history and development of banking industry

8/11/2019 History and Development of Banking industry

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HISTORY AND DEVELOPMENT OFBANKING SECTOR


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History: Just after liberation

After liberation, all the existing banks were

nationalized to form six commercial banks.

2 Specialized Banks and 3 Foreign Banks were

also operative.

These state-owned banks failed to perform

satisfactorily and were not enough to help

economic growth. (Siddique and Islam, 2001)


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Establishment of Central Bank

Dhaka branch of the State Bank of Pakistan

was reorganized to form Bangladesh Bank (BB)

after liberation.

Established on the basis of Bangladesh Bank

Order, 1972 (P.O. No. 127 of 1972) with effect

from 16th December, 1971.


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History: 1980-1990

In 1982, financial sector were reformed and

Private commercial banks were allowed to

enter in early 1980s.

2 State-owned bank were transferred to

private ownership and 1 was made public

limited company in mid 1980s.

In 1987-88, two more specialized banks were

established.


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History: 1990-1995

The financial sector reform program (FSRP) waslaunched under Financial Sector Adjustment Credit(FSAC) of the World Bank in 1990

Objectives

Gradual deregulations of the interest rate structure with aview to improving the allocative efficiency

Providing market oriented incentives for priority sectorlending

Making subsidies in the priority sectors more transparent

Adoption of appropriate monetary policy

Improvement in debt recovery environment

Strengthening of the capital markets.


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History: 1996 - 2002

In order to fix the problem unveiled by FSRP, thegovernment formed a Banking ReformCommittee (BRC) in October 1996.

In May 1997, the government also undertook aCommercial Bank Restructuring Project (CBRP)funded by the World Bank.

Removal of the floor rates of deposits in 1997.

In August 1999, elimination of interest band onagriculture and small and medium enterprises(SMEs) loans.


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History: 2003-onwards

ATM services (introduced in 2003), Debit/Credit CardServices, Mobile Banking, and Internet Banking

Bangladesh Electronic Funds Transfer Network (BEFTN) in2011 and National Payment Switch (NPS) in 2012

Online and real-time services Establishment of Bangladesh Automated Clearing House

and Bangladesh Automated Cheque Processing Systems(BACPS) in 2009

Shift from regular cheque to MICR cheques in 2010

Basel II has been successfully implemented (2010) SME, Green banking, Mobile Financial Services and

Corporate Social Responsibility have also got a great deal ofimportance


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Banking Sector

Two Broad Types

1. Scheduled Banks (56 up to 2013)

2. Non-Scheduled Banks (4 up to 2013)

Scheduled Banks are classified into fourcategories:

1. State Owned Commercial Banks (SOCBs)

2. Private Commercial Banks (PCBs)3. Foreign Commercial Banks (FCBs)

4. Specialized Banks (SDBs)


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Non-Scheduled Banks

Ansar VDP Unnayan Bank

Karmashangosthan Bank

Probashi Kollyan Bank Jubilee Bank


10/19

Changes in Number of Banks

0

10

20

30

40

50

60

1980 1990 2000 2010 2012 2013

Total number of banks State-owned banks Specialized banks Private banks Foreign banks


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Distribution of Branches

42%

17%

40%

1%

State-owned banks

Specialized banks

Private banks

Foreign banks


12/19

Distribution of total assets

26%

6%

62%

6%

State-owned banks

Specialized banks

Private banks

Foreign banks


13/19

Distribution of deposits

25%

5%64%

6%

State-owned banks

Specialized banks

Private banks

Foreign banks


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Profitability of different types of banks

Category ROA ROE Net Interest Income*

State-owned banks -0.6 -11.9 14.9

Specialized banks 0.1

-1.1

4.7

Private banks 0.9 10.2 114.7

Foreign banks 3.3

17.3

19.6

Total

0.6

8.2

153.8

* Figures are in Billion Taka

Source: Annual reports of Bangladesh Bank 2012-13


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Contribution of different types of

banks

CategoryNumber

of Banks

Number of

Branches

Total

Assets*

Percentage

of Industry

Assets

Deposits*Percentage

of Deposits

State-owned banks 4 3478 1831.9 26.0 1377.9 25.5

Specialized banks 4

1440

385.5

5.5

260.4

4.8

Private banks 30

3339

4371.5

62.2

3430.7

63.6

Foreign banks 9 65 441.8 6.3 327.0 6.1

Total 47 8322 7030.7 100 5396.0 100

* Figures are in Billion Taka

Source: Annual reports of Bangladesh Bank 2012-13


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Regulation

Bank Company Act, 1991 (Amended in 2013)

Bank Deposit Insurance Act, 2000

Bangladesh Bank Order, 1972

Company Act, 1994

Money Laundering Prevention Act,2012

Money Loan Court Act, 2003

Foreign Exchange Regulations Act, 1947

The Negotiable Instruments Act, 1881


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Further guidelines

Guidelines to establish a banking company inBangladesh

Guidelines for Islamic banking

Prudential Regulations for Banks Guidelines for establishment of NRB bank

Guidelines on risk based capital adequacy

Guidelines on subordinated debt

Risk Management Guidelines for Banks, 2012 Guidance notes on Prevention of Money

Laundering for Banks and others.


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Circular, Notes and Orders

Bangladesh Bank and Bangladesh Securities

and Exchange Commission impose other rules

in different times.

BB issues circular and notes to regulate banks.


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Bank Company Act, 1991

history and development of banking industry

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