by June 2024.

The interim government has paid back the loan, but still the net outstanding borrowing from the central was five times higher at Tk 1,15,769.88 crore on November 14, compared to Tk 21,48 2.27 crore on November 29, 2021.

‘The borrowing amount is more than double the outstanding of the past 50 years,’ said Mohammad Abdur Razzaque, chairman of the Research and Policy Integration for Development.

The government borrowing from the central bank and paying back those within a short period of time are common phenomena, but a reverse picture depicts serious challenges in containing inflation, he said.

The high inflation which has been keeping the majority of the people in great distress over the past two years continued its upward movement to 11.38 per cent in November on the back of price hikes of food items in both rural and urban areas.

International Monetary Fund has already forecast that inflation would remain at elevated level over the next six month.

Liquidity support to scam hit banks by the BB in the previous regime, mostly through printing money, and also emergency loans to the same banks and crisis hit big groups to avert unwanted situations have made the challenge more critical.

The BB management under the interim government decided not to release on the market any money by printing, but failed to maintain the stance as it had to assist crisis-hit commercial banks and large business groups.

On November 29, the BB provided Tk 22,000 crore loan facility to seven crisis-hit commercial banks, including five Shariah-based banks — Islami Bank Bangladesh, Social Islami Bank, First Security Islami Bank, Union Bank and Global Islami Bank — which were previously controlled by controversial S Alam Group, one of the oligarchs linked to the AL regime.

BEXIMCO Group, another oligarch linked to the same regime, received Tk 60 crore from the government in November and Tk 180 crore from the BB in December to clear the wages of its workers.

Emergency loan assistances have also been provided to National Bank and Padma Bank.

Policy Exchange Bangladesh chairman M Masrur Reaz lamented that the entire nation had been continuing to pay penalties for appropriation of bank funds and printing money by the AL regime.

State-owned Janata Bank that has defaulted loans worth about Tk 24,682 crore with BEXIMCO Group and Tk 101 crore with S Alam Group sought Tk 10,000 crore from the BB as bailout fund.

Problem-hit Padma Bank has applied to the Bangladesh Bank for Tk 1,300 crore in liquidity support to mitigate its liquidity crisis.

Echoing Zahid Hussain the PEB chairman said such liquidity assistance to banks and crisis hit groups could not be given repeatedly.

Economists suggest that the government should give a specific timeframe in assisting the scam-hit banks and crisis-hit groups who enjoyed undue to privileges under the past regime.

The White Paper on State of the Bangladesh Economy that mainly highlighted corruptions, irregularities and policy blunders of the AL regime said, ‘Fiscal and political dominance of monetary policy exacerbated inflation volatility.’

‘The fiscal and political dominance of the BB were out in the open,’ said the white paper prepared by a 12-memebr committee headed by Centre for Policy Dialogue distinguished fellow Debapriya Bhattacharya.​

 

[Saif]

First Security’s MD sent on leave for loan irregularities

An internal audit found Syed Waseque Md Ali’s involvement in loan irregularities with S Alam’s companies

www.thedailystar.net

First Security’s MD sent on leave for loan irregularities

An internal audit found Syed Waseque Md Ali’s involvement in loan irregularities with S Alam’s companies

First Security Islami Bank PLC has forcefully sent its managing director, Syed Waseque Md Ali, on leave due to his alleged involvement in loan irregularities with companies linked to S Alam Group.

Today, the bank's board of directors made the decision during a meeting. According to an office order shared with the bank's employees, the leave will begin on January 5 and end on April 4 this year.

Abu Reza Md Yeahia, the additional managing director of the bank, will assume the role of managing director (current charge).

The Daily Star attempted to contact Syed Waseque Md Ali by phone, but he did not respond as of the time of filing this report.

Bank officials stated that Ali was sent on leave forcefully after an internal audit uncovered his involvement in loan irregularities related to S Alam Group.​

 

[Saif]

MDs of six banks asked to go on leave before forensic audit

The Bangladesh Bank has asked six banks to send their managing directors on a three-month leave before the banks’ forensic audits to be conducted by an international audit firm.

www.newagebd.net

MDs of six banks asked to go on leave before forensic audit
Staff Correspondent 05 January, 2025, 21:51

Managing directors of six crisis-hit banks have been placed on compulsory leave to facilitate an international audit. | UNB Photo

The Bangladesh Bank has asked six banks to send their managing directors on a three-month leave before the banks’ forensic audits to be conducted by an international audit firm.

This decision was made at an emergency meeting on January 2 with the banks’ chairpersons and senior officials, with the central bank governor, Ahsan H Mansur, presiding over the meeting.

The six banks are First Security Islami Bank, Social Islami Bank, Global Islami Bank, Union Bank, Exim Bank and ICB Islamic Bank.

According to Bangladesh Bank officials, the forensic audits will assess the financial health of these banks and determine their future.

Based on the findings, decisions will be made on whether any bank should be liquidated, merged or allowed to operate independently.

Of these banks, all but ICB Islamic Bank and Exim Bank were previously controlled by controversial S Alam Group.

During the Awami League regime that was ousted on August 5, 2024 amid a mass uprising, the S Alam Group allegedly had taken away nearly Tk 2 lakh crore from the banks it controlled, including Tk 75,000 crore from Islami Bank, leveraging its political influences.

Following the political change on August 5, the interim government restructured the boards of these banks, removing the influences of S Alam Group on the entities.

Despite the restructuring and audits, the process of restoring transparency and stability in these banks remains challenging as many officials allegedly involved in the past malpractices still hold positions of authority, complicating efforts to ensure accountability and reforms, BB officials said.

Bangladesh Bank spokesperson and executive director Husne Ara Shikha stated that the central bank would soon conduct forensic audits through an international audit firm to assess the asset quality of the six banks.

She said that the boards of directors of six banks decided to place their managing directors on temporary leave to ensure they do not interfere in the audit process.

‘This measure is intended to maintain transparency throughout the process,’ she said.

Husne Ara said that if MDs are found involved in any irregularities, the central bank would take actions against them, otherwise they would be reinstated.

‘This decision aligns with international best practices,’ she added.

In the past month, the Bangladesh Bank issued a special circular mandating risk-based integrated audit programmes for banks.

Qualified international consultancy firms will oversee the audits to evaluate the asset quality of these six banks.

During the ousted Awami League government, huge amounts of public funds were reportedly withdrawn from the banking sector and laundered abroad.

These funds are yet to be recovered, leading to a sharp increase in non-performing loans and undermining depositor confidence.

The interim government has freed these banks from S Alam’s influences and initiated internal audits to uncover the true extent of financial damage.

ICB Islamic Bank has long been in financial distress, failing to repay depositors for years, though the central bank had kept it operational.

Exim Bank, under the long-standing leadership of its former chairman Nazrul Islam Mazumder, reportedly had allowed large-scale fund withdrawals by business conglomerates like S Alam Group and Beximco Group.

These actions, allegedly driven by political influences, drained the bank’s financial stability.

Beximco Group is owned by Salman F Rahman, an adviser to the deposed prime minister, Sheikh Hasina.

Salman is currently in jail in a case on murder charges.​

 

[Saif]

Shrinking rural banking weakening CMSMEs

Commercial banks' position in rural Bangladesh keeps weakening with the constant fall in formal credit disbursements and the number of branches in the least- developed areas, bankers say. As a result, the condition of cottage, micro, small and medium enterprises (CMSMEs) in rural areas is worsen

thefinancialexpress.com.bd

Shrinking rural banking weakening CMSMEs
Jubair Hasan
Published :
Jan 09, 2025 00:24
Updated :
Jan 09, 2025 00:24

Commercial banks' position in rural Bangladesh keeps weakening with the constant fall in formal credit disbursements and the number of branches in the least- developed areas, bankers say.

As a result, the condition of cottage, micro, small and medium enterprises (CMSMEs) in rural areas is worsening as they gradually lose their market to imported goods.

Bankers have identified several reasons behind this, including the rising cost of funds and higher inflation that blighted the demand for credit in rural areas after the Covid-induced shocks.

On the other hand, the lower possibility of making profits in rural areas having the least lending opportunities prompted commercial banks to concentrate more on high-yielding urban territories, they said.

Consequently, the flow of fresh credit disbursements among rural communities continued dropping in recent months.

Besides, banks, as part of their cost-cutting measures, keep reducing the number of rural branches. They serve rural clients through alternative arrangements like sub-branches and agent banking outlets.

According to the Bangladesh Bank (BB) data, banks invested Tk 16.20 trillion in various sectors across the country till September 2024, including Tk 1.25 trillion in rural areas. The remaining amount was invested in urban regions.

The share of bank loans in rural territories continued declining to reach 7.70 per cent (Tk 1.25 trillion) at the end of September 2024 from 7.90 per cent (Tk 1.26 trillion) in June that year.

On the other hand, the share of loans in urban areas rose to 92.30 per cent (Tk 14.95 trillion) in September 2024 from 91.10 per cent (Tk 14.71 trillion) in June that year.

Seeking anonymity, a central bank official said banks' lending in rural areas continued falling in recent months despite the rise in deposits in such regions probably because of profitability.

Citing data, he said the volume of rural deposits was Tk 1.20 trillion in September 2023. It rose to Tk 1.24 trillion in December that year, Tk 1.25 trillion in March 2024, and Tk 1.26 trillion in June. But then it dropped slightly to Tk 1.25 trillion in September, he also said.

"Economic activities remained almost standstill. This could be the main reason behind the fall in rural lending," he added.

Managing Director and Chief Executive Officer of Mutual Trust Bank Syed Mahbubur Rahman told The Financial Express continuing rural banking with full-fledged branches is not financially viable for the lender because of fewer lending opportunities there.

"That is why banks are now concentrating on rural banking with alternative arrangements like sub-branches, microfinance institutions, and agent banking outlets," he said.

The experienced banker also said the demand for formal credit in rural areas, like elsewhere in the country, kept falling due to persisting economic sluggishness.

Secretary of Barishal Metropolitan Chamber of Commerce and Industry Md Humayun Kabir said entrepreneurs in the region, particularly in rural areas, have for years been suffering severely due to poor access to formal credit.

"We keep requesting banks' high officials to address the issue, but nobody listens. Even entrepreneurs having all the required documents to secure loans do not get it. I do not know why banks are so reluctant to lend to rural clients," he told The Financial Express.

"Because of this reluctance, entrepreneurs, particularly small and medium ones, are getting demoralised. Bank financing is key to industrial and employment growth, but rural entrepreneurs do not have access to that," the business leader added.​

 

[Saif]

Risk based pricing: a safeguard for the banking industry

Risk-based pricing is gaining growing attention in today's business world full of risk imbalance. As all customer groups do not mirror the same look on a business scale, all cannot share the same cost burden alike. It has been around for many years and has been recommended by many credit risk manag

thefinancialexpress.com.bd

Risk based pricing: a safeguard for the banking industry
Nahid Ul Hasan
Published :
Jan 17, 2025 21:39
Updated :
Jan 17, 2025 21:39

Risk-based pricing is gaining growing attention in today's business world full of risk imbalance. As all customer groups do not mirror the same look on a business scale, all cannot share the same cost burden alike. It has been around for many years and has been recommended by many credit risk managers as a way for businesses to compensate for the risk of different customer segments. The theory is relatively simple. With fixed pricing, the cost of risk is evenly distributed among customer segments despite the fact that certain segments have high risk and others lower risk. This situation results in the lower-risk customers "paying" more than their risk -- essentially being overcharged -- while the higher-risk customers pay less than their risk.

In our present market perspectives, different interest rates and loan terms are offered to different borrowers, based on their credit worthiness. To substantiate credit worthiness, risk-based pricing focuses on factors such as a borrower's credit rating through External Credit Assessment Institutions (ECAI's), Audited Financial Statement, Risk Weighted Asset (RWA), Capital Charge, Cost of Capital/ Return on Equity (ROE) and Income depending on the type of loan. It does not consider factors which are irrelevant such as race, colour, national origin, religion, gender, marital status or age.

The continuous forward movement of classified loans in our economy is deeply skewed towards particular strata of high risk borrowers while the price burden is equally spread over the good ones. Had there been a good measure to price the credit risks, bank's losses from impaired assets could have been less or at least good borrowers would have been rewarded by a significant price comfort. Here comes the relevance of risk based pricing before lending any type of investment to secure depositor's money as well as stakeholder's safe return.

In this regard, this scribe has developed the 'Risk Based Pricing Model' considering credit risk to identify the credit risk and to assess the proper lending rate/pricing customer-wise.

The model shows how a borrower's Risk Based Pricing is followed through Net Income [Profit after Tax (PAT)], Risk Weighted Asset (RWA), Capital Charge, Net Income to Capital Charge ratio. If Net Income to Capital Charge ratio is greater than the Cost of Capital/Return on Equity (ROE), the pricing will be acceptable, otherwise the pricing will be un-acceptable or need to be re-adjusted to the pricing or increase the other factors like fee-based income, cash collateral, cash margin that would reduce the capital charge of the client and increase the Net Income to Capital Charge ratio.

User of the model has to decide ROE/Cost of Capital first. To assess your borrower through the model, you have to consider the borrower's ECAI's rating, Customer's Limit/Exposure, proposed pricing/margin, Cash Collateral, Cost of Deposit, Overhead Cost, Provision and Fees & Other Income (if any). The following flowchart describes a detailed picture of the model:

The model gives you the appropriate pricing to lend money for sustainable return.

Risk-based pricing allows lenders to charge higher interest rates to borrowers who seem less likely to repay their loans in full and on time or having higher Risk Weighted Asset (RWA) to charge higher capital, and lower interest rates to borrowers who seem more likely to repay their loans in full and in a timely manner or having lower RWA to charge lower capital. For example, if your ECAI's credit rating category shows that your long term rating is not good, you might be charged higher interest rate than someone who has good long term credit rating.

Exceptions:

If the risk distribution (risk score) is skewed to the left, the quantity effect might exceed the price effect and therefore the risk-based pricing strategy might be unprofitable. Alternatively, if the quantity of bad exceeds the quantity of goods in the market, the risk-based pricing strategy might be unprofitable, too.

By differentiating the interest rates charged to each identified risk group, lenders may inadvertently worsen the average level of risk of their portfolio as a whole.

If the lender has insufficient information to reliably distinguish low risk from high, it might be convenient to set a flat interest rate strategy rather than using a customised pricing strategy.

PROMOTING CREDIT CONSCIOUSNESS AND DISCIPLINE: Several reports and case studies of World Bank have shown that a risk-based pricing environment based on credit information data improves loan performance by reducing delinquency rates and contains non-performing assets. Credit penetration is achieved by significantly identifying "good borrowers" (low credit risk) that otherwise would have been misidentified as "bad borrowers" (high credit risks) and, therefore, may not have been provided credit at optimal terms and conditions. At the same time, high-risk borrowers are no longer subsidised by lower-risk borrowers. Risk-based pricing of loans could be a major motivating factor for borrowers to ensure they maintain a healthy credit history and a high credit score.

Rewarding the good has been an age-old practice. If a borrower has been paying back his/her loans on time, he/she is a good borrower. And if the aforementioned adage is followed, he/she could expect to be rewarded with a lower rate of interest the next time he/she applies for a loan. This practice of rewarding good borrower is yet to gain acceptance by the country's lending institutions.

To ensure that good borrowers are rewarded for their financial discipline, my own observations is that all credit institutions and banks in the country should adopt risk-based pricing to lend money for sustainable credit growth, prevent the continuous forward movement of classified loans, build strong capital base and provisions, secure depositor's money as well as stakeholder's safe return.

As per widely accepted global rules, a country poorly credit rated by Moody's or S&P and Fitch bears the burden of rising cost of business in terms of trade cost, correspondent relationship, foreign guarantee, various credit lines etc., while a better rated country reaps the fruits of lower business cost. In rhyme with this kind global practice, the Risk Based Pricing Model as developed and followed by the all banks among the industry will be a step forward to bring justice and equilibrium in our credit culture. This will help the banks not only reward the good customers while identifying the bad, but also prevent both continued credit loss and subsidised credit expenses facing the banking industry in recent time.
Nahid Ul Hasan is Deputy CRO, Dhaka Bank PlC.​