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Bangladesh Institute of Bank ManagementS e c t i o n N o. - 2, M i r p u r, D h a k a -1216

B W2010

Independent Review of the Banking SectorANK-REVIE

BANK-REVIEW-2010

Advisor & Editor

Dr. Toufic Ahmad Choudhury

Report PreparationTeam

Team LeaderDr. Shah Md. Ahsan Habib

MembersMd. Mohiuddin Siddique

Md. Nehal AhmedAtul Chandra Pandit

Mahmood-ur-Rahman

Editorial AssociatesDr. Bandana Saha

Abed Ali

Bangladesh Institute of Bank ManagementPlot # 4, Main Road # 1(South), Section # 2, Mirpur, Dhaka-1216

PABX: 9003031-5, 9003051-2, Fax: 88-02-9006756Email: [email protected], Web: www.bibm.org.bd

ACKNOWLEDGEMENT

III

Preparation of 'Bank-Review - Independent Review of the Banking Sector' was a collective endeavour

of the team members that drew on support of the faculty colleagues and other staff of BIBM.

Especially, BIBM library, administration and publication wing have played a proactive role in realizing

the goal of publishing the first issue of Bank-Review within the stipulated period. The preparation

team received immense help and cooperation at the data collection stage from a good number of

executives working in the Bangladesh Bank and in the member banks of BIBM. In this context, we

would like to register our deep appreciation for the support received from the officials of DOS, BRPD,

SME and Statistics Departments of Bangladesh Bank.We are especially grateful to Mr. Shahriar Siddiqui,

Deputy Director, DOS, BB for his continuous support at the stage of data gathering.We are also grateful

to all the officials of relevant desks of commercial banks for their cooperation. The preparation team is

obliged to the faculty members for their suggestions and support. Finally, we are indebted to the

Advisor and Editor of the publication Dr.Toufic Ahmad Choudhury for his continuous mentoring.

Dr. Shah Md. Ahsan Habib

Md. Mohiuddin Siddique

Md. Nehal Ahmed

Atul Chandra Pandit

Mahmood-ur-Rahman

V

MESSAGE FROM THE DIRECTOR GENERAL

Bangladesh Institute of Bank Management (BIBM) presents, in all humility, this inaugural issue of the

'Bank-Review - Independent Review of the Banking Sector' - a new publication, which basically seeks

to present a unique way of assessing the strengths and weaknesses of the banking sector institutions

of Bangladesh by way of ranking. In the near future, we hope to broaden the coverage to include the

non-bank financial institutions as well.

In the Banking market of Bangladesh, the banks and financial institutions are operating in an intense

competitive environment where they need to locate their market niche so that they can craft and put

into use appropriate financial and marketing strategy. We hope the banks and financial institutions

would be benefited by the analysis contained in the Bank-Review. We, at the BIBM, envision the

Review to be our flagship publication and would welcome comments and suggestions from potential

users to improve upon our presentation.

(Dr Toufic Ahmad Choudhury)

Director General

VII

CONTENTS

Abbreviation VI

Part-1: Introduction 1Background and Methodology 3Banking Industry of Bangladesh in 2010: A Status Report 11

Part-2: Performance of Banks 15Performance Evaluation Criteria 17Strength & Soundness 18Size & Growth 32Profitability & Efficiency 57Asset Quality 70Inclusive & Online Banking 83

Part-3: Review of Important Issues 104Banking Industry Goes for Implementing Basel-II 105Banks Continued with the Regular International Banking Transactions in 2010 107Foreign Remittance Increased Amidst Global Financial Crisis 109SME Financing by Banks Experiences an Encouraging Growth 112Mobile Banking Started Receiving Momentum in 2010 114Banks are not Responsible for the Stock Market Fall 116Bangladesh Bank became Active in Pushing Banks for Green 118Inclusive Banking in Bangladesh is Yet to Move a Long Way 121

List of TablesTable-1: Total Capital to Risk Weighted Assets (%) 19Table-2: Non Performing Loan Net of Provisions to Total Equity (%) 23Table-3: Liquid Assets to Short Term Liabilities (%) 26Table-4: Borrowed Liability to Total Liability (%) 29Table-5: Number of Deposit Account 34Table-6: Number of Branch 36Table-7: Total Revenue (Tk.) 39Table-8: Total Asset (Tk.) 42Table-9: Total Deposit Growth (%) 54Table-10: Total Loan and Advance Growth (%) 84Table-11: Net Profit Growth (%) 51Table-12: Net Interest Income Growth (%) 54Table-13: Return on Assets (ROA) (%) 58Table-14: Return on Equity (ROE) (%) 61Table-15: Total Expense to Total Revenue (%) 64Table-16: Profit per Employee (Tk.) 67Table-17: Growth in Gross NPL (%) 71Table-18: Gross Non Performing Loan to Total Loan & Advances (%) 74Table-19: Change in Non Performing Loan to Change in Loan & Advances (%) 77Table-20: Credit Concentration 80Table-21: Rural Branch to Total Branch (%) 84Table-22: Micro & Small Credit to Total Credit (%) 88Table-23: Agricultural Credit to Total Credit (%) 91Table-24: Corporate Social Responsibilties Expenses to Total Asset (%) 94Table-25: Number of ATM Booth 97Table-26: Number of Any Branch Bank to Total Bank 100

List of Graphs

Graph-1: Distribution of Banks in terms of Average Total Capital to Risk Weighted Assets (%) 21Grpah-2: Distribution of Banks in terms of Average Required Capital Adequacy Ratio (%) 22Graph-3: Distribution of Banks in terms of Average Non Performing Loan Net of Provisions to Total Equity (%) 25Graph-4: Distribution of Banks in terms of Average Liquid Assets to Short Term Liabilities (%) 28Graph-5: Distribution of Banks in terms of Average Borrowed Liability to Total Liability (%) 31Graph-6: Distribution of Banks in terms of Average Number of Deposit Account 35Graph-7: Distribution of Banks in terms of Average Number of Branch 38Graph-8: Distribution of Banks in terms of Average Total Revenue (Tk.) 41Graph-9: Distribution of Banks in terms of Average Total Asset (Tk.) 44Graph-10: Distribution of Banks in terms of Average Total Deposit Growth (%) 47Graph-11: Distribution of Banks in terms of Average Total Loan and Advance Growth (%) 50Graph-12: Distribution of Banks in terms of Average Net Profit Growth (%) 53Graph-13: Distribution of Banks in terms of Average Net Interest Income Growth (%) 56Graph-14: Distribution of Banks in terms of Average Return on Assets (ROA) (%) 60Graph-15: Distribution of Banks in terms of Average Return on Equity (ROE) (%) 63Graph-16: Distribution of Banks in terms of Average Total Expense to Total Revenue (%) 66Graph-17: Distribution of Banks in terms of Average Profit per Employee (Tk.) 69Graph-18: Distribution of Banks in terms of Average Growth in Gross NPL (%) 73Graph-19: Distribution of Banks in terms of Average Gross Non Performing Loan to Total Loan & Advances (%) 76Graph-20: Distribution of Banks in terms of Average Change in Non Performing Loan to Change in Loan & Advances (%) 79Graph-21: Distribution of Banks in terms of Average Credit Concentration 82Graph-22: Distribution of Banks in terms of Average Rural Branch to Total Branch (%) 86Graph-23: Distribution of Banks in terms of Average Number of Rural Branch 87Graph-24: Distribution of Banks in terms of Average Micro & Small Credit to Total Credit (%) 90Graph-25: Distribution of Banks in terms of Average Agricultural Credit to Total Credit (%) 93Graph-26: Distribution of Banks in terms of Average Corporate Social Responsibilties Expenses to Total Asset (%) 96Graph-27: Distribution of Banks in terms of Average No. of ATM Booth 99Graph-28: Distribution of Banks in terms of Average No. of Any Branch Bank to Total Bank 102

VIII

ABBREVIATION

IX

ACH Automated Clearing House

AD Authorised Dealer

AQ Asset Quality

ATM Automated Teller Machine

BB Bangladesh Bank

BCBL Bangladesh Commerce Bank Ltd.

BCBS Basel Committee on Banking Supervision

BIBM Bangladesh Institute of Bank Management

BKB Bangladesh Krishi Bank

BRPD Banking Regulation & Policy Department

BSB Bangladesh Shilpa Bank

BSRS Bangladesh Shilpa Rin Sangtha

BTRC Bangladesh Telecom Regulatory Commission

CAR Capital Adequacy Ratio

CL Classified Loan

CPD Centre for Policy Dialogue

CSR Corporate Social Responsibilities

CY Calender Year

DA Documents Against Acceptance

DOE Department of Environment

DOS Department of Off-Site Supervision

DP Documents Against Payment

DSE Dhaka Stock Exchange

ECC Export Cash Credit

EFT Electronic Fund Transfer

EIA Environment Impact Assessment

ERQ Exporters Retention Quota

FCB Foreign Commercial Bank

FDBP Foreign Documentary Bills Purchased

FE Foreign Exchange

FY Fiscal Year

GDP Gross Domestic Product

GRI Global Reporting Initiative

ICT Information and Communication Technology

IPO Initial Public Offer

I & O Inclusive & Online Banking

KSA Kingdom of Saudi Arabia

X

LC Letter of Credit

LIM Loan Against Imported Merchandise

LTR Loan Against Trust Receipt

MFI Micro Finance Institution

MTO Money Transfer Organization

MOF Ministry of Finance

NPL Non Performing Loan

NRB Non-Resident Bangladeshi

PC Packing Credit

PEC Performance Evaluation Criteria

POS Point of Sale

PSTN Public Switched Telecommunications Network

P & E Profitability & Efficiency

RAKUB Rajshahi Krishi Unnayan Bank

SEC Securities & Exchange Commission

SME Small & Medium Enterprise

SOCB State-owned Commercial Bank

SOD Secured Overdraft

SPB Specialized Bank

SWIFT Society for Worldwide Interbank Financial Telecommunication

S & G Size & Growth

S & S Strength & Soundness

TMSS Thengamara Samabay Samity

TT Telegraphic Transfer

Part-1

Introduction

Background and Methodology

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Banks are the core component of the financial sector of Bangladesh that have been providing funds

for production, innovation, infrastructure, job creation and overall prosperity. Sustainable

performance of banking sector and macroeconomic and real sector development go hand in hand. In

a country like Bangladesh, banks are expected to contribute to economical and social development

side by side.

There are 4 state-owned commercial banks (SOCBs)1 , 4 specialized banks (SPCB)2, 30 domestic private

commercial banks (PCBs)3 and 9 foreign commercial banks (FCBs)4 , in the banking sector in

Bangladesh. The operational and competitive environment of all categories of banks are not the same.

Commercial environment is mainly enjoyed by the PCBs and FCBs. Government directed expansion of

credit and some other relevant services are performed by SOCBs and specialized banks of the country.

In 2007, the government has corporatized SOCBs and made them more autonomous to become more

competitive in commercial environment.

Improving performance of the banking sector has been on the priority list mainly since 1990 when

government launched the Financial Sector Reform Program. The program pursued a series of legal,

policy, and institutional reforms to improve the process of financial intermediation to ensure more

efficient allocation of financial resources and to improve the competitiveness of the private sector.

Over the years, performance of the banking industry has improved by increasing their scope of

activities, improving service quality, engaging technology and introducing social connectivity through

CSR practices. The changes have brought greater competition in the industry. The intensive and

continuously increasing competition in the banking sector creates a need for an access to information

that would allow evaluating commercial banks operating in this market. In Bangladesh, different

published sources5 capture comparative information on the performances of broad groups of banks

(SOCB, PCB,FCB, SPCB). This is yet another effort to compare the different broad groups of banks

following a different methodology. A comparison of bank groups would help identifing their

respective status in terms of selected performance indicators. This kind of publication is expected to

complement the existing disclosure system in the banking sector of the country. Such evaluation is

also essential to both bank owners and customers who expect greater profits and quality services.

SBL, JBL, ABL, RBL BASIC, BDBL, BKB, RAKUB AAIBL, ABBL, BAL, BCBL, BRAC, City, DBBL, Dhaka, EBL, EXIM, FSIBL, IBBL, ICB Islamic Bank, IFIC, Jamuna, Mercantile, MTBL, NBL, NCCBL, ONE, PBL, Premier, Prime, SEBL, SIBL, SJIBL, StBL, Trust, UBL, UCBL Bank Alfalah, CBC, Citi, HBL, HSBC, National Bank of Pakistan, SBI, SCB, Woori Bank. Ministry of Finance, Bangladesh Bank etc.

Background

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45

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Part-1: Introduction

Performance of 37 Banks are Evaluated

A total of 37 banks are considered for performance evaluation in this study. Banks with less than 1 per

cent market share (total volume of assets of a bank expressed as a percentage of total volume of

assets of banking industry) are excluded6. For some of these banks, data were also not available. Three

specialized banks (BKB, RAKUB and BDBL) have been excluded considering their non-commercial

nature of operations. Also reporting periodicity of BKB and RAKUB is different from that of the other

banks. Moreover, required consolidated data on BDBL (formed by merging BSRS and BSB) are not

available. BASIC Bank has been included in the evaluation process as part of SOCB considering its

commercial nature of operation.

Bangladesh Bank and Annual Reports are Main Sources of Data

Annual Reports for all selected banks are collected to gather relevant information. Data from different

departments of Bangladesh Bank [Banking Regulation and Policy Department (BRPD), Department of

Off-site Supervision (DOS), Statistics Department] have been collected to evaluate the bank/ bank

groups. Published information sources of MOF are also used. A number of individual banks were

contacted for data validation.

Performances of the CY 2010 are considered

Mainly, the performances of CY 2010 and CY 2009 of the selected banks are considered to evaluate the

performances of banks.

Bank groups are evaluated on Five Broad Performance Evaluation Criteria

Primarily, five broad Performance Evaluation Criteria (PEC) have been set up to evaluate banks'

performance: Strength and Soundness; Size and Growth; Profitability and Efficiency; Asset Quality; and

Inclusive and Online Banking. Each broad criterion is allocated 20 percent weight and contemplates a

few logically selected ratios (indicators). Five broad PEC are discussed along with their selected

indicators.

Bank Alfalah, BCBL, Habib Bank, ICB Islamic Bank, National Bank of Pakistan, State Bank of India, Woori Bank.

Methodology of the Report

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PEC 1: Strength and Soundness

The strength and soundness of a bank reflects the ability of a bank to absorb different shocks and

survive in an economic downturn. A financially sound bank can easily achieve the confidence of the

customers. Financial soundness and strength indicators are calculated and disseminated to be used in

macro prudential analysis, which comprises assessment and control over strengths and vulnerabilities

of financial systems with a view to increasing financial soundness as well as reducing probability of

financial system bankruptcy.

Four indicators have been used for assessing the strength and soundness of banks:

PEC 1- Indicator 1: Capital Adequacy ratio: Capital Adequacy Ratio (CAR) is a ratio of banks

Capital to Risk Weighted Assets. It is a ratio that regulators in the banking system use to watch a bank's

basic strength, specifically the bank's capital as a buffer against the risks assumed. Higher ratio

indicates better performance. The indicator is computed as:

Capital to Risk Weighted Assets = [Total Eligible Capital ÷ Risk Weighted Assets] ×100

PEC 1- Indicator 2: NPL to Equity Ratio: Higher NPL is a recognized indicator of lack of

strength and soundness. The complete title of the ratio should be NPL net of provisions to total equity.

Like CAR, the ratio indicates a bank's capacity to absorb credit risk. Lower ratio indicates better

performance. The indicator is computed as:

NPL to Equity Ratio = [(Classified Loan - Provision against Classified Loan) ÷Total Equity] ×100

PEC 1- Indicator 3: Liquid Assets to Short term Liabilities: To banks, liquidity is the

ability to meet obligations when they fall due without incurring unacceptable losses. Here the Liquid

Assets are the sum of Cash, Balance with other banks and Financial Institutions, Money at call and

Short Notice and Investment. Short-term Liabilities are the sum of Borrowed Liabilities and Total

Deposits less Fixed Deposits. The ratio measures a bank's ability to meet its short-term obligations

with its most liquid assets. Higher the ratio, better the performance. The indicator is computed as:

Liquid Assets to ST Liabilities = [Liquid Asset ÷ Short Term Liabilities] ×100

PEC 1- Indicator 4: Borrowing liability to Total Liability: Banks should mainly rely on

deposit liabilities as a source of fund to create their assets. Higher borrowing liabilities indicate greater

dependence on money market and lack of strength and soundness required to attract adequate

deposits. The indicator shows the proportion of borrowing liability of the total liabilities of a bank.

Lower ratio indicates better performance. The indicator is computed as:

Borrowing Liability to Total Liability = [Borrowed Liability ÷Total Liability] × 100

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PEC 2: Size and GrowthBank size affects profits of banks and ensures greater financial access. Relatively big banks have

greater opportunity to minimize risks and may enjoy economies of scale. Growth is recognized as one

of the prime indicators of the performance of any institution. Under this head, four indicators related

to size and four indicators related to growth are considered to assess the performances of banks.

PEC 2 - Indicator 1: Number of Deposit Account: Higher number of deposit account

indicates greater market share and bigger size of the bank. Absolute number of deposit accounts has

been used to assess the banks in terms of size. Larger the number of deposit accounts, better the

performance.

PEC 2 - Indicator 2: Number of Branch: Higher number of branches indicates greater market

share and bigger size of the bank. Absolute number of branches has been used to assess the banks in

terms of size. Larger the number of branches, better the performance.

PEC 2 - Indicator 3: Total Revenue: Higher volume of total revenue indicates greater volume

of activities and bigger size. Absolute volume of total revenue has been used to evaluate the banks in

terms of size. Higher the volume of total revenue, better the performance.

PEC 2 - Indicator 4: Total Asset: Higher volume of total assets indicates greater market share.

Absolute volume of total assets has been used to assess the banks in terms of size. Higher the volume

of total assets, better the performance.

PEC 2 - Indicator 5: Total Deposit Growth: Deposit growth indicates increase in sources of funds

by banks. Higher the growth rate of deposits, better the performance. The indicator is computed as:

Deposit Growth = [(Current Year Deposit - Previous Year Deposit) ÷ Previous Year Deposit] ×100

PEC 2 - Indicator 6: Total Advance growth: Advance growth indicates increase in uses of

funds by banks. Higher the growth rate of advances, better the performance. The indicator is

computed as:

Advance Growth = [(Current Year Advance-Previous Year Advance)÷Previous Year Advance] ×100

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PEC 2 - Indicator 7: Net Profit Growth: Growth in Net Profit is the most recognized indicator

to evaluate growth performance of any commercial institution. Higher the growth rate of net profits,

better the performance. The indicator is computed as:

Profit Growth = [(Current Year Profit - Previous Year Profit) ÷ Previous Year Profit] ×100

PEC 2 - Indicator 8: Net Interest Income Growth: Net Interest Income is the spread betwen

interest income and interest expenditure. Higher the growth rate of net interest income, better the


Net Interest Income Growth = [(Current Year NII - Previous Year NII) ÷ Previous Year NII] ×100

PEC 3: Profitability and EfficiencyProfitability and Efficiency analyses are essential for the evaluation of performances of any

commercially-run organization. Profitability is a concept with the objective of assessment of the

bank's results from efficiency point of view for entire activities. It represents the modality to achieve

the major goal of bank's activity. The profitability and efficiency analyses are done on the basis of

following four indicators to assess the banking performances.

PEC 3 - Indicator 1: Return on Assets (ROA): This indicator is also known as profit to assets

and measures the management capacity to use the financial and real resources of a bank in order to

generate profit. Higher the ratio, better the performance. The indicator is computed as:

Return on Assets: (Net Income after Tax ÷ Total Assets) × 100

PEC 3 - Indicator 2: Return on Equity (ROE): Return on Equity or profit to equity is a

recognized indicator of profitability which is used to measure the management efficiency in all its

dimensions. Higher the ratio, better the performance. The indicator is computed as:

Return on Equity: [Net Income after Tax ÷ Total Equity] × 100

PEC 3 - Indicator 3: Total Expense to Total Revenue: A measure of the total expenses

associated with earning of revenue by banks. It indicates efficient use of scarce resources by banks to

attain their goals. Lower the ratio, better the performance. The indicator is computed as:

Total Expense to Total Revenue = [Total Expenses ÷ Total Revenue] × 100

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PEC 3 - Indicator 4: Profit per Employee: It is a ratio which indicates the productivity of the

employee of a bank. The higher the number, more efficiently the bank uses its employees to attain its

goal. Higher the ratio, better the performance. The indicator is computed as:

Profit per Employee = [Net Income after Tax ÷ Total Employees]

PEC 4: Asset QualityAssets are the sources of earning for any organization. If the quality of assets deteriorates, it adversely

affects the earning potentials which eventually reduce the value of the firm. The largest category of

earning assets of a bank is loans and advances. So the consideration of the quality of loans is necessary

while performing the ranking. In evaluating asset quality, evaluators look at the existing and potential

loss exposure, primarily in the loan portfolio. Under this head, four indicators related to asset qualities

are considered to assess performances of banks.

PEC 4 - Indicator 1: Growth in Gross NPL: Growth in gross NPL indicates the change in the

performance of a bank in terms of asset quality. Lower the growth rate of Gross NPL, better the


Gross NPL Growth = [(Current Year CL - Previous Year CL) ÷ Previous Year CL] ×100

PEC 4 - Indicator 2: Gross NPL to Total Advances: The ratio, Gross NPL to Total Loans and

Advances, indicates the portion of total advances that are non-performing. Lower the Gross NPL to

Total Advances, better the performance. The indicator is computed as:

Gross NPL to Total Advances = [Classified Loan ÷ Total Loan and Advances] ×100

PEC 4 - Indicator 3: Change in NPL to Change in Total Advances: The ratio, Change in

NPL to Change in Total Loans and Advances, indicates the change in NPL of banks with respect to the

change in the volume of loans and advances. Lower the Change in NPL to Change in Total Advances,

better the position. The indicator is computed as:

Change in NPL to Change in Advances: [ in NPL ÷ in TLA] ×100

PEC 4 - Indicator 4: Credit Concentration: Credit concentration has been measured in terms

of large loans. A loan has been considered as large loan if the outstanding loan amount is more than

10% of its capital. Lower the Large Loan to Total Loans and Advances, better the performance. The

indicator is computed as:

Credit Concentration = [Total Large Loan ÷ Total Loan and advances] ×100


PEC-5: Inclusive and Online Banking

Inclusive banking is concerned with sustainable or ethical banking and is part of larger societal

movement toward more social responsibility. This movement should include ethical investment and

distribution of resources and corporate social responsibility. In Bangladesh, inclusive operation of

banks should be connected with the distribution of banks resources to rural economy, the agricultural

sector, and micro and small enterprise sector. Online banking operation is another sustainable way of

offering quality banking services. It is said that online banking is the starting point of green or

environmental banking. Under this head, five indicators related to inclusive and online banking are

considered to assess performances of banks.

PEC 5 - Indicator 1: Rural Bank Branch to Total Branch: Higher number of Rural Bank

Branch indicates greater access to finance by the under privileged people. However, small banks have

limitation of setting up greater number of bank branches. Thus, performance based on absolute

number of bank branches would be biased towards big banks. Thus two indicators have been used:

ranks based on absolute number of branches (higher the number of branches, better the

performance) and ranks based on the ratio of Rural Branch to Total Branch (higher the ratio, better the

performance).

PEC 5 - Indicator 2: Micro and Small Credit to Total Loans: Higher volume of Micro and

Small Credit to Total Credit indicates greater access to finance by the under privileged enterprises of

Bangladesh. Bangladesh Bank's definations of Micro and Small Credit have been followed. Larger the

volume of Micro and Small Credit to Total Loans and Advances, better the performance.

Micro and Small Credit to Total Loans = [Micro and small credit ÷ Total Loan and advances] ×100

PEC 5 - Indicator 3: Agricultural Credit to Total Loans: Higher volume of Agricultural

Credit to Total Loans and Advances indicates greater access to finance by the under privileged farmers

or small rural investors of Bangladesh. Larger the volume of Agricultural Credit to Total Loans, better

the performance.

Agricultural Credit to Total Loans = [Agricultural Credit ÷ Total Loan and advances] ×100

PEC 5 - Indicator 4: CSR Expense to Total Asset: Higher volume of CSR Expenditure to Total

Assets indicates greater contribution of a bank to community development and environmental

activities. Larger the ratio, better the performance.


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PEC 5 - Indicator 5: Number of ATM Booth: Greater number of ATM booths indicates greater

and easier access of banking activities by the clients. Larger the number of ATM booth, better the

performance.

PEC 5 - Indicator 6: Number of Any Branch Bank to Total Bank: Greater number of

branches under Any Branch Banking indicates better status and networking of banks. Larger the

number of branches under Any Branch Banking, better the performance.

Standard Deviations and Coefficient of Variation

Standard deviations are calculated for the year 2009 and 2010 and results are compared. Standard

deviation is the square root of the average of squared deviation from the mean value. Lower the value

of the standard deviation indicates lower deviation from the average which means most of the values

are clustered around the mid point.

Coefficient of Variation is another important statistical tool that has been used in the study. Coefficient

of variation measures the deviation per unit of mean value. So, smaller value of coefficient of variation

represents lower deviation, which indicates better performance of the indicators.

Limitations of the Report

The report is based on 37 banks. A few commercial banks and specialized banks have been excluded

from the study mainly because of unavailability of required data or different nature of operations.

Selection of right indicators could always be matters of debates. For assessing the performances of

banks, a total number of 28 indicators have been identified under five broad Performance Evaluation

Indicators (PECs). This is not an exhaustive list. Some information are also not consistent. Generally,

data on Credit Concentration (PEC-4- Indicator-4) were gathered from the published sources of banks

where large loans have been defined as the loans of a bank which is 10 percent of its capital. In case of

3 banks, 15 percent of capital has been reported in place of 10 percent.

Organization of the Report

The report is organized into three parts. Part I discusses background, methodology and a status report

of banking industry of Bangladesh in CY2010. Part II evaluates the performance of bank groups based

on the selected PECs. Some important issues related to the banking industry find place in Part III.

Part-1: IntroductionPa

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Banking Industry of Bangladesh in 2010: A Status Report

The study covers performance of 37 banks of the banking industry for the CY 2010. It excludes a few

key specialized banks (already mentioned in the methodology of the report). The performance status

of the banking industry have been placed under five broad selected Performance Evaluation Criteria.

PEC-1: Strength and Soundness

FCBs were relatively strong in terms of holding of capital as per the available data for CY 2010.

Average Total Eligible Capital to Risk Weighted Assets of FCBs was 14.90 percent, whereas the average

ratio for SOCBs and PCBs were 9.11 percent and 10.37 percent respectively. Of these, around 57

percent banks had the ratio at above 10 percent, 35 percent had it in between 9 to 10 percent and 8

percent had the ratio below 9 percent. The data indicate that SOCBs mantained low level of capital as

compared to the other bank groups.

FCBs were better positioned in terms of volume of adequate Equity to cover NPL. Average NPL net of

Provisions to Total Equity for SOCBs, PCBs and FCBs were 41.60 percent, 13.04 percent, and 0.82

percent respectively. About 65 percent banks had the ratio of above 10 percent, and 8 percent banks

had it above 30 percent. It means about 35 percent banks might require more equity to handle their

net NPL comfortably.

In terms of liquidity position, status of bank groups were not significantly different. The average

Liquid Assets to Short Term liabilities of SOCBs, PCBs and FCBs were 73.69 percent, 69.86 percent and

69.19 percent respectively in the CY 2010. Of the total banks, for 19 percent the ratio was above 100

percent whereas for 30 percent banks it was below 50 percent. The data indicate that 30 percent

banks had less than half liquid assets to meet their short term liabilities.

Borrowed Liability as percentage of Total Liability was significantly higher for PCBs as compared to

that of SOCBs and FCBs as at year-end CY 2010. The ratio was 3.41 percent for PCBs whereas the

figures for SOCBs and FCBs were 1.50 percent and 1.89 percent respectively. Of the total banks, 19

percent did not have any Borrowed Liability whereas another 19 percent had the ratio above 5

percent of their respective Total Liabilities. A few PCBs (7 percent) heavily relied on Borrowed Liability

(above 10 percent of Total Liability) as of end CY 2010.

PEC-2: Size and Growth

In terms of number of Deposit Accounts SOCBs hold considerably higher market share as compared

to PCBs and FCBs. Average number of Deposit Accounts of SOCBs was over 4454 thousand which

accounted for over 56 percent market share at the end of CY 2010. The figures were over 575


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thousand (41 percent of total) for PCBs and around 99 thousand (less than 3 percent of total) for FCBs.

Only 5 banks collectively maintain above 70 percent Deposits Accounts of the total of which 4 are

SOCBs and 1 is PCB.

As of end 2010, the country had 6303 bank branches of which 55 percent belonged to SOCBs and 44

percent belonged to PCBs. FCBs had less than 1 percent market share in terms of bank branches in the

country. The top 4 SOCBs had more than 54 percent market share and top 5 PCBs had over 18 percent

branches of the country as of end CY 2010.

In terms of Total Revenue and Total Assets, PCBs hold the maximum market share. In 2010, PCBs

earned 69.96 percent of Total Revenue of banking industry whereas the figures for SOCBs and FCBs

were 23.44 percent and 6.60 percent respectively. Top seven banks collectively owned about 40

percent of banking industry's Total Revenue of which four were PCBs and three were SOCBs. Of the

total Assets, PCBs, SOCBs and FCBs owned 62.23 percent, 31.83 percent and 5.94 percent respectively

in CY 2010. Of the total assets, seven big banks collectively owned about 45 percent of which 3 were

SOCBs, 3 were PCBs and 1 was a FCB.

Banks attained average Deposit Growth of 23.36 percent during CY 2010. Of the bank-groups, PCBs

attained remarkably high Deposit and Advance Growth over the period. Average Deposit and Advance

growth of PCBs were 28.03 percent and 34.32 percent whereas the figures for SOCBs were 25.17

percent and 33.29 percent respectively. Average Deposit Growth of FCBs over CY 2010 was unusually

low mainly because of the negative Deposit Growth of a FCB. During the period, 5 PCBs attained

remarkably high growth rates of over 40 percent both in Deposits and Advances.

As a whole, banking industry attained remarkable Net Profit Growth in CY 2010. Average growth rate

of the Net Profit of banks was over 65 percent during the period. Of the bank groups, PCBs average

growth rate was much higher with 75.27 percent followed by SOCBs with 59.57 percent. FCBs could

manage to attain only 1.85 percent growth. Of the PCBs, 4 banks had attained over 100 percent annual

average Net Profit growth during the period. The data of CY 2010 indicate that growth rates of Net

Interest Income were relatively less for PCBs and FCBs. During the period annual average growth rates

for SOCBs, PCBs and FCBs were 55.09 percent, 52.57 percent and 20.71 percent respectively. It indicates

that growth rates of Non-Interest Incomes for PCBs and SOCBs were much higher as compared to that

of their Net Interest Incomes. On the other hand, contribution of Non-Interest Incomes of the FCBs

towards their Net Profit growth were less as compared to that of their Interest Incomes.

Part-1: IntroductionPa

ge-

12

PEC-3: Profitability and Efficiency

In CY 2010, banks' average Return on Assets and Return on Equity were 2.15 percent and 22.25 percent

respectively. During the period, FCBs average Return on Assets was reasonably good with 3.04 percent.

The figures were 2.24 percent and 0.96 percent for PCBs and SOCBs. Of the PCBs, 4 banks attained over

3 percent of the ratio along side 3 of the FCBs. In terms of average Return on Equity, PCBs were ahead

of FCBs. Average Return on Equity for PCBs, FCBs and SOCBs during CY 2010 were 23.69 percent, 22.16

percent and 14.29 percent respectively. Of the total, 4 banks achieved more than 30 percent Return on

Equity in the year of which 3 were PCBs and 1 was a FCB.

In regard to the efficiency of banks in terms of the Ratio of Total Expenses to Total Revenue, FCBs were

much ahead of the PCBs and SOCBs. The average ratio of all banks was 62.26 percent in CY 2010. The

average ratio of the FCBs was much lower with 47.87 percent whereas the comparable figures were

63.16 percent for PCBs and 68.72 percent for SOCBs. FCBs were also much ahead in terms of another

efficiency indicator, Profit per Employee. Average Profit per Employee for PCBs was more than three

times than that of the SOCBs, and average Profit per Employee of FCBs was about three times than that

of the PCBs.

PEC-4: Asset Quality

SOCBs had considerably high NPL as of CY 2010. Average Gross NPL to Total Loans and Advances for

SOCBs, PCBs and FCBs were 11.70 percent, 2.86 percent and 1.27 percent respectively during the

period. Of the SOCBs, 3 banks had the ratio of above 15 percent of their respective loans and advances.

Of the PCBs, 7 banks had more than 4 percent of NPL as percentage of their respective total loans and

advances.

Most SOCBs and FCBs achieved remarkable improvements in terms of the Growth of Gross NPL in CY

2010. Average growth rates of Gross NPL of FCBs was negative i.e. -3.96 percent. However, annual

average growth of NPL for PCBs and SOCBs were 21.31 percent and 0.22 percent respectively. Of the

PCBs, 6 banks were facing average growth of Gross NPL of above 40 percent during the period. In

terms of the Ratio of Change in NPL to Change in Loans and Advances, SOCBs performed better in the

CY 2010.

PCBs were better positioned in terms of credit concentration of banks in CY 2010. On an average, 28.70

percent of PCBs' total loan was concentrated in a few hands. The big loans (above 10 percent of a

bank's capital) for SOCBs and FCBs were 38.01 percent and 44.04 percent respectively. Of the banks, 3

PCBs, 1 SOCB and 1 FCB were holding big loans that were above 60 percent of their respective assets as

of end CY 2010.


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PEC-5: Inclusive and Online Banking

In Bangladesh, SOCBs and PCBs have rural bank branches, but FCBs do not. Of the branches of 5

SOCBs under study, 56 percent were rural branches as of end CY 2010. A single SOCB had more than

70 percent rural branches as of end CY 2010. Among the branches of PCBs, 31.07 percent had defined

rural branches as of CY 2010. Of the PCBs, 7 banks had more than 35 percent rural branches of their

respective total branches.

Of the total credit, generally a very insignificant portion was given to the Micro and Small sector.

Though the top bank, a SOCB, accounted for over 13 percent, Micro and Small credit of other SOCBs

accounted for only around 1 percent of their total loans and advances during CY 2010. Average Micro

and Small Credit to Total Loans and Advances of PCBs was 0.83 percent in the year. Of the PCBs, 7

banks had the ratio of more than 1 percent in CY 2010. Generally, FCBs were found hardly interested in

the Micro and Small credit sector.

Of the total loans and advances, the proportion of average agricultural credit were 4.16 percent for

SOCBs, 0.38 percent for FCBs and 1.01percent for PCBs. Of the SOCBs, Agricultural Credits of 3 banks

accounted for over 5 percent of their respective total loans and advances. Amongst the PCBs, 11 banks

had the credit ratio of above 1 percent in CY 2010.

As percentage of total assets, CSR Expenses of banks remained insignificant as of CY 2010. In this

regard, PCBs were generally ahead of SOCBs and FCBs in CY 2010. The average ratio for PCBs was

0.120 percent whereas the figures were 0.029 percent and 0.026 percent for FCBs and SOCBs

respectively. A single PCB's CSR expenditure was more than 1 percent of its total assets, and another 3

PCBs had spent more than 0.20 percent of their respective total assets in CY 2010.

As of end CY 2010, banks had 2122 ATMs in the country. Of these PCBs accounted for above 90

percent. Remaining 10 percent was shared by SOCBs and FCBs with around 4 percent and 6 percent

respectively. Of the total ATMs, a single PCB accounted for about 52 percent and 3 PCBs were yet to

set up a single ATM. Most banks of the country introduced online banking by CY 2010. All FCBs

operate within the network of Any-branch Banking. Of the local banks 100 percent branches of 90

percent PCBs use Any-branch banking. Amongst the SOCBs, all branches of only 1 bank was under

Any-branch banking network.


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Part-2

Performance of Banks

Strength

&

Soundness

Size& Growth

PerformanceEvaluation

Criteria

Profitabilit

y&

Efficiency

Asset Quality

Inclusive &Online

Banking

Performance Evaluation CriteriaPerform

ance Evaluation Criteria

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Strength&

Soundness

Performance Evaluation Criteria-1: Strength & SoundnessPerform

ance Evaluation Criteria-1: Strength & Soundness

Indicator-1:Capital

Adequacy Ratio

Indicator-2:NPL toEquityRatio

Indicator-3:Liquid Assets

toShort - term

Liabilities

Indicator-4:BorrowingLiability to

TotalLiability

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Table-1: Total Capital to Risk Weighted Assets (%)

All Banks 10.69 %SOCBs 09.11 %PCBs 10.37 %FCBs 14.90 %

Top Performers 2010: All BanksTop Bank 19.08 %Top Two Banks (Average) 17.63 %Top Three Banks (Average) 16.69 %

Strength & Soundness

Top Performers 2010: SOCBs

Top Performers 2010: PCBs

Top Performers 2010: FCBs

Top SOCBs 09.83 %Top Two SOCBs (Average) 09.57 %Top Three SOCBs (Average) 09.40 %

Top PCBs 14.80%Top Two PCBs (Average) 13.60 %Top Three PCBs (Average) 13.18 %

Top FCBs 19.08 %Top Two FCBs (Average) 17.63 %Top Three FCBs (Average) 16.05 %

Overall Performance [Average] 2010

Strength & Soundness: PEC1 - S&S: Indicator 1 - Capital Adequacy Ratio

2009 2010 Comments **All Banks 14.48 % 10.69 % Substantially Decreased SOCBs 12.42 % 09.11 % Significantly Decreased PCBs 12.76 % 10.37 % Significantly Decreased FCBs 29.14 % 14.90 % Drastically Decreased

2009 2010 CommentsAll Banks 05.88 02.29 DecreasedSOCBs 01.19 00.51 DecreasedPCBs 01.84 01.56 DecreasedFCBs 07.81 03.42 Decreased

Comparing Average Performances of 2009 and 2010

Comparing Standard Deviation of 2009 and 2010

Table-1: Total Capital to Risk Weighted Assets (%)



** Total Capital to Risk Weighted Assets decreased mainly because of the adoption of superior capital adequacy standard (Basel II) in 2010 from existing liberal capital adequacy standard (Basel I).

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2009 2010 CommentsAll Banks 0.41 0.21 Significantly ImporvedSOCB 0.10 0.06 ImprovedPCB 0.14 0.15 Almost StableFCB 0.27 0.23 Improved

Comparing Coefficient of Variation of 2009 and 2010

Graph-1: Distribution of Banks in terms of Average Capital to Risk Weighted Assets (%)

Above AVG43% (16)

Below AVG57% (21)

All Banks SOCBs FCBsPCBs


Below AVG100% (5)

Above AVG0% (0)

Above AVG43% (12)

Above AVG100% (4)

Below AVG57% (16)

Below AVG0% (0)

Average of All Banks 10.69%



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Below AVG0% (0)

Required CAR 9%

Graph-2: Distribution of Banks in terms of Average Required Capital Adequacy Ratio (%)

Above AVG86% (32)

Below AVG14% (5)

Below AVG40% (2)

Above AVG60% (3)

Above AVG89% (25)

Above AVG100% (4)

Below AVG11% (3)



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Table-2: Non Performing Loan Net of Provisions to Total Equity (%)


Top Performers 2010: All BanksTop Bank -00.67 %Top Two Banks (Average) -00.24 %Top Three Banks (Average) 00.21 %






Top FCBs -00.67 %Top Two FCBs (Average) -00.24 %Top Three FCBs (Average) -00.21 %



Strength & Soundness: PEC1 - S&S: Indicator 2 - NPL to Equity Ratio

2009 2010 CommentsAll Banks 18.39 % 15.58 % Significantly ImprovedSOCBs 48.48 % 41.60 % Substantially Improved but HighPCBs 15.64 % 13.04 % ImprovedFCBs 00.08 % 00.82 % Deteriorated




Table-2: Non Performing Loan Net of Provisions to Total Equity (%)



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2009 2010 CommentsAll Banks 1.59 0.96 ImprovedSOCB 1.54 0.59 Significantly ImporvedPCB 0.60 0.52 ImporvedFCB 25.13 1.54 Drastically Imporved


Graph-3: Distribution of Banks in terms of Average Non Performing Loan Net of Provisions to Total Equity (%)

Above AVG32% (12)

Below AVG68% (25)



Above AVG25% (7)

Below AVG100% (4)

Above AVG100% (5)

Below AVG75% (21)

Below AVG0% (0)

Average of All Banks 15.58 %



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Above AVG0% (0)

Table-3: Liquid Assets to Short Term Liabilities (%)







Top PCBs 163.49 %Top Two PCBs (Average) 147.23 %Top Three PCBs (Average) 134.74 %




Strength & Soundness: PEC1 - S&S: Indicator 3 - Liquid Assets to Short Term Liabilities

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2009 2010 CommentsAll Banks 87.46 % 70.30 % Highly Decreased SOCBs 93.29 % 73.69 % Greatly Decreased PCBs 84.33 % 69.86 % Significantly DecreasedFCBs 102.08 % 69.19 % Substantially Decreased




Table-3: Liquid Assets to Short Term Liabilities (%)



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2009 2010 CommentsAll Banks 0.53 0.43 ImprovedSOCB 0.74 0.46 Significantly ImporvedPCB 0.53 0.45 ImporvedFCB 0.41 0.43 Marginally Deteriorated


Graph-4: Distribution of Banks in terms of Average Liquid Assets to Short Term Liabilities (%)

Above AVG35% (13)



Above AVG36% (10)

Above AVG50% (2)

Below AVG50% (2)

Above AVG20% (1)

Below AVG64% (18)

Average of All Banks 70.30%

Below AVG65% (24)

Below AVG80% (4)



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Table-4: Borrowed Liability to Total Liability (%)











Strength & Soundness: PEC1 - S&S: Indicator 4 - Borrowing Liability to Total Liability

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2009 2010 CommentsAll Banks 02.73 % 02.99% Slightly Deteriorated SOCBs 01.52 % 01.50 % Slightly ImprovedPCBs 03.05 % 03.41 % Deteriorated FCBs 02.00 % 01.89 % Improved

2009 2010 CommentsAll Banks 03.20 03.32 IncreasedSOCBs 03.05 02.10 DecreasedPCBs 03.40 03.56 IncreasedFCBs 01.37 02.04 Increased



Table-4: Borrowed Liability to Total Liability (%)



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2009 2010 CommentsAll Banks 1.17 1.11 ImprovedSOCB 2.01 1.40 Greatly ImprovedPCB 1.11 1.04 ImprovedFCB 0.69 1.08 Deteriorated


Graph-5: Distribution of Banks in terms of Average Borrowed Liability to Total Liability (%)

Above AVG41% (15)



Above AVG46% (13)

Above AVG25% (1)

Below AVG75% (3)

Above AVG20% (1)

Below AVG54% (15)


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Below AVG59% (22)

Below AVG80% (4)



Size&

Growth

Indicator-1:Number of

DepositAccount

Indicator-2:

Number ofBranch

Indicator-3:Total

Revenue

Indicator-4:

Total

AssetIndicator-5:Total

DepositGrowth

Indicator-6:TotalAdvance Growth

Indi

cato

r-7:

Net P

rofit

Grow

th

Indicator-8:

Net Interest

Income

Growth

Performance Evaluation Criteria-2: Size & GrowthPerform

ance Evaluation Criteria-2: Size & Growth

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Table-5: Number of Deposit Account

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All Banks 1048372SOCBs 4454666PCBs 575670FCBs 99419

Top Performers 2010: All BanksTop Bank 9175663Top Two Banks (Average) 7449572Top Three Banks (Average) 6670576

Size and Growth




Top SOCBs 9175663Top Two SOCBs (Average) 7449572Top Three SOCBs (Average) 6670576

Top PCBs 4940266Top Two PCBs (Average) 3114890Top Three PCBs (Average) 2412723

Top FCBs 207421Top Two FCBs (Average) 181863Top Three FCBs (Average) 132184


Size and Growth: PEC2 - S&G: Indicator 1 - Number of Deposit Account

Table-5: Number of Deposit Account

2009 2010 CommentsAll Banks 943426 1048372 Significantly Improved SOCBs 4129663 4454666 Slightly ImprovedPCBs 495550 575670 Significantly ImprovedFCBs 95757 99419 Moderately Improved

2009 2010 CommentsAll Banks 1824339 1962722 Increased SOCBs 3217287 3492577 Increased PCBs 841782 902423 Increased FCBs 97487 98314 Increased



2009 2010 CommentsAll Banks 1.93 1.87 Slightly ImprovedSOCB 0.78 0.78 UnchangedPCB 1.70 1.57 Slightly ImprovedFCB 1.02 0.99 Marginally Improved


Size and Growth


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Average of All Banks 1048372

Size and Growth


Graph-6: Distribution of Banks in terms of Average Number of Deposit Account

Above AVG16% (6)

Above AVG7% (2)

Above AVG0% (0)

Below AVG100% (4)

Above AVG80% (4)

Below AVG93% (26)

Below AVG84% (31)

Below AVG20% (1)

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Table-6: Number of Branch

Size and Growth

Size and Growth: PEC2 - S&G: Indicator 2 - Number of Branch

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2009 2010 CommentsAll Banks 1.62 1.58 Marginally ImprovedSOCB 0.64 0.65 Almost StablePCB 0.88 0.84 Marginally ImprovedFCB 0.6 0.77 Deteriorated


2009 2010 CommentsAll Banks 164 170 IncreasedSOCBs 684 696 Significantly IncreasedPCBs 80 93 Significantly IncreasedFCBs 10 13 Slightly Increased

2009 2010 CommentsAll Banks 266 269 IncreasedSOCBs 438 452 IncreasedPCBs 70 78 IncreasedFCBs 6 10 Increased



Table-6: Number of Branch


Size and Growth

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Graph-7: Distribution of Banks in terms of Average Number of Branch

Above AVG19% (7)



Above AVG11% (3)

Above AVG0% (0)

Below AVG100% (4)

Above AVG80% (4)

Below AVG89% (25)


Below AVG81% (30)

Below AVG20% (1)


Size and Growth

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Table-7: Total Revenue (Tk.)

Size and Growth

Size and Growth: PEC2 - S&G: Indicator 3 - Total Revenue

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2009 2010 CommentsAll Banks 0.64 0.63 Almost UnchangedSOCB 0.67 0.66 Almost UnchangedPCB 0.49 0.46 Marginally ImprovedFCB 0.80 0.87 Slightly Deteriorated


2009 2010 CommentsAll Banks 10028666302 12534532662 Significantly Increased SOCBs 17082341625 21745031223 Significantly IncreasedPCBs 9147898338 11588024106 Significantly IncreasedFCBs 7376947903 7646969352 Slightly Increased

2009 2010 CommentsAll Banks 6407736228 7956823620 Increased SOCBs 11489690979 14431439449 IncreasedPCBs 4504024915 5337989683 IncreasedFCBs 5880117354 6632898023 Increased



Table-7: Total Revenue (Tk.)

Size and Growth: PEC2 - S&G: Indicator 3 - Total Revenue

Size and Growth

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Size and Growth: PEC2 - S&G: Indicator 3 - Total Revenue Graph-8: Distribution of Banks in terms of Average Total Revenue (Tk.)

Size and Growth

Above AVG35% (13)

Above AVG32% (9) Above AVG

25% (1)

Below AVG75% (3)

Above AVG60% (3)

Below AVG68% (19)

Below AVG65% (24)

Below AVG40% (2)

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Size and Growth

Size and Growth: PEC2 - S&G: Indicator 4 - Total AssetTable-8: Total Asset (Tk.)

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2009 2010 CommentsAll Banks 98885230405 122741311567 Significantly IncreasedSOCBs 236461913926 289071553276 Significantly IncreasedPCBs 79573035066 100925829537 Significantly Increased FCBs 62099743376 67536883643 Slightly Increased




Size and Growth: PEC2 - S&G: Indicator 4 - Total AssetTable-8: Total Asset (Tk.)

Size and Growth

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2009 2010 CommentsAll Banks 0.97 0.92 Slightly ImprovedSOCB 0.84 0.80 Slightly ImprovedPCB 0.57 0.53 Slightly ImprovedFCB 0.70 0.79 Deteriorated


Above AVG35% (13)



Above AVG29% (8) Above AVG

25% (1)

Below AVG75% (3)

Below AVG71% (20)


Below AVG65% (24)

Below AVG20% (1)

Size and Growth: PEC2 - S&G: Indicator 4 - Total Asset

Size and Growth

Graph-9: Distribution of Banks in terms of Average Total Asset (Tk.)

Above AVG80% (4)

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Table-9: Total Deposit Growth (%)










Size and Growth

Size and Growth: PEC2 - S&G: Indicator 5 - Total Deposit Growth

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2009 2010 CommentsAll Banks 0.66 0.70 Slightly Deteriorated SOCB 1.63 0.42 Highly ImprovedPCB 0.43 0.50 Slightly DeterioratedFCB 1.33 40.00 Drastically Deteriorated


2009 2010 CommentsAll Banks 24.48 % 22.36 % Slightly Increased SOCBs 05.94 % 25.17 % Highly IncreasedPCBs 30.56 % 28.03 % Slightly Deteriorated FCBs 04.60 % 00.45 % Highly Deteriorated

2009 2010 CommentsAll Banks 16.24 15.57 DecreasedSOCBs 09.70 10.53 Increased PCBs 13.16 14.00 IncreasedFCBs 06.11 18.00 Increased



Table-9: Total Deposit Growth (%)


Size and Growth

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Graph-10: Distribution of Banks in terms of Average Total Deposit Growth (%)

Above AVG49% (18)



Above AVG54% (15)

Above AVG0% (0)

Below AVG100% (4)

Above AVG60% (3)

Below AVG46% (13)


Below AVG51% (19)

Below AVG40% (2)


Size and Growth

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Top FCBs 52.22%Top Two FCBs (Average) 34.63 %Top Three FCBs (Average) 27.80 %


Table-10: Total Loan and Advance Growth (%)

Size and Growth: PEC2 - S&G: Indicator 6 - Total Loan and Advance Growth

Size and Growth

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2009 2010 CommentsAll Banks 20.40 32.60 % Moderately Increased SOCBs 09.36 33.29 % Highly Increased PCBs 24.86 34.32 % Moderately Increased FCBs 02.97 23.75 % Highly Increased

2009 2010 CommentsAll Banks 13.85 13.46 Almost StableSOCBs 03.36 16.68 IncreasedPCBs 12.51 10.65 DecreasedFCBs 09.19 19.11 Increased



2009 2010 CommentsAll Banks 0.68 0.41 Moderately ImprovedSOCB 0.36 0.50 DeterioratedPCB 0.50 0.31 ImprovedFCB 3.09 0.80 Greatly Imporved


Table-10: Total Loan and Advance Growth (%)


Size and Growth

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Graph-11: Distribution of Banks in terms of Average Total Loan and Advance Growth (%)

Above AVG54% (20)



Above AVG57% (16)

Above AVG25% (1)

Below AVG75% (3)

Above AVG60% (3)

Below AVG43% (12)


Below AVG46% (17)

Below AVG40% (2)


Size and Growth

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Table-11: Net Profit Growth (%)










Size and Growth

Size and Growth: PEC2 - S&G: Indicator 7 - Net Profit Growth

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2009 2010 CommentsAll Banks 51.95 % 65.21 % Moderately ImprovedSOCBs 02.41 % 59.57 % Highly ImprovedPCBs 65.44 % 75.27 % Significantly ImprovedFCBs 19.51 % 01.85 % Highly Deteriorated

2009 2010 CommentsAll Banks 53.31 59.00 IncreasedSOCBs 57.18 104.70 IncreasedPCBs 49.86 47.76 DecreasedFCBs 13.42 16.46 Decreased



2009 2010 CommentsAll Banks 1.03 0.9 ImprovedSOCB 23.73 1.76 Drastically Improved PCB 0.76 0.63 Marginally Improved FCB 0.69 8.90 Significantly Deteriorated


Table-11: Net Profit Growth (%)


Size and Growth

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Graph-12: Distribution of Banks in terms of Average Net Profit Growth (%)

Above AVG46% (17)



Above AVG54% (15)

Above AVG0% (0)

Below AVG100% (4)

Above AVG40% (2)

Below AVG46% (13)


Below AVG54% (20)

Below AVG60% (3)


Size and Growth

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Table-12: Net Interest Income Growth (%)










Size and Growth: PEC2 - S&G: Indicator 8 - Net Interest Income Growth

Size and Growth

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2009 2010 CommentsAll Banks 24.96 % 49.47 % Significantly Improved SOCBs 15.74 % 55.09 % Greatly ImprovedPCBs 31.78 % 52.57 % Moderately ImprovedFCBs -11.29 % 20.71 % Significantly Improved




Table-12: Net Interest Income Growth (%)

2009 2010 CommentsAll Banks 2.72 0.62 Greatly ImporvedSOCB 2.17 0.57 Significantly ImprovedPCB 2.37 0.59 Significantly ImprovedFCB -1.39 0.24 Greatly Imporved



Size and Growth

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Graph-13: Distribution of Banks in terms of Average Size and Growth: Net Interest Income Growth (%)

Above AVG49% (18)



Above AVG54% (15)

Below AVG100% (4)

Above AVG60% (3)

Below AVG46% (13)


Below AVG51% (19)

Below AVG40% (2)

Above AVG0% (0)


Size and Growth

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Profitability&

Efficiency

Performance Evaluation Criteria-3: Profitability & EfficiencyPerform

ance Evaluation Criteria-3: Profitability & Efficiency

Indicator-1:Return on

Asset

Indicator-2:Return on

Equity

Indicator-3:Total

Expense toTotal

Revenue

Indicator-4:Profit PerEm

ployee

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Table-13: Return on Assets (ROA)



Profitability & Efficiency








Profitability & Efficiency: PEC3 - P&E: Indicator 1 - Return on Assets

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2009 2010 CommentsAll Banks 01.75 % 02.15 % Slightly Improved SOCBs 01.54 % 00.95 % Slightly DeterioratedPCBs 01.67 % 02.24 % Moderately ImprovedFCBs 03.18 % 03.04 % Slightly Deteriorated

2009 2010 CommentsAll Banks 00.80 00.91 IncreasedSOCBs 01.38 00.47 DecreasedPCBs 00.54 00.82 IncreasedFCBs 00.88 00.37 Decreased



Table-13: Return on Assets (ROA)



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2009 2010 CommentsAll Banks 0.46 0.42 Slightly ImprovedSOCB 0.90 0.49 ImprovedPCB 0.32 0.37 Slightly Deteriorated FCB 0.28 0.12 Improved


Graph-14: Distribution of Banks in terms of Average Return on Assets (ROA)

Above AVG46% (17)



Above AVG46% (13)

Above AVG100% (4)

Below AVG0% (0)

Above AVG0% (0)

Below AVG54% (15)


Below AVG54% (20)

Below AVG100% (5)



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Table-14: Return on Equity (%)











Profitability & Efficiency: PEC3 - P&E: Indicator 2 - Return on Equity

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2009 2010 CommentsAll Banks 10.19 % 22.25 % Slightly Improved SOCBs 05.06 % 14.29 % Slightly DeterioratedPCBs 20.71 % 23.69 % Moderately ImprovedFCBs 23.26 % 22.16 % Slightly Deteriorated

2009 2010 CommentsAll Banks 18.85 07.49 DecreasedSOCBs 20.45 09.10 DecreasedPCBs 05.08 06.19 IncreasedFCBs 08.96 09.67 Increased



Table-14: Return on Equity (%)



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2009 2010 CommentsAll Banks 1.85 0.34 Greatly ImprovedSOCB 4.04 0.64 Greatly ImprovedPCB 0.25 0.26 StableFCB 0.39 0.44 Slightly Deteriorated


Graph-15: Distribution of Banks in terms of Average Return on Equity (%)

Above AVG54% (20)



Above AVG57% (16)

Above AVG50% (2)

Below AVG50% (2)

Above AVG40% (2)

Below AVG43% (12)


Below AVG46% (17)

Below AVG60% (3)



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Table-15: Total Expense to Total Revenue (%)

Top Performers 2010: All Banks




Overall Performance [Average] 2010All Banks 62.26 %SOCBs 68.72 %PCBs 63.16 %FCBs 47.87 %

Top Bank 39.13 %Top Two Banks (Average) 41.98 %Top Three Banks (Average) 44.84 %





Profitability & Efficiency: PEC3 - P&E: Indicator 3 - Total Expense to Total Revenue

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2009 2010 CommentsAll Banks 94.24 % 62.26 % Significantly ImprovedSOCBs 108.31 % 68.72 % Significantly ImprovedPCBs 100.96% 63.16 % Slightly ImprovedFCBs 30.31% 47.87 % Slightly Deteriorated



Table-15: Total Expense to Total Revenue (%)


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2009 2010 CommentsAll Banks 0.99 0.14 Greatly ImprovedSOCB 0.79 0.17 Significantly ImprovedPCB 0.98 0.09 Greatly ImprovedFCB 0.53 0.16 Significantly Improved


Graph-16: Distribution of Banks in terms of Average Total Expense to Total Revenue (%)

Above AVG51% (19)



Above AVG57% (16)

Above AVG0% (0)

Below AVG100% (4)

Above AVG60% (3)

Below AVG43% (12)


Below AVG49% (18)

Below AVG40% (2)



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Table-16: Profit per Employee

All Banks 1287454.88SOCBs 324148.26PCBs 1176063.31FCBs 3271329.14

Top Performers 2010: All BanksTop Bank 5473088.46Top Two Banks (Average) 4143658.25Top Three Banks (Average) 3619358.29




Top SOCBs 677883.35Top Two SOCBs (Average) 530270.81Top Three SOCBs (Average) 452022.90

Top PCBs 2570758.38Top Two PCBs (Average) 2310887.83Top Three PCBs (Average) 2206053.81

Top FCBs 5473088.46Top Two FCBs (Average) 4143658.25Top Three FCBs (Average) 3591601.92



Profitability & Efficiency: PEC3 - P&E: Indicator 4 - Profit per Employee

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2009 2010 CommentsAll Banks 1062632.15 1287454.88 Moderately Improved SOCBs 342702.77 324148.26 Improved but vary lowPCBs 808741.85 1176063.31 Greatly Improved FCBs 3739773.54 3271329.14 Moderately Improved

2009 2010 CommentsAll Banks 1200192.40 1012602.70 DecreasedSOCBs 320228.62 225253.55 DecreasedPCBs 438155.15 589589.96 IncreasedFCBs 2097478.94 1482594.83 Decreased



Table-16: Profit per Employee



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2009 2010 CommentsAll Banks 1.13 0.79 ImprovedSOCB 0.93 0.69 ImprovedPCB 0.54 0.50 Marginally ImprovedFCB 0.56 0.45 Marginally Improved


Graph-17: Distribution of Banks in terms of Average Profit per Employee

Above AVG43% (16)



Above AVG43% (12)

Above AVG100% (4)

Below AVG0% (0)

Above AVG0% (0)

Below AVG57% (16)

Average of All Banks 1287454.88

Below AVG57% (21)

Below AVG100% (5)



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Asset Quality

Indicator-1:Growth inGross NPL

Indi

cato

r-2:

Gros

s NPL

toTo

tal

Adva

nces

Indicator-3:Change in NPL to

Change inTotal

Advances

Indicator-4:Credit

Concentration

Performance Evaluation Criteria-4: Asset QualityPerform

ance Evaluation Criteria-4: Asset Quality

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Table-17: Growth in Gross NPL (%)

All Banks 21.31 %SOCBs 00.22 %PCBs 28.70 %FCBs -03.96 %

Top Performers 2010: All BanksTop Bank -50.01 %Top Two Banks (Average) -40.46 %Top Three Banks (Average) -36.24 %

Asset Quality




Top SOCBs -27.23 %Top Two SOCBs (Average) -21.93 %Top Three SOCBs (Average) -18.44 %

Top PCBs -30.91 %Top Two PCBs (Average) -00.24 %Top Three PCBs (Average) -00.20 %



Asset Quality: PEC4 - AQ: Indicator 1 - Growth in Gross NPL

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2009 2010 CommentsAll Banks 09.83 % 21.31 % Significantly Deteriorated SOCBs -04.70 % 00.22 % DeterioratedPCBs 14.16 % 00.29 % Significantly ImprovedFCBs 03.14 % -03.96 % Improved

2009 2010 CommentsAll Banks 43.29 57.13 IncreasedSOCBs 19.17 33.87 IncreasedPCBs 48.08 61.40 Increased FCBs 22.69 39.85 Increased



Table-17: Growth in Gross NPL (%)


Asset Quality

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2009 2010 CommentsAll Banks 4.40 2.68 ImprovedSOCB -4.08 153.95 Drastically Deteriorated PCB 3.40 211.72 Drastically Deteriorated FCB 7.23 10.06 Deteriorated


Graph-18: Distribution of Banks in terms of Average Growth in Gross NPL (%)

Above AVG35% (13)



Above AVG40% (11)

Above AVG25% (1)

Below AVG75% (3)

Above AVG20% (1)

Below AVG60% (17)


Below AVG65% (24)

Below AVG80% (4)


Asset Quality

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Table-18: Gross Non Performing Loan to Total Loan & Advances (%)










Asset Quality

Asset Quality: PEC4 - AQ: Indicator 2 - Gross Non Performing Loan to Total Loan & Advances

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2009 2010 CommentsAll Banks 04.78 % 03.89 % Marginally Improved SOCBs 16.12 % 11.70 % ImporvedPCBs 03.24 % 02.86 % ImporvedFCBs 01.33 % 01.27 % Imporved

2009 2010 CommentsAll Banks 05.76 04.29 DecreasedSOCBs 07.78 07.78 UnchangedPCBs 01.69 01.41 DecreasedFCBs 01.02 01.29 Increased



Table-18: Gross Non Performing Loan to Total Loan & Advances (%)


Asset Quality

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2009 2010 CommentsAll Banks 1.21 1.10 ImprovedSOCB 0.48 0.66 Slightly DeterioratedPCB 0.52 0.49 Slightly ImprovedFCB 0.77 1.02 Deteriorated


Graph-19: Distribution of Banks in terms of Average Gross Non Performing Loan to Total Loan & Advances (%)

Above AVG38% (14)



Above AVG32% (9)

Above AVG0% (0)

Below AVG100% (4)

Above AVG100% (5)

Below AVG68% (19)


Below AVG62% (23)

Below AVG0% (0)


Asset Quality

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Table-19: Change in Non Performing Loan to Change in Loan & Advances (%)

All Banks 00.38 %SOCBs -06.49 %PCBs 01.46 %FCBs 01.41 %

Top Performers 2010: All BanksTop Bank -22.19 %Top Two Banks (Average) -14.41%Top Three Banks (Average) -11.18 %




Top SOCBs -22.19 %Top Two SOCBs (Average) -14.41 %Top Three SOCBs (Average) -11.18 %

Top PCBs -02.54 %Top Two PCBs (Average) -02.26 %Top Three PCBs (Average) -02.09 %



Asset Quality

Asset Quality: PEC4 - AQ: Indicator 3 - Change in Non Performing Loan to Change in Loan & Advances

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2009 2010 CommentsAll Banks -03.27 % 00.38 % Deteriorated SOCBs -34.22 % -06.49 % Significantly ImprovedPCBs 01.41 % 01.46 % Slightly DeterioratedFCBs 02.68 % 01.41 % Marginally Imporved




Table-19: Change in Non Performing Loan to Change in Loan & Advances (%)


Asset Quality

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2009 2010 CommentsAll Banks -7.33 13.84 Significantly DeterioratedSOCB -1.64 -1.51 Slightly ImprovedPCB 6.46 2.32 Significantly ImprovedFCB 3.99 2.11 Imporved


Graph-20: Distribution of Banks in terms of Average Change in Non Performing Loan to Change in Loan & Advances (%)

Above AVG43% (16)



Above AVG46% (13)

Above AVG50% (2)

Below AVG50% (2)

Above AVG20% (1)

Below AVG54% (15)


Below AVG57% (21)

Below AVG80% (4)


Asset Quality

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Table-20: Credit Concentration



Asset Quality








Asset Quality: PEC4 - AQ: Indicator 4 - Credit Concentration

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2009 2010 CommentsAll Banks 33.02 % 31.62 % Marginally Improved SOCBs 42.17 % 38.01 % ImprovedPCBs 29.91 % 28.70 % Marginally ImprovedFCBs 43.37 % 44.04 % Marginally Deteriorated

2009 2010 CommentsAll Banks 17.61 19.06 IncreasedSOCBs 18.70 18.31 DecreasedPCBs 16.72 19.29 IncreasedFCBs 19.16 14.49 Decreased



Table-20: Credit Concentration

Asset Quality


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2009 2010 CommentsAll Banks 0.53 0.60 Slightly DeterioratedSOCB 0.44 0.48 Marginally DeterioratedPCB 0.56 0.67 Slightly DeterioratedFCB 0.44 0.33 Marginally Improved


Graph-21: Distribution of Banks in terms of Average Credit Concentration

Above AVG46% (17)



Above AVG39% (11)

Above AVG75% (3)

Below AVG25% (1)

Above AVG60% (3)

Below AVG61% (17)


Below AVG54% (20)

Below AVG40% (2)

Asset Quality


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Inclusive&

Online Banking

Performance Evaluation Criteria-5: Inclusive & Online BankingPerform

ance Evaluation Criteria-5: Inclusive & Online Banking

Indicator-1:

Rural Bank

Branch to

Total

Branch

Indicator-2:Micro &SmallCredit to

Total Credit

Indicator-3:Agricultural

Credit toTotal Credit

Indicator-4:

CSR

Expenses

to

Total Asset

Indicator-5:Number of

ATM Booth

Indi

cato

r-6:

Bran

ches

unde

r An

y Bra

nch

Bank

ing

toTo

tal B

ranc

h

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Table-21: Rural Branch to Total Branch (%)



Inclusive & Online Banking








Inclusive & Online Banking: PEC5 - I&O: Indicator 1 - Rural Branch to Total Branch

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2009 2010 CommentsAll Banks 28.91 % 29.43 % Slightly Improved SOCBs 34.11 % 43.79 % Significantly ImprovedPCBs 28.09 % 31.07 % ImprovedFCBs 0.00 % 0.00 % Unchanged

2009 2010 CommentsAll Banks 15.52 16.36 IncreasedSOCBs 08.13 26.52 IncreasedPCBs 16.89 09.39 DecreasedFCBs 0.00 0.00 Unchanged



Table-21: Rural Branch to Total Branch (%)



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2009 2010 CommentsAll Banks 0.54 0.56 Almost StableSOCB 0.24 0.61 Deteriorated PCB 0.60 0.30 ImprovedFCB 0.0 0.0 Unchanged


Graph-22: Distribution of Banks in terms of Average Rural Branch to Total Branch (%)

Above AVG54% (20)



Above AVG57% (16)

Above AVG0% (0)

Below AVG100% (4)

Above AVG80% (4)

Below AVG43% (12)


Below AVG46% (17)

Below AVG20% (1)



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Graph-23: Distribution of Banks in terms of Average Number of Rural Branch

Above AVG16% (6)



Above AVG7% (2)

Above AVG0% (0)

Below AVG100% (4)

Above AVG80% (4)

Below AVG93% (26)


Below AVG84% (31)

Below AVG20% (1)


Inclusive & Online Banking: PEC5 - I&O: Indicator 1 - Number of Rural Branch

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Table-22: Micro & Small Credit to Total Credit (%)











Inclusive & Online Banking: PEC5 - I&O: Indicator 2 - Micro & Small Credit to Total Credit

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2009 2010 CommentsAll Banks 01.38 % 01.14 % Slightly Deteriorated SOCBs 02.25 % 03.71 % IncreasedPCBs 01.42 % 00.83 % DeterioratedFCBs 00.03 % 00.07 % Marginally Improved

2009 2010 CommentsAll Banks 02.18 02.26 Increased SOCBs 01.29 05.47 IncreasedPCBs 02.39 00.94 DecreasedFCBs 00.06 00.14 Increased



Table-22: Micro & Small Credit to Total Credit (%)



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2009 2010 CommentsAll Banks 1.58 1.98 Slightly Deteriorated SOCB 0.57 1.47 Deteriorated PCB 1.68 1.13 Marginally ImprovedFCB 2.00 2.00 Unchanged


Graph-24: Distribution of Banks in terms of Average Micro & Small Credit to Total Credit (%)

Above AVG35% (13)



Above AVG32% (9)

Above AVG0% (0)

Below AVG100% (4)

Above AVG80% (4)

Below AVG68% (19)


Below AVG65% (24)

Below AVG20% (1)



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Table-23: Agricultural Credit to Total Credit (%)











Inclusive & Online Banking: PEC5 - I&O: Indicator 3 - Agricultural Credit to Total Credit

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2009 2010 CommentsAll Banks 01.92 % 01.36 % Marginally Deteriorated SOCBs 03.09 % 04.16 % ImprovedPCBs 01.60 % 01.01 % DeterioratedFCBs 02.65 % 00.38 % Significantly Deteriorated

2009 2010 CommentsAll Banks 02.77 01.75 DecreasedSOCBs 03.49 03.48 DecreasedPCBs 02.70 00.72 IncreasedFCBs 02.44 00.43 Decreased




Table-23: Agricultural Credit to Total Credit (%)


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2009 2010 CommentsAll Banks 1.44 1.29 ImprovedSOCB 1.13 0.84 ImprovedPCB 1.69 0.71 Significantly ImprovedFCB 0.92 1.13 Slightly Deteriorated


Graph-25: Distribution of Banks in terms of Average Agricultural Credit to Total Credit (%)

Above AVG24% (9)



Above AVG21% (6)

Above AVG0% (0)

Below AVG100% (4)

Above AVG60% (3)

Below AVG79% (22)


Below AVG76% (28)

Below AVG40% (2)


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Table-24: Corporate Social Responsibilties Expenses to Total Asset (%)











Inclusive & Online Banking: PEC5 - I&O: Indicator 4 - Corporate Social Responsibilties Expenses to Total Asset

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2009 2010 CommentsAll Banks 00.00 % 00.10 % Marginally Improved SOCBs 00.00 % 00.03 % Marginally ImprovedPCBs 00.02 % 00.12 % Marginally ImprovedFCBs 00.01 % 00.03 % Marginally Improved

2009 2010 CommentsAll Banks 00.00 00.19 IncreasedSOCBs 00.00 00.01 IncreasedPCBs 00.04 00.22 IncreasedFCBs 00.01 00.02 Increased



Table-24: Corporate Social Responsibilties Expenses to Total Asset (%)



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2009 2010 CommentsAll Banks 0.00 1.90 Deteriorated SOCB 0.00 0.33 Deteriorated PCB 2.00 1.83 ImprovedFCB 1.00 0.67 Improved


Graph-26: Distribution of Banks in terms of Average Corporate Social Responsibilities Expenses to Total Asset (%)

Above AVG22% (8)



Above AVG29% (8)

Above AVG0% (0)

Below AVG100% (4)

Above AVG0% (0)

Below AVG71% (20)


Below AVG78% (29)

Below AVG100% (5)



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Table-25: Number of ATM Booth











Inclusive & Online Banking: PEC5 - I&O: Indicator 5 - Number of ATM Booth

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2009 2010 CommentsAll Banks 36 57 Significantly Improved SOCBs 6 14 Significantly ImprovedPCBs 43 68 Significantly ImprovedFCBs 26 34 Significantly Improved




Table-25: Number of ATM Booth



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2009 2010 CommentsAll Banks 2.78 3.83 Deteriorated SOCB 1.33 1.14 ImprovedPCB 2.67 3.03 Deteriorated FCB 0.96 1.06 Marginally Deteriorated


Graph-27: Distribution of Banks in terms of Average Number of ATM Booth

Above AVG16% (6)



Above AVG18% (5)

Above AVG25% (1)

Below AVG75% (3)

Above AVG0% (0)

Below AVG82% (23)


Below AVG84% (31)

Below AVG100% (5)


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Table-26: Number of Branch under Any Branch Banking to Total Bank Branch

All Banks 85 %SOCBs 22 %PCBs 94 %FCBs 100 %

Top Performers 2010: All BanksTop Bank 100 %Top Two Banks (Average) 100 %Top Three Banks (Average) 100 %




Top SOCBs 100 %Top Two SOCBs (Average) 55 %Top Three SOCBs (Average) 55 %

Top PCBs 100 %Top Two PCBs (Average) 100 %Top Three PCBs (Average) 100 %

Top FCBs 100 %Top Two FCBs (Average) 100 %Top Three FCBs (Average) 100 %



Inclusive & Online Banking: PEC5 - I&O: Indicator 6 - Number of Any Branch Bank to Total Bank

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2010All Banks 35 %SOCBs 44 %PCBs 22 %FCBs 0 %

Standard Deviation for 2010

Table-26: Number of Branch under Any Branch Banking to Total Bank Branch



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Coefficient of Variation for 20102010

All Banks 0.41SOCBs 2.00PCBs 0.23FCBs 0 .0

Graph-28: Distribution of Banks in terms of Average Number of Branch under Any Branch Banking to Total Bank Branch

Above AVG84% (31)



Above AVG93% (26)

Above AVG100% (4)

Below AVG0% (0)

Above AVG20% (1)

Below AVG7% (2)

Average of All Banks 85 %

Below AVG16% (6)

Below AVG80% (4)



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Part-3

Review of Important Issues

12

Bangladesh Bank (2010) Guidelines on Risk Based Capital Adequacy, December 2010 Up to 2009, CAR was calculated on the basis of Basel-I framework while in 2010 the calculation was based on new risk based capital adequacy guideline i.e. Basel-II.

Banking Industry Goes for Implementing Basel-II

Banks are highly leveraged financial institutions that borrow fund mainly from the depositors which

are repayable on demand. On the other hand, it lends money to the borrowers. That way banks always

run a risk of insufficient liquidity as the future is uncertain and borrower might be in default. Besides,

globalization of banking business, introduction of complex banking products, increased complexity in

operation, increased adoption of information technology, increased awareness of the stakeholders

about risk etc. are some of the factors that impels banks to focus on risk management. Since risk is

inherent in the banking business, nobody can ignore the importance of risk management. Maintaining

adequate amount of capital is an integral part of the process of risk management in banks as capital is

regarded as the shock absorber. Accordingly, the international community adopted risk based capital

adequacy standard for banks, popularly known as Basel-II, which aims to align banks' capital with their

risk profile. It is very elaborate and far superior in terms of its coverage and details. It exploits

effectively the new frontiers of risk management.

Being the supervisory authority, Bangladesh Bank (BB) has decided to adopt the Risk Based Capital

Adequacy standard for Banks in line with capital adequacy framework devised by the Basel Committee

on Banking Supervision (BCBS). Banks operating in Bangladesh are maintaining capital since 1996 on

the basis of risk-weighted assets in line with BCBS capital framework published in 1988. Considering

present complexity and diversity in the banking industry and to make the banks' capital requirement

more risk-sensitive, BB has prepared a guideline to be followed by all scheduled banks from January

2009. For the first year (2009) this was to run in parallel with the preceding Basel I regime, with full

transition to Basel II from 2010. Subsequently, a revised guideline was suggested by central bank in

December 2010.1

As per Risk Based Capital Adequacy guideline, banks are now required to maintain Capital Adequacy

Ratio (CAR) of not less than 10.0 percent with at least 5.0 percent as core capital. Although the latest

Capital to risk weighted assets ratio by type of banks2

Type of Bank 2007 2008 2009 2010

SOCBs 7.9 6.9 9.0 8.92

SPBs -5.5 -5.3 0.4 -7.25

PCBs 10.6 11.4 12.1 10.08

FCBs 22.7 24.0 28.1 15.63

Total 9.6 10.1 11.6 9.31

Part-3: Review of Important Issues

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5

requirment is 10 percent, the banks were asked to achieve this in on a graduated scale in different

phases. They were asked to achieve 8 percent by 2010, 9 percent by June 2011 and 10 percent

afterwards. The table above shows that as of December 2010, the SOCBs, SPBs, PCBs and FCBs

maintained CAR of 8.92, -7.25, 10.08 and 15.63 percent respectively, which has been reduced from 9.0,

0.4, 12.1 and 28.1 percent respectively in December 2009 for 4 different categories of banks. This is

because of the migration from Basel-I to comprehensive Basel-II framework.

According to central bank statistics, till December 2010, the total risk-weighted assets were Tk.4,42,623

crore against which the banks maintained a capital of Tk.41193 crore and the overall surplus was

Tk.735.91 crore. This surplus is the outcome of good performance of both PCBs and FCBs as the other

two groups (SOCBs and SPBs) observed capital deficit of Tk.73.57 crore and Tk.4003.81 crore

respectively.

From the group-wise CAR position, it is evident that both private commercial banks (PCB) and foreign

commercial banks (FCB) are successful in maintaining the required CAR. Although the four PCBs failed

to maintain the required CAR, the condition of one PCB is extremely severe in terms of CAR which

arises because of the huge amount of accumulated loss and it is categorized as a problem bank. The

SOCB group is very close to the target but the problem lies with the SPB group. Of the four SPBs, two

banks fall short of target. One of the banks in SPB group suffers so badly that the entire group went

into the red. Both the banks give most of their loans to agricultural sector as per government directive.

As a result, these banks cannot maintain their financial health up to the standard.

Out of total regulatory capital for all banks, 71.7 percent was maintained as core capital in December

2010 which was 76.1 percent in December 2009. Disaggregated figures show that except for the SPBs,

actual core capital was 11.1 percent, 72.4 percent and 212 percent higher than the requirment for

SOCBs, PCBs and FCBs respectively. The result shows high concentration in Tier I capital for SOCBs,

PCBs and FCBs. This is a very good indication, as we know that Basel-III sets extreme importance on

core capital, which might have an added advantage for the banking sector of Bangladesh while

implementing Basel-III in future.

Increasingly, it is becoming evident that capital adequacy norms alone are insufficient. In fact, capital

adequacy is a tool being employed at the lower end of the value chain, which should be supported by

strong supervisory norms and market disclosure requirements. With the three point pressure being

applied on banks, banks would strengthen the internal structure and emerge stronger. It is important

to note that success of all these tasks depend on the implementation of self-governance. By ensuring

self-governance at the institutional level, one can not only ensure its sustainability in a vulnerable and

risky financial environment but also can ensure strengthening the soundness and stability of the

financial structure of the country.

Part-3: Review of Important IssuesPa

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106

Banks Continued with the Regular International Banking Transactions in 2010

International Banking business in Bangladesh basically means trade services. In international trade,

one may come across a number of modes of payment which are being used for making import

payments or receiving export proceeds such as Cash in Advance, Open Account, Documentary

Collection and Documentary Credit. Documentary Credit is the most widely used method in

Bangladesh followed by Documentary Collection. Different types of financing are offered by banks to

the exporters and the importers. Export financing is broadly categorized as pre-shipment and post-

shipment financing. Regarding pre-shipment financing, banks have disbursed credits in the form of

ECC (pledge, hypothecation, TR), P.C., Back-to-back LC etc. FDBP, Advance against Export Bills, SOD,

Negotiation of Documents under LC, and Purchase of DP & DA Bills are the popular means of post-

shipment financing. LC itself, LIM, LTR remained popular import financing techniques.

Foreign Exchange Operations covered very limited activities and volumes of transactions were also

tiny. Bangladesh Bank in its ongoing endeavor to ease the foreign exchange restrictions as a means of

facilitating international banking operations has embarked upon some changes on exchange

arrangements during CY 2010. Bangladesh Bank revised the Guidelines for Foreign Exchange

Transactions, 2009 (Vol-1) [the successor to the earlier edition of 1996] compiling the core contents of

FE Circulars and Circular Letters issued up to 31 May 2009 to facilitate bankers and traders. In 2010,

the regulator undertook a lot of initiatives in regard to trade and foreign exchange transections. For

example, BB increased ceiling amount of Bangladesh Taka for carrying by incoming/outgoing

passengers; to facilitate the exporters for meeting emergency import payments, BB allowed ADs to

effect advance payment not exceeding USD 10,000 (USD Ten Thousand) or its equivalent from the

Exporters Retention Quota (ERQ) accounts against bonafide business transactions; following the

BASEL-II guidelines, the existing calculation method of daily exchange position was amended and new

format was designed and ADs were instructed to start using of new format for submission of their

daily exchange position on trial basis etc.

To identify the status of the uses of different payment methods used for international trade during

2010, BIBM gathered information from 30 AD branches of 23 banks covering 5 SOCBs, 16 PCBs and 2

FCBs. The data revealed that, for making import payments, Documentary Credit is still the most

commonly used mechanism with almost a 95 percent share of the total. In a very few cases,

Documentary Collection (with a contribution of between 1 percent and 5 percent) and Cash in

Advance (not exceeding 1 percent) have been used. Regarding export proceeds, Documentary


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1BB (2010) Annual Report, Bangladesh Bank, Dhaka.

Collection remained the most popular method followed by the Documentary Credit. Surprisingly,

Advance TT did make any significant contribution in terms of export receipts (around 10 percent)

during 2010.

It is obvious that the change in trade is directly related to the change in trade services. According to BB

(2010),1 import declined (total merchandise imports was 1.4 per cent less than that of the

corresponding period of the last year) during the first ten months (July-April) of FY 2009-10, due to the

fall in import of rice and other items and also because of the fall in commodity prices in the

international market. However, in the later part of the fiscal, imports did bounce back (during

December-March of FY 2009-10 import increased by 14.1 per cent) and LC openings for imports

posted impressive growth. This rise in imports did continue in the following months in line with higher

industrial lending, the positive growth of RMG sector and also the rising trend in global commodity

prices. LC opening figures corroborated the hypothesis of investment gradually picking up towards

the end of FY2009-10. Total LC opening increased by about 22.9 per cent in the first three quarters of

FY2009-10. LC opening for industrial raw materials and capital machineries entered into positive

terrain, posting a rise of 9.5 per cent and 51.6 per cent respectively over the corresponding period.

However, settlement of import LC (total) during July-March FY2009-10 decreased by 0.3 percent.

The focus of the exchange rate policy of the central bank in CY 2010 was to maintain the stability in

the domestic foreign exchange market. In spite of time to time interventions of Bangladesh Bank in

the wholesale market, tiny fluctuations have been observed throughout the year in terms of exchange

rate. During the 1st quarter of FY 2010, Taka-Dollar exchange rate was Taka 69.06 per US Dollar, and

then it depreciated to Taka 69.26 per US Dollar at the end of the second quarter. At the beginning of

the third quarter of FY 2010, Taka appreciated to Taka 69.22 per Dollar. However, at the end of FY

2010, Taka depreciated slightly and stood at Taka 69.50 (BB data). The trend continued and there was

depreciation of BDT throughout the remaining part of CY 2010.


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Foreign Remittance Increased Amidst Global Financial Crisis

Migration and remittance increase income of both migrants and their families and help countless

households escape poverty in many developing countries including Bangladesh because income from

remittances is usually larger than what could have been earned by migrants being at home. To meet

the import demand of the country, foreign remittance is a great source of foreign exchange.

Remittance brings benefit to a country if only it flows through the official channel or banking channel.

People usually migrate internationally for better income and opportunities. It is estimated that more

than 215 million people, which is 3 per cent of world's population, live outside of their countries of

birth.1 If we look at the list of top remittance receiving countries in 2010, we see that Bangladesh

stands as the seventh largest remittance receiving country with an amount of 11.1 billion US dollar.

India was the largest remittance receiving country with 55 billion US dollar followed by China having

received 51 billion US dollar remittance. However, Bangladesh stands comparatively below the list

based on remittance as percentage of GDP. Remittance as percentage of GDP for Bangladesh was 12

percent whereas Tajikistan topped the list with 35 percent share of remittance in GDP.2

Bangladesh in the last decade registered a steady growth in remittance. Starting from USD 2 billion in

2001, inward remittance grew to near about USD 12 billion in 2010. The pace of this growth is

encouraging considering the financial crisis that disrupted the world economy during most part of the

second half of the last decade.

In 2010, we received the highest amount of remittance from the Kingdom of Saudi Arabia (KSA) with a

share of 31.20 percent out of total remittance. The next two important source countries are UAE and

USA. However, the dominance of KSA as a source country is gradually declining as very few people

moved to KSA in recent years.

12 UN International Migration 2009 The World Bank, Migration and Remittances

Source: Bangladesh Bank Source: Bangladesh Bank

Top 10 Banks in Foreign Remittance Share of Remittance by Bank Group


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Traditionally, public sector banks constituted the major conduit in mobilizing remittance with their

huge branch network both in urban and rural areas of Bangladesh. But, in recent times, Islamic Bank

Bangladesh Ltd. became the largest bank as far as inward remittance is concerned. In last year 20.34

percent of total remittance was channeled through IBBL. Next two important banks in this regard were

Sonali Bank and Agrani Bank with a share of 12.78 percent and 10 percent respectively. The other

members in the list of 10 top banks are Janata Bank, National Bank, Uttara Bank, BRAC Bank, Pubali

Bank, Southeast bank, and Prime Bank. PCBs as a group is far ahead of others in channeling remittance

with a share of 65.38 percent followed by the SOCBs with 31.46 percent. It is commonly perceived that

the trend of using official channels for sending remittances has improved in recent years. The

improvement may be mainly attributed to the wide scale availability of technology-based speedy and

smooth remittance sending method. The improvement may also be attributed to the enforcement of

Money Laundering Prevention initiative and the global 'War against Terrorism'. The use of Internet-

based technology and improved clearing and settlement has reduced the time and cost of remittance

transactions in some cases.

In recent times, MTOs (such as Western Union, Money Gram, XPress Money) popularly known as instant

cash/spot cash/Cash Over Counter for their real time effect are getting popular as means of sending

remittance. Banks are also relying on SWIFT and Email/Electronic Fund Transfer (EFT) for remittance

transfer. Bangladesh Bank has allowed banks to use the services of micro-finance institutions in

distributing the remitted fund in the remote areas of Bangladesh and, accordingly, some banks (such as

BRAC Bank and NCCBL) have usefully engaged the branch networks of micro-finance institutions (BRAC

and TMSS).

A recently conducted study by BIBM facilitated by International Organization for Migration (IOM)

suggests that migrants strongly felt need for the improvement of the quality of services by the banks.

Especially it is observed that illiterate persons face difficulties in their transactions with the banks and

do not get enough assistance from the bankers. Migrant workers and their family members residing in

Bangladesh expect more friendly approach and positive attitude from the bankers. Remitters also

expect more remittance sending outlets abroad. There are also misconceptions among the

beneficiaries about the service charges /excise duty deducted from their accounts. Majority of the

migrant workers do not have bank account in their own name. There exists large scale ignorance

among the remitters regarding banking products available in the banking sector. Most of the remitters

do not save their fund in various term deposit schemes. They do not know the features of these savings

products and the loan facility based on these products. Bankers recognized that their web-based


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remittance system improved the quality of services and reduced the uses of Hundi. Bankers generally

agree that documents required to open bank account is one of the reasons for the small number of

accounts opened in the name of the NRBs. Most bankers are aware of the large scale information gap

among the remitters/ the beneficiaries about the available banking products. It is said that bankers

need motivation to increase their effort to reduce this information gap. Some times Anti-money

Laundering guidelines hamper the growth of remittance (in case of large amount of one time

remittance), as claimed by the bankers.


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Scheme Budget/Fund Refinancing Fund Number of Enterprises Bangladesh Bank 600.00 1185.88 13146 EGBMP*(IDA) 116.00 284.92 2929 ADB 202.00 334.94 3264 Total 918.00 1805.74 19339

SME Financing by Banks Experiences an Encouraging Growth

Development of Small and Medium Enterprises (SMEs ) is a vital prerequisite for fostering economic

growth in a developing country. The benefit of SMEs includes employment generation by using lower

capital per employment, high value addition, sustainable economic development resulting from the

growth of SME business across the country and gradual build up of a mass class of skilled workforce

and in-built system of innovation in the production technology. The contribution of SME in

employment and GDP is enormous in almost all the countries although we see significant variation in

share of SME in GDP among the low income, medium income and high income countries.

Bangladesh Bank has introduced various measures and programs for rapid growth of the SME sector.

Three refinancing schemes funded by Bangladesh Bank, IDA and ADB are in operation for ensuring a

smooth flow of fund to the SME sector. The status of the operations of these refinancing schemes as

on 31st March, 2011 is given below.

Refinancing Scheme for SME(Tk in Crore)

* Enterprise Growth and Bank Modernization Project

Source: Bangladesh Bank

Major policies relating to development of SME sector by Bangladesh Bank include uniform definition

of SME to be followed by the banks, self determined target for SME sector lending by the banks and

financial institutions, giving priority to women entrepreneurs through establishment of ' Women

Entrepreneur's dedicated desk' and allocation of fund for women entrepreneurs, area approach in SME

lending, cluster development initiatives by banks and financial institutions, tri-level monitoring system

for SME lending in the banking sector, community/social guarantee and group guarantee as collateral,

entrepreneurship development initiatives by banking sector with greater emphasis on financial

literacy and training, greater access to information on financing for the entrepreneurs and incentives

for the banking sector performance in the SME financing program.

Target for SME financing and achievement of that target by different categories of banks for the year

2010 is presented below. It is seen from the table that all types of banks disbursed more than their


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Source: Bangladesh Bank Source: Bangladesh Bank

Top 10 Banks in SME Finance: 2010 Group Wise Banks in SME Finance: 2010

targets. Specialised banks as a group disbursed more than double of their targets. However, a total of

19 banks could not achieve their SME target in 2010 out of 48 commercial banks.

Target and Disbursement of SME Loan in 2010(Tk in Crore)

Source: SME and Special Program Department, Bangladesh Bank

The position of top ten banks in financing SMEs and bank group wise performance in SME sector are

shown in the following figures. It is seen that IBBL disbursed the highest amount of SME loan in 2010

with an amount of Taka10306.64 crores which is equal to 17.07 percent of total SME loan disbursed in

the year 2010. EXIM bank ranked the second with an amount of Taka 4218.72 crores followed by

Janata Bank which disbursed Taka 3471.9 crores.

PCBs as a group disbursed the highest amount of SME loan with a share of 78 percent followed by

SOCBs having disbursed 15 percent of total SME loan in 2010. SPBs and FCBs remained far behind the

other groups with a combined share of 7 percent out of total SME loan.

Bank Category Target Disbursement Percent of Disburesement SOCBs 5083.1 7523.98 148.02 percent SPBs 1210 2694.66 222.70 percent FCBs 731.69 1133.93 154.97 percent PCBs 30144.67 40494.57 134.33 percent


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1 Bangladesh Telecom Regulatory Commission (BTRC), May 2011

Mobile Banking Started Receiving Momentum in 2010

The contribution of the banking sector depends on the growth and sustainability of the banks, which is an outcome of

the institution's profitability. However, the profitability of the banks is under tremendous pressure because, among

others, of increased cost of transaction in the current paper-based banking system. Using technology in banks does

not only reduce the cost significantly but also improve the efficiency considerably. Technological innovations are

taking place in the global banking system since the 1960s. Along with the developed countries, developing countries

are also experiencing strong growth in ICT based banking. Bangladesh, as a developing country, is not far behind.

Electronic fund transfer system (EFTS) was the initial form of technological innovation in the banking sector. The

fundamental components of EFTS are automated teller machine (ATMs), point of sale (POS) terminals, and automated

clearing houses (ACHs). Over the last few decades, computer technology has substantially transformed the banking

industry. The wide distribution of ATMs by the mid-1980s gave the customers 24-hour access to cash and account

information. Online banking through the Internet and banking through mobile phones now allow for electronic

payment of bills, money transfers, and loan applications without entering a bank branch. Bangladesh Bank, being the

monetary authority of the country, has already formulated a 5-year strategic plan for the financial sector based on

advanced technological applications to deliver services with utmost efficiency. BB has adopted advanced ICT to be

digitalized in all spheres of its functions.

The country entered the era of mobile-banking which is a remarkable technological jump. Bangladesh Bank has

formally introduced 'mobile-banking' service aiming to bring more people under the banking network. As the name

implies, mobile banking is a mobile phone based banking system that allows people to have the benefit of different

financial services at an affordable cost. Mobile banking is a banking process that provides for financial services like

cash-in, cash-out, utility payment, salary disbursement, foreign remittance, government allowance disbursement

through mobile technology devices. A leading private bank, in collaboration with two mobile phone operators, has

introduced the service.

The total number of Mobile Phone subscribers in Bangladesh has reached 75.484 million1 at the end of May, 2011. A

large amount has been invested by domestic and foreign investors in the PSTN and mobile technologies. Due to this,

access to telecommunications increased rapidly. The phenomenal growth has enabled the mass unwired population

of Bangladesh to stay connected. Currently, 6 mobile phone operators cover more than 90 percent of the geographic

territory of Bangladesh. The banking sector can utilize this mobile network facility in order to increase their presence in

rural areas of the country. Subsequently, this branchless banking system will also enrich the financial activities and

lifestyle of the people by providing easy access to different financial services.


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2 "Mobile banking begins amid hopes for financial inclusion" - The Financial Express

Since Mobile Banking offers some smart services benefiting both banks and customers compared with traditional

banking system, it has become imperative to make necessary room for the scheduled banks to popularize Mobile

Banking. Among others, attractiveness of Mobile Banking includes: lower transaction cost; 24-hour services; increased

security and control over transactions; reduced fraud risk; higher volume of transactions at less time; increased number

and volume of value payment through banks; remote transactions facilities that replace physical presence of a

customer in a bank branch and increased transaction speed and accuracy. Mobile Banking is replacing traditional

banking all over the world. In Bangladesh, Mobile Banking is gaining momentum and banks are coming forward to

introduce this new technology-based banking.

Bangladesh Bank Governor termed it as a "milestone" event and a key to ensure "financial inclusion" in the country.

Introduction of this technology can act as a tool for mitigating poverty in the country. Undoubtedly, it is a ground-

breaking event in the modernization of our banking sector. The Governor said the new service will take banking

services to the doorstep of the country's poorest people and villagers who can not afford to open accounts and are

consequently left out of the mainstream financial system. Mobile-banking will help people access banking service

anytime and anywhere in the country. It will boost the rural economy and national output by scaling up money

circulation in villages. Every mobile phone can become a mini-bank .2

Financial development and economic growth are closely related. Financial deepening depends on the ease with which

the common people can get access to finance. Technology-based new financial innovations can definitely play a

pivotal role to bridge the digital divide and can ensure financial inclusion to spur sustainable economic growth of the

country.


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Banks are not Responsible for the Stock Market Fall

123

Bangladesh Bank(2011), "Annual Report,2009- 2010", January, P. 63 Bangladesh Bank (2011), "Financial Stability Report, 2010", Issue-1, October ,P. 50 Based on The Daily Star(various issues)

In the FY2010, the amount of industrial term loans disbursed by the banks and financial institution stood at Taka 258.7

billion, many-fold higher than the amount of Taka 18.2 billion raised by the new capital issues through private

placements and public offerings in the capital market.1 So, it is obvious that in the financial market of Bangladesh, term

loan is the dominant source of investment financing. But as a source of long term financing, the role of capital market

cannot be ignored in an economy. A vibrant capital market gives signal to the entrepreneurs that the market is ready

to finance long-term funds requirement of their businesses.

Capital market of the country experienced a rapid growth in 2010 in terms of all relevant parameters until its drastic fall

in the last week of December, 2010. Market capitalization increased by 84.32% in the year 2010 and stood at Taka

3508.01 billion on December 30, 2010.2 Particularly, DSE general index grew from 3652.98 on December 6, 2009 to

7261.26 on December 6, 2010. About 98.78%3 increase of the index within one year period is definitely a rapid and

unusual growth. Overvaluation of IPO shares, inappropriate application of the book-building method, circular trading

and block trading in the secondary market, shortage of the supply of quality shares, rapid growth of the number of

regular trader, increased exposure of banks, diversion of bank loans from productive sectors to capital market, weak

regulatory control etc. might have forced the index to a peak point representing a highly overvalued capital market.

Capital market experts expressed concern again and again on the overheated market and on the exposure of banks in

the capital market. The market authority also warned the investors about the expected correction and the nature of the

market. They also requested the Government to offload the stake of the same from the state owned companies.

However, very insignificant progress was observed regarding the proposed offload of government shares. The

Securities and Exchange Commission (SEC) used margin loan, netting facility, delisting, large trader reporting, etc. as

tools for controlling the market index. These proved ineffective. At the end of 2010, the capital market experienced a

drastic fall whose magnitude was all time high in the country. The Government appointed probe committee and IMF

mission categorically stated that the miserable state of the country's security market largely originated from the lax

monitoring and unwarranted external interference in the normal activities of the SEC. None would contest the fact that

the SEC did fail to carry out its job properly when signs were pretty strong that the market was heading towards a

crash.

From the fall in the capital market, overexposed banks have learned a costly lesson as they had to pull back their funds

from the market though the market was illiquid. In addition, the capital market fall invited a liquidity problem for the

banks which ultimately reduced their funds for loans and advance.


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4 BRPD circular No.12, October 14, 2009

Some concerned also argued that change in CRR by Bangladesh Bank and overexposure of the banks at that time was

responsible for the share market fall. It must be reckoned that Bangladesh Bank does not directly control the securities

market. CRR is a monetary policy instrument which is periodically used with a broad target of controlling credit and

thereby inflation by Bangladesh Bank. We should also remember that it is an instrument to handle day-to-day

monetary management and not unusual to be used by Bangladesh Bank. Moreover, the banks' exposure in the

securities markets was reported to be reasonably low whereas allowable limit is 10 per cent of their liabilities.4 These

data do not conform to the claims of the critics.

The measures so far adopted to stabilize and reactivate the capital market were not sufficient to regain the confidence

of the small investors. For a sustainable capital market, in addition to overhauling and strengthening of SEC, long-term

preventive measures may be taken instead of curative measures in the face of the movement of the small investors.

Prospective companies (issuers) must be encouraged to come to the market to remove supply shortage in the capital

market. Since capital market is a knowledge based as well as risky financial market, therefore an appropriate

mechanism must be developed to screen the investors so that only those investors will participate in the market who

have the ability to bear the risk of the market. Practically, a coordinated effort from all quarters involved is

indispensable for the smooth functioning and development of the market.


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BRPD circular No-12 dated October 8, 1997.


Bangladesh Bank Became Active in Pushing Banks for Green

The public concern on the state of environment has been growing rapidly around the world in the last few years

mostly due to rapid change in weather patterns, rising greenhouse gases, declining air quality, declining surface water

quality etc. The state of environment in Bangladesh is also deteriorating rapidly. The key areas of environmental

degradation include air pollution, water pollution, sound pollution, improper disposal of industrial, medical and house-

hold waste, deforestation, loss of open space and loss of biodiversity etc. In addition, Bangladesh is one of the most

climate change vulnerable countries. Banks, in this case, can play a vital role as they hold a unique position in an

economic system that can affect production, business, and other economic activities through their financing activities.

Environmentally responsible banks do not only improve their own standards but also affect socially responsible

behaviour of other businesses. An Environmentally Responsible Bank (ER Bank) is popularly known as a Green Bank.

Development of Green Banking does not depend upon only the initiatives of central bank and commercial banks, the

banking industry need active support from government, environmental NGOs, business houses and consumers.

In fact, the awareness build-up and conservation effort started in Bangladesh in the 1980s when several developments

took place, and during that period a separate Ministry called Ministry of Environment and Forest and The Department

of Environment (DOE) were established. The DOE developed a sector-wise industrial guidelines and standards on the

requirements of the Environment Conservation Rules, 1997 under the Environment Conservation Act, 1995 which is

known as 'Environment Impact Assessment (EIA) Guidelines for Industries'. It stipulates, 'No industrial unit or project

shall be established or undertaken without obtaining environmental clearance from the Director General, DOE in the

manner prescribed by the rules'. EIA is an instrument of environmental planning of new projects that is expected to

carry out the process of clearance that rests on DOE. Through a screening process, EIA is designed to help identify the

type of projects that are not likely to cause environmental adverse effects. It is to be noted that the clearance from the

DOE is one of the requirements for obtaining finance from commercial banks for the industrial units grouped under

different categories of EIA. Till date, the enforcement of these provisions remains weak.

Bangladesh Bank has been helping the government in implementing the provisions of the Environment Conservation

Act 1995. In June 1997, the central bank asked all commercial banks (BRPD 1997) to undertake necessary steps, in light

of the implementation of certain decisions as regards environmental conservation, and the protection of

environmental pollution by the National Environment Committee. Commercial banks were asked to ensure that steps

have been undertaken to control environmental pollution before financing a new project or providing working capital

financing to the existing enterprises. According to a Bangladesh Bank circular (1997) the industrial units (that may

cause environmental pollution) to be established under bank credit would get the permission to open Letter of Credit

to import machineries only after ensuring that the list of machines include equipments to set up waste treatment Pag

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BRPD Circular No-12, 1997. Habib, shah Md. Ahsan, Atul Chandara pandit and A N K Mizan (2010) Environmental Responsibilities of Banks: A Proposed frameworks for the Banking sector of Bangladesh, A Research Workshop paper submitted at BIBM on October 14, 2010. CPD (2003), Corporate Responsibility Practices in Bangladesh: Results from a Benchmark Study, TERI-UK and CPD, Dhaka.


plant . However, enforcements of all these provisions appear to be weak. Banks are generally aware of the necessity of

adopting online banking to serve their customers, however, using online application as a tool to protect environment

is not part of the banking strategy in Bangladesh till date.

As at end-2010, Bangladesh Bank had limited intervention with regards to providing a guideline targeted to green

banking practice issues. Green banking practices is generally seen as part of CSR practices in the banking sector of

Bangladesh. Bangladesh Bank has taken initiatives in respect of formalizing CSR and issued an elaborate directive to

the banks in June, 2008. As the regulator and supervisory authority of the banking sector of Bangladesh, BB started

taking stock and tracking progress of socially and environmentally responsible practices by banks. In April 2010, the

central bank of the country published its first annual review of CSR practices in the financial sector in Bangladesh

covering scheduled banks' socially and environmentally responsible practices for 2008 and 2009. This is the first

publication of this kind by the central bank. To promote environment friendly initiatives, BB introduced Taka 2.0 billion

refinance line in 2010 against bank loans for investments in solar energy, biogas plants and effluent treatment plants.

In 2010, BB switched over to solar-powered lighting by setting up a 20 kilowatt solar panel, as a move towards

encouraging green energy in Bangladesh.

As of 2010, banks generally did not have environmental policies or strategies. According to a survey conducted in

2010, about 26 percent commercial banks claimed that they had CSR/environment related policies. Some banks were

in the process of preparing guidelines for environmentally friendly financing. However, implications of these initiatives

remained insignificant. Banks generally do not have estimations on their level of environmental pollutions or related

activities, and do not maintain inventory on the consumption of energy, water, electricity etc. Generally banks do not

publish separate reports of their CSR programs and activities and do not use comprehensive standard formats such as

the Global Reporting Initiative (GRI). One notable exception is HSBC in Bangladesh, which has published Sustainability

Report 2009 covering some environmental issues.

In regard to the stakeholders' role, businesses and NGOs are yet to make significant contribution. Relevant data of the

CPD study indicate that about two-thirds of the civil society representatives are dissatisfied with the state of corporate

responsibility as practiced by businesses in Bangladesh. The study revealed quite an outstanding difference between

company policy to manage the waste generated and existing system for their implementation. Practically,

environmental pollution and violation of related regulations are widespread in the country. A few NGOs are actively

involved in the environmental sectors of Bangladesh by doing research and advocacy, and as pressure group. In

Bangladesh, consumer awareness level is generally very low. Inadequate or absence of product information (about

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negative or beneficial impact), low literacy rate, and relatively higher level of poverty made the situation difficult and

vulnerable. Research, advocacy and campaign on green banking have been extremely limited in the country. In 2010,

BIBM initiated some research activities on green banking and proposed a green framework for adoption by the

banking sector of Bangladesh.

Adopting, guiding and supervising on the part of Bangladesh Bank are the key for successful implementation of the

green initiatives in the country. To facilitate the process, involvement of the stakeholders is crucial. There is no doubt

that the banking sector is to move a long way to attain a certain respectable level of green banking practices. However,

some recent initiatives of Bangladesh Bank's are really encouraging.

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Siddique, M., Mehdee, T. & Hossain, Z. (2010), "Financial Inclusion And Rural banking: The Case of Bangladesh", A Paper Presented in a Workshop arranged by Bangladesh Institute of Bank Management.

Inclusive Banking in Bangladesh is Yet to Move a Long Way

Inclusive Banking as a means of financial inclusion has attracted the attention of the policy makers of the country in

recent years. Financial inclusion may be defined as a state in which all people have access to appropriate, desired

financial products and services in order to manage their money effectively. Financial inclusion is not restricted to credit

only. Rather it even includes financial awareness, knowledge about banks and banking services and the advantages of

using the banking route. It involves making people financially literate. Benefits of an inclusive financial system deserve

attention, which made the financial inclusion as one of the policy priorities across the countries. An inclusive financial

system opens the door for different groups of people by ensuring access to types of banking products suitable for

them and thus improves the living standard. Access to credit in the formal sector helps a large set of marginal or small

borrowers to upgrade their entrepreneurship skills and ability and thus contributes to lowering income discrimination.

It also helps reducing the growth of informal sources of credit, which are in most of the cases exploitative. Savings

mobilization also gets momentum with the increase in coverage of banking services.

Extent of financial inclusion can be assessed in a number of ways. An important measure of financial inclusion is to

check the number of people who own a bank account. A count of the number of bank accounts gives an idea of the

percentage of people who are aware of banking and what percentage still needs to be included. A range of indicators

has been developed as measures of access to banking services such as number of bank branches (per million/per

thousand people), number of ATMs (per million/per thousand people), bank credit and bank deposit as percentage of

GDP.

The issue of financial exclusion is a multidimensional one, being influenced by both demand and supply side factors.

For example, degree of financial deepening may be less partly due to limited variety of products that are not suitable

for the different classes of users, or might result from insufficient demand shown by the potential users. The latter again

might be due to high cost of services or high standard set by the financial institutions which prevents many users from

getting access to finance or other services provided by the banks. Significant instances of intentional exclusion by the

people for some non-economic reasons (cultural or religious ground) are also observed.

Status and trend of financial inclusion in Bangladesh could be examined using a set of indicators. The collected

information of 2010 from a study of BIBM unfolds an array of issues as well as provides priceless information regarding

the present status and extent of financial inclusion more precisely about inclusive banking . It is revealed that although

the number of rural bank branches is higher than that of the urban branches, but the percentage share of both the

deposits and the advances are increasing in the urban areas. In 2010, the total number of bank branches stood at 7,335

with a 1.23 percent growth during the 2010.The number of rural branches found to be 4,231 (57.68 percent of the total


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number of branches) with a growth of 1.49 percent during the period. It depicts a moderate expansion of banking in

rural areas. The amount of rural deposit collection, at the end of the 2010 stood at Tk. 43,691.72 cr. In spite of having a

high growth rate of 6.67 percent, the share of rural deposits, in total deposits had a very dismal figure of 12.93 percent.

The amount of rural advances disbursed during 2010 was Tk. 20,689.15 cr. Although the proportion of rural advances in

the total advances had been only a meager 8.04 percent but the growth of agricultural advances was quite robust as

captured by a very impressive growth rate of 9.48 percent.

Agriculture is disproportionately represented in our bank finance, as the share of agriculture in GDP and total credit is

20 percent and 7 percent respectively. The share of advances in agricultural sector is also declining. Neglecting the

rural area and agricultural sector cannot ensure the desired level of financial inclusion in Bangladesh. In the urban

areas, people are more or less involved in taking financial or banking services. But in the rural areas, still a larger share

of population cannot avail such services. So inclusion in rural areas should be encouraged to get better results. Again

declining percentage share of the deposits of small savers should be considered with care. Because, including the large

number of small savers will help the financial inclusion to come true in a real sense.

Financial deepening depends on the ability of the formal financial sector to reach the people to a larger extent.

Bangladesh Bank has taken strong initiatives in recent times to widen the coverage of banking services, especially by

including the disadvantaged section of the society in the formal financial system. To bring the landless sharecroppers

under the banking credit facility, Bangladesh Bank for the first time introduced loan facility for the sharecroppers in the

later part of 2008. Under the new regulations all commercial banks and specialized banks including private commercial

banks and foreign commercial banks are required to disburse agricultural credit. Very recently, Bangladesh Bank has

declared an agricultural credit disbursement guideline for all the DMBs.

Another significant step in our banking sector is the introduction of account opening facility for the farmers.

Bangladesh Bank has recently introduced a new scheme of low cost deposit accounts for the farmers under which any

farmer can open a deposit account in a bank by depositing a minimum initial balance of Tk.10 which has remarkably

raised the share of farmers' deposit account in total deposit accounts of the branches within a short span of time.

Microfinance is also a vital channel to increase the coverage of financial services as it provides access to financial

services to low income people. As such, the Microfinance Institutions (MFIs) are considered important financial

intermediaries for economically disadvantageous group of people especially for rural financial markets.

Bangladesh Bank has accelerated the policy initiatives related with expansion of banking services in general and rural

banking, which includes measures for SME financing, agricultural credit, financing for sharecroppers etc. which should


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be applauded undoubtedly. It can be concluded by saying that we have to go a long way to achieve an inclusive

financial sector. Bangladesh Bank along with other stakeholders, especially commercial banks, started showing right

kind of eagerness in taking various steps to ensure access to finance for all. The sustainability of the measures being

initiated by the regulators and financial service providers will decide the pace of the development in this regard.


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Support Team

Data Processing

Papon Tabassum

Md. Jalilur Rahman

Md. Awalad Hossain

Md. Nasir Uddin

Tarannum Purween

Sanjay Kumar Saha

Md. Afzal Hossain

Administrative

Sufia Khatun

Sharmina Nargish

Md. Golam Quader

Md. Habibur Rahman

Sarder Aktaruzzaman

Published by Bangladesh Institute of Bank ManagementPlot # 4, Main Road # 1(South), Section # 2, Mirpur, Dhaka-1216

PABX: 9003031-5, 9003051-2, Fax: 88-02-9006756

Email: [email protected], Web: www.bibm.org.bd

December 2011

Printed by: Nahida Art Press, 64/F, R.K Mission Road, Dhaka, Bangladesh

Plot No.- 4, Main Road No.-1(South), Section No.-2, Mirpur, Dhaka-1216Tel: 9003031-5; 9003051-2, Fax: 880-2-9006756, E-mail: [email protected]; Website: www.bibm.org.bd

Bangladesh Institute of Bank Management