Forex ceiling goes up for travellers

The central bank has raised the ceiling of foreign currency for Bangladesh nationals allowing them to spend more while travelling abroad.

The Bangladesh Bank (BB) issued a circular in this regard yesterday.

In case of travelling to the Saarc countries and Myanmar, the limit on taking foreign currency has been fixed at $1,500. Earlier the ceiling was $1,000 for travelling by air and $500 by road.

For other countries, a Bangladeshi traveller now can take $5,000, which was $3,000 earlier.

BB officials said the move has been taken as the foreign exchange reserve has crossed a satisfactory $10 billion mark.

The central bank in another circular said it would pay 10 percent of the losses incurred by banks for disbursing farm loans at lower interest rates.

The BB will pay the amount within one month of disbursement, while the rest amount will be paid after necessary review.

>> The Daily Star, December 09,2009

HSBC launches first taka-dollar derivative in Bangladesh

HSBC has launched the first taka-dollar option in Bangladesh to help customers manage the risks of future foreign exchange in a volatile market.

The foreign bank has already transacted two US dollar-taka options for Viyellatex, one of the largest garment exporters, and Coats Bangladesh, a leading supplier of yarn and raw materials.

This derivative helps exporters and importers hedge their forex exposures effectively, Tarique I Khan, head of global markets of HSBC, Bangladesh, told reporters at the launch of the product at Dhaka Sheraton Hotel yesterday.

Futures, swaps, forwards and options are examples of a derivative, a financial arrangement that has its value determined on the price of an asset or rate.

“In some cases, an option is better than a forward deal," Khan said.

An option deal is a future agreement where the seller (bank) is obliged for a certain period, but the buyer or customer has an option, not an obligation. In a forward deal, both the buyer and the seller are obliged.

There is a range of prices of the taka against the dollar quoted in the two option deals, HSBC declined to disclose the prices.

“If the dollar moves beyond the rate a customer has hedged, he can exercise his right. If the rate moves in favour of the underlying forex exposure, the customer can only benefit up to a certain level,” he said.

Khan cited an example saying that if a customer is an exporter, he is vulnerable to the depreciation of the dollar against the taka. So an exporter will want to protect him from a falling USD/BDT rate, but is likely to benefit from appreciation.

Similarly, a bank quotes a lower rate accepted by a customer in an option deal, Khan said.

An importer who is to buy in future will also face the risks of a rising dollar, but will benefit from depreciation.

Earlier, HSBC had launched some non-BDT forward deals, such as USD/JPY, EUR/USD and some commodity hedges (cotton and wheat).

“So it is not difficult for us to offer these products after the local regulation allows it,” Khan said.

Customers also sounded upbeat about the benefits of the new product.

“We think the option will be helpful for us,” said Rahmotullah Khondoker, chief financial officer of Viyellatex that exported over $100 million worth of garment products last year.

Bishnu Pada Saha, management accounting manager of Coats Bangladesh that imports on an average $2-3 million worth of goods, echoed him.

“We expect this trade will create a positive impression among potential foreign investors,” said Mohammad Wahiduzzaman, head of corporate sales, global markets of HSBC, Bangladesh.

>> The Daily Star, December 09, 2009

Bangladesh Development Bank starts Journey from January 3, 2010

Bangladesh Development Bank Ltd (BDBL), which was shaped up by a merger between Bangladesh Shilpa Bank and Bangladesh Shilpa Rin Sangstha, will start its full-fledged operations across the country from January 3.

The maiden board meeting of the BDBL approved yesterday the merger and took the decision on starting operations.

The authorised capital of the new bank is Tk 1,000 crore, while its paid-up capital is Tk 400 crore, a BDBL statement said.

Before the start of the banking operations, a vendor agreement will be signed between the government and the BDBL as a legal compliance.

For long, both the Bangladesh Shilpa Bank and Bangladesh Shilpa Rin Sangstha had been facing crisis in their respective operations as a huge amount of loans disbursed by them remained unrealised.

At one stage, the government was thinking about privatising the two enterprises. But the Awami League government turned the duo into a new bank through the merger.

However, it is not known yet whether the BDBL will operate as a commercial bank or a specialised one.

BDBL Chairman Nazem Ahmed Chowdhury presided over the first board meeting, attended by directors Shanti Narayan Ghosh, Dewan Nazrul Islam, Niaz Rahman, Amalendu Mukharjee, Humayun Kabir, Khalilur Rahman Siddiqui, Ishak Bhuiyan, Salima Ahmed and Managing Director Mizanur Rahman.

The chairman of the bank said the government recently formed the BDBL through the merger of the two entities to promote the country's industrial sector.

>> The Daily Star, December 09, 2009

GP emerges as new market mover

Grameenphone (GP) has been the new market mover since its November 16 debut on bourses.

The first and lone listed telecom company can impact the market capitalisation if its share price goes up or down, the price indices are set in line with this.

Before GP stepped in, banking, fuel and power sectors besides non-bank financial institutions had been on the forefront.

On November 24, GP alone led the market to finish in the black offsetting the fall in banking sector, considered a prime mover. On the day, shares of the mobile operator advanced 3.74 percent or 90 points, which was enough to cover a 2.54 percent fall in the banking sector.

Market observers point to the company's capital and share base for being a market mover. It joined the stock market as the largest-ever issue having 135 crore ordinary shares of Tk 10 each.

The company, however, floated 13 crore shares to general public and institutions before joining the market. For the public the offer price was Tk 70, including Tk 60 as premium, while the price was Tk 74 for institutions, including Tk 64 as premium.

“Entry of GP was a milestone for Bangladesh capital market. And the company as telecom sector accounts for a huge portion of the total market capitalisation, which many other sectors with a number of companies do not,” Arif Khan, deputy managing director of IDLC Finance, told The Daily Star.

He also pointed out: “If GP share prices fall or up by Tk 1 on a single trading day, the indices will decline or increase by 4 points.”

He however said it does not send any bad signal for the market. “Rather inclusion of a largest corporate body like GP will have a positive impact. It will encourage other big companies to be listed on the market.”

As of last Thursday, GP's market capitalisation was Tk 23,441.21 crore, or 12.5 percent of the total market capitalisation of Tk 1,86,488.19 crore. The banking sector's market capitalisation was Tk 40,640.57 crore, or around 22 percent of the total market capitalisation.

Norway's telecom giant Telenor owns GP's 55.80 percent stakes, while local Grameen Telecom owns 34.20 percent and the rest 10 percent is held by general public and institutions.

GP is the most profitable mobile phone operator in the country, with its revenue expecting to hit billion dollars mark by the year-end.

>> Source: The Daily Star, December 6, 2009

US Senate okays bill to honour Dr. Muhammad Yunus

The United States Senate has unanimously approved a bill to award Nobel Laureate Prof Muhammad Yunus a Congressional Gold Medal.

The bill, introduced by Assistant Senate Majority Leader Dick Durbin (D-IL) and Senator Robert Bennett (R-UT), recognises Prof Yunus as a leading figure in fighting poverty and promoting economic and social opportunity.

The senate approved the bill on October 15, according to a report published in Microfinance Focus, a US-based global magazine on microfinance and sustainable development.

Yunus and his Grameen Bank were awarded Nobel Peace Prize in 2006 for their efforts to create economic and social development from below.

US President Barack Obama awarded him the Presidential Medal of Freedom on August 12.

The Congressional Gold Medal is considered the congressional equivalent to the Presidential Medal of Freedom. It is awarded to individuals who perform an outstanding deed or act of service to the security, prosperity, and national interest of the United States.

“Dr Muhammad Yunus believes overcoming poverty is not just a gesture of charity; it is an act of justice. It is the protection of a fundamental human right the right to dignity and a decent life,” said Durbin.

“He is truly deserving of the Congressional Gold Medal and I am honoured to call him a friend.

“Over the last thirty years, his theory of micro-enterprise has become a phenomenon touching the lives of more than 100 million people around the world. It is hard to think of any single idea in our lifetime which has lifted so many people out of the deepest depths of poverty.”

Former recipients of the Congressional Gold Medal include George Washington, Sir Winston Churchill, Elie Wiesel, Pope John Paul II, Rev Dr Martin Luther King, Jr and Coretta Scott King.

> Source: The Daily Star, November 8, 2009

Banks get green light to raise capital in debt instruments

The central bank yesterday permitted banks to raise capital through debt instruments instead of issuing only rights and bonus shares, following bankers' demand.

The new product, called subordinated debt, is designed to help banks boost their paid-up capital, in line with a Basel II requirement, said Bangladesh Bank officials.

In finance, this instrument is also known as subordinated loan, bond or debenture.

“Banks' cost of capital will come down significantly thanks to the new product,” said KM Abdul Wadud, deputy general manager for BB's Banking Regulation and Policy Department.

The issuance of rights and bonus shares costs banks heavily because of 40 percent tax, besides a reduction in a bank's earnings per share, he said.

BB officials said the move would boost the capital market as well.

The interest rate on the debt instrument is expected to be more than 12 percent -- the current rate for savings certificate.

The debt of its kind is referred to as subordinate because debt providers (lenders) have a subordinate status in relationship to the normal debt. A typical example for this will be when a promoter of a company invests money in the form of debt, rather than in the form of stock.

The banks will have to seek approval from BB to issue and repay the debt. The central bank also issued a set of guidelines on subordinated debt.

The scheduled banks should have a capital plan approved by their boards of directors. To attain the capital plan, the banks may issue a subordinated debt instrument to qualify as regulatory capital (Tier 2 and Tier 3).

Subordinated debt eligible to be considered Tier-2 capital must have a maturity period of more than five years. It must be clear that investment in the instrument is not a deposit, nor insured by the Deposit Insurance Scheme.

The debt also may be convertible into equity subject to approval from the central bank and the Securities and Exchange Commission. The instrument should be rated and could not be eligible as collateral for a loan made by the issuing bank.

Subordinated debt will be limited to a maximum of 30 percent of the amount of Tier 1 capital, the guidelines mentioned.

The total amount of subordinated debt will be disclosed in the balance sheet under the head "subordinated debt" in the nature of long-term borrowings.

Foreign banks operating in Bangladesh may also raise capital with approval from the central bank in the form of subordinated debt in foreign currency and in the form of foreign currency borrowings from the head office for inclusion in Tier 2 capital.
Of the other eligibility criteria, the BB said a bank would be eligible to issue subordinated debt, which has composite CAMELS rating 2 and BB Rating Grade 2.

Source: The Daily Star, October 19, 2009

Money transfer by mobile

The electronic transaction project will take off in six months

Money transfer is about to go digital in six months, as Bangladesh Bank has approved the launch of an electronic prepaid card system that will have a mobile payment option.

The central bank permitted Trust Bank Ltd to act as a settlement bank for digital money transfer.
“The Electronic Prepaid Card System will be a multiple bank, multiple channel platform, where Trust Bank will act as the settlement bank,” BB said in a recent notice.

With the card, a customer will be able to deposit and withdraw cash directly from ATMs and all other channels. A card will have a secret PIN to access the service. Also, the system allows an authorised user to transact by mobile.

In case of foreign remittance, any amount could be withdrawn by prepaid card, but the amount is limited to a maximum of Tk 10,000 for now, Bangladesh Bank officials said.

In line with the central bank directive, any bank having Q-cash or a similar platform can issue prepaid cards for customers to transact money. Presently, 23 banks are linked with the Q-cash network.

Besides the prepaid card system, Eastern Bank received approval to handle international and domestic remittance transfers. Dhaka Bank is allowed to disburse foreign remittance through mobile operator Banglalink’s outlets.

Neither of the new systems allows cross-border money transfer.

Industry insiders said people would be able to easily transfer money to their loved ones at a fifth of the cost under the present system.

According to BB statistics, remittance inflows soared by 30 percent from $721.92 million in August 2008 to $937.91 million in August 2009 -- a contribution of 60 lakh Bangladeshis living in parts of the world.

In a letter on September 1, the central bank approved Trust Bank to introduce the Digital Money Prepaid Card System with mobile payment facilities within the next six months, in association with Digital Technologies Ltd and Information Technology Consultant Ltd.

Under the digital money transfer system, intra- and inter-bank account-to-account transfers, transactions at ATMs through Q-cash and other similar platforms will be settled.

A digital wallet is an electronic prepaid card with mobile banking (M-banking) that utilises the ATM (automated teller machine) and all kinds of electronic communication technologies, including mobile phone.

To obtain the digital prepaid card, customers will have to fill out an application form at banks or agents.

The bank will verify the customer under its ‘know your customer’ (KYC) process to issue a digital money prepaid card.

The customer’s information must match the information with the bank and the information he or she provided to telecom companies, through host-to-host connectivity.

The Q-cash host will tag the cardholder’s cellphone upon getting confirmation from the telecom host, and then the customer will be notified immediately upon successful digital money tagging.

Since the customer owns the card, he or she can transfer money and carry out transactions at a point of service (POS) at bank-approved merchant stores and service points, like gas stations, hospitals and cinema halls.

In the case of person to business payments, like utility bills, insurance premiums, loan instalments, E-top-up for mobile phones, and e-ticketing, the prepaid card will be used.

In the case of government to person payments, like agriculture subsidies, widow allowances, freedom fighters allowances, payment will be transferred through the card.

Trust Bank will have to submit contract agreements between its partners before launching the project. The pay points must be accredited by Trust Bank under an approved accreditation policy and the bank shall undertake all responsibilities of pay points.

Trust Bank will be responsible for mitigating of all kind of risks, including credit risks, liquidity risks, operational risks, fraud risks and technical risks associated with the digital money system.

Kazi Saifuddin Munir, managing director of Information Technology (IT) Consultants Ltd, said, “We are ready to initiate the prepaid card system for money transferring by December on a pilot basis.”

IT Consultants Ltd, the lone payment service operator in Bangladesh providing the Q-Cash inter-bank switching platform and connectivity, thinks that if all the banks come under a single network, remittance or any other transaction would be easier.

Munir said through a designated short mobile code number, a customer can transact money. However all transactions would be settled through the banking channel.

“The mobile application will be used to just enter the system,” he said. Banking and mobile application systems will be merged in a sense to settle the transaction.

As per the central bank notification, Eastern Bank Ltd (EBL) will conduct both international and domestic remittance by introducing three products—EBL Smart Remit Card, Smart Cash Point and Smart m-wallet.

The EBL Smart Remit Card will be a card based payment system, where senders can send money to receivers prepaid VISA card and the cash can be withdrawn using any VISA, ATM or point of service, at any appointed merchant.

EBL has not been approved transferring money from one m-wallet to another m-wallet holder.
Dhaka Bank Ltd has been approved to use Banglalink outlets for disbursement of foreign remittance. Under the approval, the bank can disburse foreign remittance through designated Banglalink outlets, which must be approved by the bank’s board.

In the remittance disbursement process, EBL and Dhaka Bank accredited cash points will be used only for delivery in local currency for inward remittance credited in Nostro accounts of the banks and not for any other inland or cross border transfer.

Source: The Daily Star, October 06, 2009

Tech products drive bank profitability

Technology-driven business models are helping banks increase profitability by reducing capital mobilisation costs.

Almost 90 percent of all private commercial bank (PCB) branches have become tech-savvy in the past few years. State-owned commercial banks have also joined the bandwagon.

Technology driven products include automated teller machines (ATM), credit cards, debit cards, point of sales (POS), phone banking, internet banking and SWIFT (an international network for the banking community for faster international business).

Banks are increasingly dependent on these alternative business models and a major portion of bank payments and transactions take place via these models.

“Sixty percent of all transactions now take place through alternative banking channels,” said a senior official of BRAC Bank, a third generation PCB.

Dutch-Bangla Bank Limited (DBBL), which has the largest ATM network in the country with 573 booths, now transacts an average of Tk 700 crore a month that has doubled from last year, said Deputy Managing Director Abul Kashem Md Shirin.

“The cost of a transaction through the technology driven channel is a 10th of the cost of the transaction through the manual channel," said Syed Masodul Bari, head of IT of Al-Arafah Islami Bank.

A recent Bangladesh Bank (BB) study on "Innovative Technology and Bank Profitability: The Bangladesh Experience", also shows banks that adopt technology are more profitable and reduce risks as they gain maturity in offering such services.

The use of technology-driven products by local banks does not date back long. In 1998, one PCB had credit card facilities, while there were no debit card facilities, ATMs or POS. Another foreign bank operated credit cards and ATM service at the time.

In 2006, 14 out of 30 PCBs launched credit card services, 17 launched debit cards, 17 had ATM services, 7 had POS, 3 had internet while 22 had online banking. Three out of the four state-owned banks introduced debit cards in 2006.

Now, almost all private banks have the technology-driven business model to give better and faster services to their clients. Nearly 100 percent of all the 3,500 private bank branches are computerised, which was 46 percent a decade ago, the BB study shows.

Two private banks, one local and another foreign, introduced credit and debit cards first in 1999 in Bangladesh. At the end of that year, the number of debit card customers stood at 2,014 and credit card customers stood at 1,607, the BB statistics show.

The number of debit and credit card users jumped to 6 lakh and 2.25 lakh respectively at the end of 2006.
The use of debit cards continues to rise rapidly and the number reached 12 lakh in August 2009, according to data collected from several banks.

In the market for debit cards, BRAC Bank rules over nearly a third, followed by DBBL with 2.5 lakh, Q-Cash with nearly 2 lakh and Standard Chartered Bank with 1 lakh customers. Other major players in this market are -- Eastern Bank, The City Bank and Prime Bank.

There are about four lakh credit-card holders in the market. Bankers said credit-card growth is slower than debit cards. A beneficiary has to be a taxpayer to obtain a credit card.

According to the latest BB data, payments and transactions by credit card were nearly Tk 1,100 crore in June 2008, which was Tk 2,000 crore for debit card, 4,060 crore for ATMs and 180 crore for POS.
The transactions were almost half in December 2007, just six months ago, BB data shows.

“Establishment of the Bangladesh Automated Cheque Processing System by this year will boost payment and transactions through technology-driven products,” a senior BB official said.

Source: The Daily Star, September 7, 2009