December 10, 2009

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

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

December 06, 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

November 08, 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

October 19, 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

October 06, 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

September 07, 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

August 11, 2009

Banks set to slash deposit rate

Private commercial banks (PCBs) will further slash the deposit rate by 1 percentage point to 8.5 percent this month, aiming to reduce the "cost of funds" for the banks.

Top bankers have taken the decision at a meeting of the Association of Bankers Bangladesh (ABB), a platform of managing directors of PCBs.

The bankers argue that it is not possible to reduce the lending rate without trimming the deposit rate. The latest move came despite a reduction in corporate tax by 2.5 percentage points to 42.5 percent in July.

“We have decided to limit the highest deposit rate at 8.5 percent to reduce the cost of funds,” said Shahjahan Bhuiyan, managing director of United Commercial Bank and vice chairman of ABB.
The new deposit rate is likely to take effect from August 16.

An economist said savers could now switch to other investment tools that give higher returns.

“Small savers have few options other than what banks have to offer," said Mustafa K Mujeri, director general of Bangladesh Institute of Development Studies and former chief economist of the central bank.

He said some savers might flock to saving certificates that give a 12.5 percent interest rate -- 4 percentage points higher than what the bank is going to offer.

In April 2009, PCBs set the deposit rate ceiling at 9.5 percent from the previous 13 percent, following Bangladesh Bank's order to limit the lending rate at 13 percent from an average of 14.5 percent.

The central bank also wants the spread - the gap between lending and deposit rates - to fall within 5 percent.

The government later cut the corporate tax rate in July 2009, to cushion the banking sector against falling investments due to the global financial crisis.

But banks are yet to pass the benefits of corporate tax cuts on to the customers, blaming the high prices of funds.

Bhuiyan said his bank's cost of funds is 10.5 percent at the moment and the impact of the previous deposit rate cut is yet to be materialised for about 80 percent of the bank's deposits.

However, the cost varies from bank to bank.

Pubali Bank's COF was slightly below 9 percent on June 30.

“A cut in the deposit rate is necessary to reduce the lending rate and the cost of fund,” said Helal Ahmed Chowdhury, managing director of Pubali Bank, the country's oldest and largest private bank.

He said classified loans are also pushing the bank's lending rate up.

Chowdhury however said they lend to prime customers at rates that are even below the rate set by the central bank of 13 percent in April.

BB Governor Dr Atiur Rahman said on Sunday the cut in corporate taxes should have an impact on bank lending rates.

“The corporate tax cut should be reflected in the lending rate,” Rahman told a business conference of the state-owned Janata Bank. He said the rate should come down to a single digit.

Source: The Daily Star, August 11, 2009

August 04, 2009

Bangladesh Bank sets green loan target

All commercial banks will provide loans up to Tk 1 crore for setting up effluent treatment plant (ETP), solar panel and bio-gas plant at a 9 percent interest rate.

The banks will disburse the loans under a Tk 200 crore refinance scheme of the central bank, which announced yesterday the special loan scheme and sent letters to all banks in this regard.

"The loan scheme is already activated. Any bank can finance under the scheme from today," said Md Nazrul Huda, deputy governor of Bangladesh Bank, yesterday.

The central bank will monitor the scheme to ensure proper disbursement, Huda said.
Setting up ETP at industrial units has been discussed at different levels over the last few years. But industry owners were refusing to set up such plants with their own fund, demanding a special financing system from the government.

"The Bangladesh Bank move will help the industrial units become environmentally compliant," said Abdul Hai Sarkar, president of Bangladesh Textile Mills Association.
In line with environment protection rules, setting up ETP is mandatory for all industrial units that produce liquid wastes.

Under the refinancing scheme, these industrial units will get preference, and the industry owners will be entitled to a maximum Tk 1 crore loan for setting up ETP.
However setting up of ETP should be ensured within six months after taking loans.

Any customers from urban areas can get Tk 60,000 to Tk 175,000 as loans to install solar power system of 170 watt to maximum 520 watt. The interest rate is 9 percent, which will be 10 percent if the loans are disbursed by any non-government organisation.

The loans will have to be repaid within three years.
In rural areas, if anyone wants to set up 520-watt solar system for commercial purpose, the maximum limit of the loan will be Tk 175,000. But for personal use, customers will get Tk 10,000-Tk 70,000 for 10-130 watt.

The loan range will be from Tk 18,000 to Tk 36,000 for setting up poultry or dairy firm-based bio-gas plants for both individual and commercial use.

Source: The Daily Star, August 4, 2009

July 14, 2009

Banks stand strong in crisis

Merchant banking, brokering and remittance fees drive profit growth

Local private banks stand strong against the ongoing global recession because of a substantial increase in their business with merchant banking, brokerage houses, fund and portfolio management, and remittance transaction, bankers said.

Banks, which have merchant banking and brokerage houses, made at least 20 percent more profit during the first half of 2009 compared to the same period of 2008 riding on the growing transaction in stock markets.

According to bankers, income from remittance transaction has also increased significantly during the period.

Currently, the banks have excess liquidity, which reached as high as Tk 27,716 crore in April, mainly for a decline in investment demand.

Mutual Trust Bank (MTB) has marked a whooping 307 percent rise in its operating profit from brokerage house during the January-June period of 2009 compared to the same period a year ago. The bank made a profit of nearly Tk 11 crore this year from Tk 2.73 crore in 2008.

Now MTB has seven brokerage branches that would be raised to 12 at the end of this year to meet the growing demand.

“Diversified groups of people are coming to the capital market. Many of them are educated and sophisticated investors,” said Anis A Khan, managing director of MTB.

Khan said: “These investors generally tend to be aware of the nuances of the markets.”

The largest private commercial bank, Pubali, also made at least 20 percent more profit from its brokerage house during the first half of 2009 compared to 2008, said Rafiqul Islam, consultant, Securities Trading Department of the bank.

“Individual corporate clients are also rising substantially,” said Islam.

There are 31 registered merchant banks and 238 brokerage houses in the country, while 10 banks provide merchant banking services. Some of the banks have both the merchant banking and brokerage businesses. Most of the private banks and leasing and finance companies have their own brokerage divisions.

Three state-owned commercial banks also opened merchant banking divisions this year to grab their share from the growing business.

A bank's brokerage house charges Tk 0.4 to Tk 0.65 for transaction of a share worth Tk 100. Dhaka Stock Exchange traded over Tk 1,000 crore on a single day earlier this month. Brokerage houses got Tk 4 crore at Tk 0.4 for every Tk 100 transaction by buying and selling from Tk 1,000 crore.

Prime Bank, National Credit and Commerce (NCC) Bank and AB Bank have also made significant profits from their brokerage business so far this year, officials of these banks said.

Prime Bank earned over Tk 20 crore from merchant banking during the first half of this year, while the figure was Tk 13 crore in the same period a year ago, said Ehsanul Haque, managing director of the bank.

Haque however said this income is insignificant compared to the bank's total profit portfolio of Tk 250 crore.

Inward remittances have also helped the banks sustain their profit growth this year despite bad impacts on this sector in other countries due to global financial meltdown.

Beating the doomsayers, Bangladesh received $9.68 billion in remittances during the just concluded fiscal year. The growth rate was 22.32 percent higher than that of the previous fiscal year.

“We have transacted $43 million inward remittances during the first half of 2009 and the transaction for the first six days of July reached $2.17 million,” said Anis A Khan of MTB.

The banks having wings like capital market operation, cards, fund and portfolio management and brokerage house earned substantially so far this year, said Nurul Amin, managing director of NCC Bank.

“This growth from non-funded sources has helped the banks offset declining trend in loans and advances -- the main source of a bank's income,” he said.

NCC's income from remittances rose by 50 percent in the first half of this year compared to the same period last year.

Prime Bank's earning from remittance transaction grew nearly by 12 percent so far this year compared to the same period a year ago, said its managing director.

“Currently we deal with $350 million worth of remittances. We are trying to raise it to $600 million in a few years,” said Ehsanul Haque.

> Source: The Daiy Star, July 14, 2009

June 28, 2009

Black money and PPR: The connection and moral

Syed Munir Khasru

The most talked about issue in the budget is the "whitening of the black money." It is rather unfortunate that such an immoral issue is still being debated instead of this idea being rejected by the government when this was originally conceived.

Under this proposition, an honest taxpayer who toils hard to earn and then pays tax, is treated worse than a dishonest citizen who hides income and does not pay tax. So the message is: make your illegal money, hide it at your convenience, wait for an opportune moment, pay nominal tax, and have your money and conscience whitened. Can this be a recipe for good governance and accountability?

One of the positive aspects of this budget is that it is by an elected democratic government as opposed to the budgets of the last two years by a caretaker government with no political mandate or accountability to any electorate.

AL is bound by its election manifesto in which fight against corruption was declared one of the major political commitments. The much talked about, "deen bodoler shonod" or "manifesto for change" will remain more in paper, if in reality actions send opposite signals. Hence, the argument of credibility and morality should weigh in more for the government than arguments built on economic reasoning, which in itself is flawed.

Both the finance minister and the PM's adviser for finance and planning are well known for their competency and integrity, and it indeed would be unfortunate if such policies were adopted when they are at the helm of affairs.

The negative effects resulting from the corrosive moral aspect of black money offsets whatever positives may be expected from this exercise. One of the arguments in favour of black money is that the world is in a recession and private investment is short in supply. Hence, we need to open a conduit for investment where this whitened black money will stimulate growth and generate employment.

To draw a simple analogy, a better argument would have been, "my father is poor and can't pay for my education and hence stealing from a neighbour to finance my schooling is cool!" or "my wife is in the hospital and my school-going son without any income pays the medical bills, and as a poor husband and father why should I care to ask from where my son got the money?" if end justifies the means -- who cares?
When people are encouraged to pay tax, the message from the government to citizens is something like, "We need this contribution from you to help the state serve you well." Why would a law abiding citizen feel morally obligated to pay tax if s/he sees that people who have not paid tax are far better off both in the short and long run?

Isn't it better to hide money, with time let it grow in silence and obscurity, and then reveal it when the time is ripe? This way, one can pay 10% on this hidden money as opposed to a regular taxpayer who can end up paying as much as 25% on his duly disclosed income.

So the morally bankrupt, but filthily rich, has more money to buy a posh apartment than an honest taxpayer from middle class who is struggling to finance his/her children's education. Under these circumstances, does the government have the moral right to expect an honest taxpayer to be compliant or a non-taxpayer to enrol himself/herself as a taxpayer? Can the tax net be expanded by encouraging people to become taxpayers when in reality tax dodgers are rewarded more than taxpayers?

The proposed modifications in Public Procurement Regulations (PPR) has already raised concern, even within the donor community. For those unfamiliar with PPR, it is a set of rules and regulations to ensure transparency in the process through which government purchases goods and services.

The intention is to check corruption and unfairness -- particularly based on undue political influence. If some form of lottery is introduced or projects of an amount as significant as Taka two crore can be awarded without fair competitive bidding -- it in itself is enough to inject seeds of corruption into the public procurement system.

Even if we accept the argument that some entities without prior experience should have opportunity to compete and win projects, other set of even-handed rules can be plugged in so that inexperienced firms also have the scope to compete with experienced firms. But the proposed arbitrary provision of awarding projects can very legitimately be perceived as another new conduit to make black money through undeclared commissions and undiscovered bribes.

The modified PPR creates an opportunity to make such black money and then whiten them within the declared three-year period of immunity. The connection between the two is obvious and ominous.

The AL should start listening to its MPs like the former Home Minister Major (Rtd) Rafiqul Islam who has rightly pointed out the constitutional invalidity of such a proposition. If this is challenged in court, it is not likely to prevail and will further embarrass the government. Given the massive mandate the AL has received, from the very beginning, it should be sensitive to high expectations that people have from it.

It is well known that a significant portion of people's verdict in favour of AL was more of rejection of BNP led alliance's endemic corruption of five years. Hence, a "yes" for AL was more of a "no" for "BNP's corruption." If the ruling party does not appreciate this message from the very onset, it is only a matter of time before fortune reverses and they are on the receiving end of people's punishment meted out in polling stations next time around. The greatest lesson of history is that we don't learn enough from history.

The author is a Professor at the Institute of Business Administration (IBA), University of Dhaka.

Source: The Daily Star, June 28, 2009.

NB: Friends/Readers, please keep in mind that, Mr. Syed Munir Khasru, was my BBA Programs faculty at Dept. of Finance, Dhaka University, Year 1998.

May 20, 2009

Risky lending ups defaulted loans

In the first three months of the current year, defaulted loans of the banks increased by Tk 1,067 crore or five percent mainly due to risky lending, sluggish business activities and seasonal factors.

On March 31, the banks' defaulted loans stood at Tk 23,584 crore compared to Tk 22,481 crore in December last year.

According to Bangladesh Bank (BB) statistics, the state-owned banks' (SOBs) defaulted loans increased by Tk 495 crore or four percent and those of private commercial banks by Tk 547 crore or 10 per cent.

But defaulted loans of foreign commercial banks remained unchanged over the last three months while those of specialised banks increased slightly.

A top official of Agrani Bank said the rise in defaulted loans in the first three months of the year is due to seasonal factors. In December, the banks launch massive drive for recovery of loans by the year end, and slacken the drive after December, he mentioned.

And a high official of Sonali Bank claimed that due to the global meltdown many businessmen are deferring repayment of their bank loans. The banks are also putting less pressure so that businesses are not hampered, he said.

A Bangladesh Bank official however said besides these causes, risky lending by the banks led to a rise in defaulted loans.

Normally banks are expected to limit their lending to 80 per cent of their deposits. But many banks went for lending above 90 percent, and some for even above 100 percent of their deposits, he said.

Loans to unproductive sector have also increased. BB officials termed this sector a risky sector.

A recent study by the BB revealed that car loan, marriage loan, consumers credit, etc increased by 31 to 146 percent. Defaulted loans may have gone up also for this cause.

According to BB statistics, on March 31, defaulted loans of the SOBs totalled Tk 13,259 crore or 26.49 percent of their outstanding loans as against Tk 12,764 crore or 25.44 percent in December last year.

Defaulted loans of private commercial banks stood at Tk 6,245 crore or 4.72 per cent in March compared to Tk 5,698 crore or 4.44 percent in December.

In foreign commercial banks, default loans totalled Tk 286 crore or 1.91 percent in March and the amount was the same in December.

Defaulted loans of specialised banks stood at Tk 3,794 crore or 25.94 percent of their outstanding loan in March as against Tk 3,732 crore or 25.45 percent in December last year.

Source: The Daily Star, May 20, 2009

April 29, 2009

PCBs go beyond conventional banking

Private commercial banks (PCBs) now target closed-end mutual fund flotation, a business beyond conventional banking.

At least six commercial banks have announced their interests to go for such mutual funds, which are considered risk-free investment tools in stock trading.

A closed-end fund is a collective investment scheme with a limited number of shares for a stipulated period.

Southeast Bank is the latest among the PCBs that have joined the rally, with sponsoring a Tk 100 crore mutual fund.

The bank will subscribe at least 25 percent of the "Southeast Bank 1st Mutual Fund", while the rest is to be raised through pre-IPO placement and IPO (initial public offering).

Prior to Southeast, Prime Bank, Eastern Bank, Trust Bank, IFIC Bank and Mercantile Bank disclosed their plans to float closed-end mutual funds, which are subject to approval from the Securities and Exchange Commission.

"We have moved to float mutual fund with two objectives in mind. One is to bring a new product for our capital market, and the second is creation of an alternative source of revenue earning," said Ali Reza Iftekhar, managing director of Eastern Bank Limited, pointing to the high demand for this 'risk-free investment tool' in the capital market.

A senior official of Southeast Bank said bankers are now eager to look for diversified business tools or derivatives in addition to conventional banking, to sustain competition.

"The mutual fund floatation will ultimately strengthen our balance sheet," he said.

New mutual funds means more demand for long term investment, Sheikh Mortuza Ahmed, head of merchant banking and investment division of Prime Bank, told The Daily Star recently.

"Moreover, the more mutual funds will help the market move from retailers-driven to institutional," he said, pointing to the high volatility in retailer-driven market.

As per plan, Prime Bank will sponsor a Tk 100 crore closed-end mutual fund, of which the bank will subscribe at least 20 percent. The rest 80 percent of the "Prime Bank 1st ICB Mutual Fund", a 10-yearly one, will be raised through a placement prior to IPO, or pre-IPO placement. Per unit price of the mutual fund will be Tk 10.

Mercantile Bank will also sponsor a Tk 100 crore "MBL 1st Mutual Fund", wherein the bank's stake as sponsor will be 20 percent or Tk 20 crore.

Eastern Bank last month decided to sponsor a Tk 100 crore mutual fund for the local capital market. Of the fund, the bank will subscribe Tk 20 crore as sponsor.

Another Tk 100 crore mutual fund from IFIC Bank will hit the market as per the bank's decision last month. The bank will sponsor Tk 25 crore, or 25 percent.

Trust Bank is going to sponsor a Tk 200 crore mutual fund named "Trust Bank 1st Mutual Fund", wherein the bank's stake as sponsor will be Tk 40 crore, or 20 percent.

As many as 17 mutual funds are now listed on bourses. Of them, ICB and its subsidiaries manage 13 mutual funds, AIMS Bangladesh three and BSRS one.

The Grameen Mutual Fund One: Scheme Two amounting to Tk 125 crore is the largest listed mutual fund and the ICB 2nd NRB Mutual Fund worth Tk 100 crore the second. Mutual funds take up 5.54 percent of the total market capitalization.

Source: The Daily Star, April 29, 2009

April 26, 2009

Dr. Atiur Rahman made Bangladesh Bank governor

Dr. Atiur Rahman, a former BIDS research fellow who now runs an NGO and teaches development studies at Dhaka University, would be the governor of Bangladesh Bank.

When asked to confirm, the finance minister, AMA Muhith, did not give a direct reply. "Wait until tomorrow," a smiling Muhith told senior correspondent Abdur Rahim Harmachi as he left his secretariat office Sunday.

An aide to the finance minister, speaking anonymously, told that Muhith had "already congratulated Atiur Rahman on his appointment".

The decision is to come just days before the incumbent governor, Salehuddin Ahmed, ends his four-year tenure on Apr 30. It would also put to rest speculation about an extension to Salehuddin's tenure in the context of the on-ongoing global recession.

Atiur Rahman, who served as a director of Bangladesh's largest Sonali Bank and then chairman of the state-owned Janata Bank, will now have to deal with monetary economics as central bank supremo.

Atiur's research focussed more on poverty, and the most acclaimed included work on char dwellers and poverty alleviation.

His appointment would create a unique situation at the central bank—the governor and all three deputy governors (DGs) coming from same class of the DU economics department.

The three DGs—Nazrul Huda, Ziual Hasan Siddiqui and Murshid Kuli Khan—and their likely boss Atiur Rahman did their Masters as students of the 1973-4 batch and actually came out in 1976.

Salehuddin, a former civil service officer, was appointed to the top job by the BNP government on May 1, 2005 when his predecessor Fakhruddin Ahmed saw out his central bank contract.

The two—both Dhaka University economics graduates—swapped their positions. Fakhruddin, who was later made head of the army-installed caretaker government in 2007, took up Salehuddin's job of managing director at Palli Karma Shayahak Foundation, the government's micro-credit lending arm.

Salehuddin had earlier served as director general of NGO Bureau before landing the PKSF job.

Source:, April 26, 2009

April 22, 2009

Private Banks cap Deposit Rate at 10%

Private commercial banks (PCBs) have capped the interest rate for fixed deposit at 10 percent following the central bank's order to fix the lending rate at a maximum 13 percent, bankers said.

“Punitive actions will be taken if any bank offers more than 10 percent against a fixed deposit scheme,” said a top office bearer of Association of Bankers Bangladesh (ABB), a platform of PCBs' chief executive officers.

Actions include no transaction in call money market and keeping no deposit in those banks, he said.

Officials said ABB took the decision at a meeting on April 15, but did not disclose it on Bangladesh Bank's delay in issuing the lending rate cut circular. The BB issued the circular on Sunday.

Currently PCBs offer up to 13.50 percent for fixed deposits. A bank offered even 14 percent, the highest ever in the country, in May last year and fuelled an uneven competition among the banks.

In an interview with The Daily Star last week, Kaiser A Chowdhury, president and managing director of AB Bank, blamed the third generation banks for a spike in deposit rates.

“We set the highest rate for our three-month fixed deposit scheme at 10 percent yesterday,” said Shahjahan Bhuiyan, managing director of United Commercial Bank. The previous rate was 13 percent, he added.

The rate would be 9.75 percent for six-month scheme and 9.50 percent for one year and above, Bhuiyan, also the vice president of ABB, said.

Helal Ahmed Chowdhury, managing director of Pubali Bank, also admitted the cap of the fixed deposit rate at 10 percent.

Chowdhury however hailed the BB for allowing commercial banks to change the lending and deposit rates more than once in a month. Earlier banks could change the rates once in a month.

The government and the BB had long been asking the private banks to reduce the spread by cutting the lending rate, which was at least 14.75 percent depending on the banks. Finally the central bank forced these banks to charge a maximum 13 percent for lending to help private sector offset the impacts of global recession.

Source: The Daily Star, April 22, 2009

April 20, 2009

BB issues lending rate at 13% notices

With the announcement of the government's stimulus package yesterday, the central bank simultaneously issued two circulars relating to limiting lending rate and loan rescheduling.

The Bangladesh Bank (BB) issued a circular asking the commercial banks to cap the lending rate except credit card and consumer loans at 13 percent to offset the fallout of global financial meltdown.

Another circular asked the banks to ease rescheduling of loans for recession-hit export sectors, such as frozen food, leather and jute goods, without any down payment.

Both the decisions would be implemented immediately and remain valid until the next order, the BB circulars said.

Finance Minister AMA Muhith yesterday unveiled the much-hyped stimulus package amounting to Tk 3,424 crore for the current fiscal year to tackle the immediate impacts of the global recession.

The BB issued both the circulars as part of the government's policy support to keep the economy vibrant amid the global financial crisis.

The circular regarding lending rate ceiling said the commercial banks charge high interest rates for productive industrial sectors, which is an impediment to the country's development.

“Lending rate cut has become urgent considering the present inflationary pressure and global economic situation,” said the circular.

So lending rate for agriculture, term loan and working capital for large and medium industries, housing and trading has been capped at maximum 13 percent, it said.

Interest rate for export credit will remain unchanged at 7 percent, the circular said.

The BB also allowed the banks to change interest rate for lending and deposit for more than once in a month. Before the circular banks could change the rate just once in a month.

In the second circular loan rescheduling has been made flexible for export-oriented sectors, such as frozen food, leather and leather goods, jute and jute goods, and textile including spinning and readymade garment.

The banks have been asked to reschedule loans for these sectors without any down payment. Earlier banks took 10 percent of outstanding loans as down payment to reschedule loans.

Announcing the stimulus package, the finance minister said the banks will take necessary measures if any other export-oriented sectors are hit by the onslaught of the global recession. The BB would look into the matter, he added.

Source: The Daily Star, April 20, 2009

April 16, 2009

Collateral-free loans for SMEs at 9% interest

The Small and Medium Enterprise Foundation (SMEF) yesterday began disbursing collateral-free loans at an interest rate of 9 percent, the lowest in the country, to help promote small and medium entrepreneurs.

“The government sincerely wants to support the country's small and medium entrepreneurs. Therefore, we are constantly working to disburse loans to them at a low interest rate,” said Dilip Barua, industries minister and chairperson of SMEF.

“We are also trying to lower bank interest rates, the main obstacle to the country's industrial development. A lowered rate of interest would not only help the country's SME entrepreneurs but also the national economy,” he added.

He was speaking at a loan handover ceremony "Credit Wholesaling Pilot Programme" organised by SMEF at its office in Dhaka.

“The government has decided to disburse these loans for the manufacturing sector only, instead of the trading sector. We would like to encourage the manufacturing sector to develop the country's status as an industry-based economy,” he added.

Barua stressed modifying the Money Loan Court Act and said, “The act should have a balanced position, instead of favouring the lender. The major shortcoming of this act is that it does not favour the borrower."

In 2004, the government received a grant worth $50 million from the Asian Development Bank (ADB) to support the SME sector. Of the total grant, $30 million has been sanctioned as SME loans and $ 5 million spent on entrepreneur training programmes.

The Bangladesh Bank has sanctioned 78 percent of the Tk 500 crore Small Enterprise Fund (SEF) among the SME entrepreneurs, at a 10 percent rate of interest, said Barua.

Under the Credit Wholesaling Pilot Programme, SMEF would disburse Tk 2 crore to Midas Financing Limited and Shakti Foundation. Barua handed over a check for Tk 50 lakh to Rokia Afzal Rahman, chairman of Midas Financing Limited.

Rahman said the government should consider the SME sector as the backbone of the nation, to improve the country's economic condition.

“The SME sector should be the backbone of the country. It currently manufactures a wide range of essential products and recruits a large number of people,” she said.

“The government should have proper plans to nourish and support the sector with capital generation through collateral-free loans at lower interest rates and easy repayment conditions,” she suggested.

She emphasised raising the size of loans, which should be disbursed among a wide range of SME entrepreneurs, to encourage more people to get involved in such entrepreneurship.

She also stressed the need for professional training for the SME entrepreneurs, to make them more efficient.

Professor Momtaz Uddin Ahmed, acting managing director of SMEF, said the pilot programme would disburse the amounts as a pre-financing loan, which would help the entrepreneurs receive the loan in a short span of time.

SMEF was established in 2007 with an endowment of Tk 205 crore from the central bank.

Gazi Abdur Rashid, managing director of Midas Financing Limited, was also present.

Source: The Daily Star, April 16, 2009

Banks go SME-focused

The banking industry has increased focus on loans to small and medium enterprises (SMEs), which have been remained ignored for years despite the sector's huge contribution to the economy, as banks would set up 139 SME service centres by this year.

Bankers believe the move would help banks cope with the declining demand from big corporate clients mainly due to the global financial turmoil.

Besides four state-owned commercial banks, nearly half a dozen private banks have planned to boost lending to the SMEs this year through setting up separate divisions, officials said.

These private banks are Prime, The City, Eastern, United Commercial and Pubali banks. BRAC Bank is the pioneer and by far the market leader in SME lending in the country.

“Prime Bank has decided to develop a quality and dedicated team this year to serve the SME clients,” said the bank's Managing Director M Ehsanul Haque.

Prime Bank has planned to more than double its SME loan portfolio to Tk 1,000 crore this year from around Tk 400 crore in 2008.

“SME financing can give a thrust to the banks at the moment when there is a declining demand from big investors,” said Helal Ahmed Chowdhury, managing director of Pubali Bank.

United Commercial Bank is also considering setting up a separate division for SME credit.

Officials said other banks including AB, Bank Asia, Dhaka, Dutch-Bangla, Islami, National and Standard banks would also boost SME credit this year.

Bangladesh's banking industry has long been ignoring the much-needed credit to the SMEs despite the sector's enormous contribution to the national economy.

Data show that industrial sector contributed around one-fourth of the country's gross domestic product worth $80 billion. Of the industrial contribution, SMEs alone account for around 90 percent.

Banks disregarded lending to the SMEs terming it an informal sector that is even unable to maintain the books of account. Higher management cost and risk have also discouraged the banks not to lend to the SMEs.

But the global financial crisis and its impacts on the local economy have made the banking industry think about giving large loans.

“SMEs are the future of Bangladesh. Although there is a high risk there, the return is better than other areas,” said AEA Muhaimen, managing director of BRAC Bank that has lent nearly Tk 8,000 crore to the SMEs since its inception in 2001.

The bankers however said the lending rate for SMEs must be higher than the corporate ones.

“Lending to SMEs at 10-12 percent is not viable,” the Prime Bank boss said.
On an average BRAC Bank lends some 8,000 SME customers annually.

“Over 90 percent of our SME loans are collateral-free. We cannot take the risk at 13 percent,” said AEA Muhaimen.

The Bangladesh Bank (BB) has recently made a highest limit of lending rate at 13 percent to help businesses survive following the impacts of the global financial crisis.

“SME loan is predominantly supervisory credit and requires more manpower to conduct supervision, monitoring and recovery works,” Helal Ahmed Chowdhury said.

Meanwhile, the BB has approved opening of 139 SME service centres by the banking sector in 2009. Last year some 88 centres were opened by different banks to help the SMEs with easy disbursement, recovery of loan and quicker delivery of remittances.

The BB also launched an SME Refinancing Scheme worth Tk 100 crore in 2004. In 2008-09 fiscal year, the fund was increased to Tk 500 crore to help the sector, which contributes more to employment generation.

Source: The Daily Star, April 16, 2009

March 18, 2009

State banks better off, Loan recovery from top 20 defaulters at 50pc

Four state-owned banks performed better than before by realising around 50 percent of their default loans from top 20 defaulters and pulled off 94 percent of their targets from other defaulters in 2008, according to a central bank review released yesterday.

The four state banks had the target of realising Tk194 crore from top 20 loan defaulters last year but they could realise Tk98 crore, while the banks' target from other defaulters was Tk1,039 crore but they could realise Tk980 crore.

The Bangladesh Bank (BB) not only evaluated their cash recovery, it also reviewed their achievements in operating expenses, costs of deposit, manpower rationalisation, and reducing classified loans against the target fixed for them in 2008.

BB officials said the banks succeeded in reaching the targets in some areas but failed in others.

Sonali Bank had the target of retrieving Tk100 crore from top 20 defaulters but could realise only around Tk21 crore, while its cash recovery target from other defaulters was Tk484 crore but its realisation was Tk474 crore or 98 percent of the target.

In 2008 the bank's target of reducing operating costs over 2007 was 5 percent, but instead the expenditure increased by 20 percent to Tk649 crore.

Also the cost of deposit of the bank went up from 4.80 percent in 2007 to 5.04 percent in 2008.

Classified loan decreased by percentage but increased by gross amount from Tk6,859 crore in 2007 to Tk7,217 crore in 2008. However the growth in percentage went down by 2.08 percentage points to stand at 33.28 percent last year.

The bank reduced the number of cases with Artha Rin Adalat (loan court) from 7,141 in 2007 to 5,727 in 2008, and also cut manpower by 1,994 and the total number of staff stood at 20,548 in 2008. The BB said all these were positive signs.

Janata Bank though could not achieve success in realising loans from the top 20 defaulters, it exceeded the target in retrieving loans from other defaulters. Its target of realisation from top 20 was Tk30.25 crore, but the recovery was Tk20.17 crore or 66 percent of its target.

The bank's recovery target from other defaulters was Tk181.504 crore, but the realistaion was Tk258.54 crore or 142 percent of the target. It also succeeded in lowering the costs of deposit and the number of manpower. Cost of deposit was 4.79 percent in 2007 that came down to 4.53 percent in 2008.

The bank failed to reduce its operating expenses against its target of 5 percent as the expenditure increased around 15 percent to stand at Tk461 crore in 2008.

However its number of cases with the loan court decreased but the amount against the cases increased compared to December 2007. The number of cases dropped from 5,728 in 2007 to 4,720 in 2008, but the amount went up from Tk2,725 crore to Tk2,755 crore.

Agrani Bank though succeeded in realising loans from top 20 defaulters, it failed to reach the target for other defaulters. Its recovery target from the top 20 was Tk21.78 crore but the realisation was Tk37.34 crore or 171 percent of the target.

However its target from other defaulters was Tk302 crore but it recovered Tk209 crore or 69 percent of the target.

The bank could lower its cost of deposit from 3.74 percent in 2007 to 3.44 percent in 2008. It reduced manpower by 357 and its total staff stood at 2,988 in 2008.

However it failed to cut operating expenses that rose by 14 percent to Tk343 crore.
Its classified loan was Tk3,178 crore or 28 percent of its outstanding loan in 2007, which came down to Tk2,548 crore or 24 percent in 2008.

The bank's number of cases with the loan court remained almost unchanged at 7,462 in 2008. But the amount against the cases increased from Tk3,166 crore in 2007 to Tk3,630 crore in 2008.

Rupali Bank failed to reach its recovery target from all the defaulters.

The bank's target from the top 20 defaulters was around Tk42 crore but the recovery was around Tk20 crore. From other defaulters its loan recovery target was Tk72 crore, whereas it retrieved around Tk38 crore in 2008.

> Source: The Daily Star, March 18, 2009

March 17, 2009

First ever e-banking fair begins today

A daylong e-banking exhibition and conference, first of its kind in Bangladesh, begins in Dhaka today, organisers said.

State Minister for Science and Information and Communication Technology Yafes Osman is expected to open the fair.

Axiom Technologies Ltd of Bangladesh and Total Communication of Pakistan are jointly organising the event “1st e-Banking Exhibition and Conference”.

Fifteen local and overseas companies will participate in the fair and display their e-banking products and services in 25 stalls. The fair will take place at the ballroom of Dhaka Sheraton Hotel, organisers said.

They said except for foreign banks, the frontiers of e-banking in Bangladesh, only a few private banks are partly doing e-banking.

But banking services can be extended to people's doorsteps via e-banking, they added.
“We are organising the event to introduce banking technologies to local banking industry,” said Rizwan Bin Farouq, managing director of Axiom Technologies, at a press conference in Dhaka yesterday.

He said the exhibition will benefit the banking sector and its customers. The Bangladesh Association of Software Information Services, Bangladesh Leasing and Financial Companies Association (BLFCA), Association of Bankers Bangladesh Limited (ABB) and Pakistan Software Houses Association are supporting the fair.

The Daily Star is the media partner of the exhibition.

Niaz Habib, secretary of ABB, Anis A Khan, president of BLFCA, and Faisal Rahim, managing director of Total Communication, were present at the press meet.

>> Source: The Daily Star, March 17, 2009.

February 22, 2009

300 Bank branches in 2009

Banks continue to expand their branches this year to net new customers for low-cost deposits.

Despite a slowdown in the global financial sector, some 300 new bank branches will be added to the country's existing network in 2009, taking the tally to over 7,000, according to Bangladesh Bank (BB) data.

“We have agreed to permit opening of around 300 new branches in 2009, assessing the demand, mainly from the private banks,” a senior BB official told The Daily Star.

The total demand was much more than the permitted number, the official said.

As of December 2008, the number of total bank branches stood at 6,886.

The banking sector of Bangladesh comprises four categories of scheduled banks -- state-owned commercial banks (SCBs), state-owned development finance institutions (DFIs), private commercial banks (PCBs) and foreign commercial banks (FCBs).

These banks had a total of 6,717 branches as of December 2007, while the number was 6,562 and 6,402 in 2006 and 2005 respectively.

With new branches banks can collect millions in cheap deposits that are lent at higher rates, bankers said.

Even though they increasingly offer technology-driven products and automated teller machines (ATMs) in convenient places, banks still hope to lure customers to a physical branch.

According to BB data, total deposits of the banks in 2008 increased by 19.19 percent to Tk 256,127 crore from Tk 214,890 crore in 2007. The growth was 15.5 percent in 2007. Banks' deposit was Tk 186,060 crore in 2006.

Share of four SCBs -- Sonali, Janata, Agrani and Rupali -- is declining on the increasing presence of PCBs, BB data shows.

Deposits of 30 PCBs increased by 26.12 percent in 2008 compared to 8.44 percent by four SCBs.

The SCBs' share in deposits decreased from 35.2 percent in 2006 to 32.6 percent in 2007. On the other hand, PCBs' deposits in 2007 amounted to Tk 115,020 crore or 53.5 percent of the total industry deposits. PCBs' deposit was Tk 95,550 crore or 51.3 percent in 2006.

FCBs' deposits in 2007 rose by Tk 3,260 crore or 21.6 percent over the previous year. The DFIs' deposits in 2007 were Tk 11,560 crore against Tk 10,020 crore in 2006 showing an increase by 15.4 percent.

“We want to reach more rural and semi-urban population. Already we have more rural branches than urban ones,” said Muhammad A Rumee Ali, chairman of BRAC Bank that has got permission to open 15 branches in 2009.

Rumee Ali, also a former deputy governor of BB, said still the bankable people in the country are much lower compared to many countries.

He urged BB to look into the issue of urban and rural branches opening by banks.

The BB approves new branch opening based on a set criteria such as capital base, provision shortfall, corporate governance, foreign exchange management and disbursement of SME loan.

This year the central bank will not allow a bank to open more than three branches in Dhaka and Chittagong, the most concentrated areas. BB encourages banks to open more branches in rural areas.

Besides BRAC Bank, Islami Bank Bangladesh has been given permission to open a total of 15 branches this year.

Source: The Daily Star, February 22, 2009

February 05, 2009

Bankers fear slow loan payback from spinners

Bankers fear random import of low-cost yarn from neighbouring India will cost them heavily by making their clients defaulted.

Banks have also tightened their grip on new lending to this sector to see the bad time of the industry, which had a consistent growth for the past one decade, bankers said.

“Payment from the spinning millers is getting slowed,” said Ali Reza Iftekhar, managing director and chief executive officer of Eastern Bank.

He said banks are in a threat because they have huge exposure in spinning mills, which are capital-intensive industries.

“We are in great uncertainty. Immediate steps are needed to address the issue,” said Shahjahan Bhuiyan, managing director of United Commercial Bank.

Bhuiyan said about Tk 60,000 crore are involved in the textile sector spinning, knitting, dyeing and import of raw materials required for the industries.

The ongoing global recession has already caught up with the country's yarn industry with substantial fall in its local and export demands and a pile up of a huge amount of unsold yarn.

Easy access to import the item from India at a cheaper rate has made the local millers more worried.

According to industry people presently the Tk 27,000 crore spinning mills of the country are struggling with an inventory of 2.5 lakh tonnes of yarn worth Tk 2,500 crore that millers failed to sell for a demand decline and a flood of comparatively low cost yarn from India.

Earlier yarn import from India was restricted, but the caretaker government at its last time decision withdrew those restrictions and allowed importers to go freely.
Manufacturers are now importing Indian yarn at 15 to 20 cents per pound lower rate than that of locally produced yarn.

Bangladesh's commercial banking sector comprising 30 private banks, nine foreign banks and four state-owned banks has financed a lot to develop the country's textile industry. They have financed set up about 350 spinning mills in the country to supply yarn for manufacturing woven and knit garments. Banks also fund to import raw materials for the spinners.

“About Tk 60,000 crore bank finance are involved with the whole industry spinning, dyeing, knitting and import of raw materials,” Shahjahan Bhuiyan said.
Bhuiyan said many of their clients couldn't finance bank payment due to poor sale of the yarn produced locally.

“Now local yarn producers are forced to sell their product at a lower rate for their survival,” Ali Reza Iftekhar said.

He said Bangladesh's yarn is better in quality than the Indian product.
“Immediate corrective measures are needed, otherwise the industry will be in great difficulty,” the EBL chief executive remarked.

A senior official in Janata Bank, which has huge exposure in the sector, also admitted the fear.

“Local industry will have benefited if the government did not allow low-cost Indian yarn,” the official who requested not to be named said.

Source: The Daily Star, February 5, 2009

February 03, 2009

World Economic Forum in Davos & Dr Muhammad Yunus

Nobel laureate Dr Muhammad Yunus told the just-concluded World Economic Forum in Davos that world's poor people would be the most affected by the ongoing global financial crisis.

Prof Yunus, a panellist at the Davos Philanthropic Roundtable, said when the world is busy talking about bailout packages for companies, at the same time it is needed to design similar packages for the poor.

Former US President Bill Clinton, billionaire philanthropist Bill Gates and former British prime minister Tony Blair were present, among others, at the discussion, says a release from Yunus Secretariat.

The theme of the 39th World Economic Forum this year was 'Shaping the Post Crisis World.'

Prof Yunus, also founder and managing director of Grameen Bank, underlined that the crisis increased the need for special attention to the poor and the rich still had plenty of money.

"Those who had billions and have lost half of it, still have the other half. Their lifestyles will not change. But the real impact will be on the people at the bottom," said Yunus, who was awarded Nobel Peace Prize in 2006 for his efforts to lift people out of extreme poverty.

Bill Clinton also echoed his views during the roundtable saying, "The economic stimulus packages should be aimed at the poorest in society."

He also urged the world's rich nations to spend more on supporting projects in the developing world even though their own wealth has been hit.

In addition to the Philanthropic Roundtable, Prof Yunus was a lead speaker at an especially organised panel entitled 'Restoring Growth through Social Business.'

During this session, moderated by Kishore Mahbubani of the Lee Kuan Yew School of Public Policy Singapore, panellists discussed the great prospect of social business, non-loss, non-dividend companies, to address social goals ranging from improved nutrition, provision of safe drinking water, information technology for the poor and others.

They also discussed the on-the-ground experience of social businesses already being operated in Bangladesh by Grameen.

Panelist Franck Riboud, chairman and CEO of French dairy giant Danone, which has partnered with Grameen in a social business, said that all CEOs would now have to reinvent what business means in light of what is happening, and social business is a way forward for this.

In Davos from January 29 to February 1, Prof Yunus held discussions with business leaders, philanthropists, including Bill and Melinda Gates, heads of UN agencies on joint-venture collaborations in social business to address some of the world's most pressing problems, particularly healthcare for the poor.

He finalised the joint venture agreement to set up production plant in Bangladesh to produce nutrition supplement and treated mosquito nets, with Dr Humbrecht, CEO of BASF, a giant German company.

January 14, 2009

BB hikes cash reserve ratio for banks

Bangladesh Bank yesterday increased the rate for daily cash reserve requirement (CRR) against deposits by 50 basis points to help banks manage liquidity better than before.

In line with the past rules, all banks had maintained a monthly CRR of 5 percent on average. On a daily basis, the rate had been no less than 4 percent -- a ratio which was hiked to a minimum requirement of 4.5 percent by the central bank yesterday.

A high official with Bangladesh Bank said the banks had normally maintained 4 percent at the beginning of the month. In an attempt to maintain 5 percent on average throughout the month, bankers had often created a volatile situation in the call money market.

But the BB official would not see the latest move as a tight monetary policy.

The required reserve ratio is a bank regulation that sets the minimum reserves each bank must hold to customer deposits. The reserves are designed to satisfy withdrawal demands and would normally be in the form of fiat currency, or with a central bank.

The reserve ratio is sometimes used as a tool in monetary policy, influencing the economy, borrowing and interest rates.

Source: The Daily Star, January 14, 2009

January 11, 2009

Local firms zoom in on bank software

Domestic software developers are slowly making a niche in the local banking software market.

Presently, the banking software used for a particular branch is mostly made by local information technology (IT) firms. Also, at least six local private commercial banks (PCBs) with online banking services use locally developed online real-time software, according to sector people.

Thanks to the flourishing IT industry, the market for real-time banking software, once totally captured by foreign companies, is now being grabbed by the local firms. However, the industry has been catering to the domestic needs for branch banking solutions since the 1990s.

Branch banking software is used for a branch of a bank, while a single real-time banking software is used for keeping, processing and updating information and data of all branches of a bank.

"We have been working for a long time with real time software for banks and we have so far supplied the product to four private banks," said SM Waesh, senior vice president of Flora Systems, a local software and data entry company.

Four PCBs such as Trust Bank Ltd, NCC Bank Ltd, Jamuna Bank and Mutual Trust Bank now use 'Flora Bank', a centralised banking software, said Flora Systems officials.

According to software developers, said the cost of such a locally developed varies between Tk 1 crore and Tk 3 crore, while a foreign software costs between Tk 30 crore and Tk 40 crore.

"Apart from such cost-effectiveness, this local centralised banking software saves our hard-earned foreign currency and creates job opportunities for many,” Waesh added.

Flora and five or six local software developers, including Beximco Computers Ltd, a concern of Beximco Group, Leads, are the local players who are working to build online and branch banking software.

In addition, some banks have developed their own banking software for their own use.

After building the software for its own use, Bank Asia now markets it for other banks.

Pubali Bank Limited, Islami Bank Bangladesh Ltd and Uttara Bank Limited have also developed their branch banking and online banking software by their own to meet their needs.

Bank Asia has developed its centralised software through ERA- InfoTech Ltd, a joint venture company. Bank Asia Ltd, Ranks IT Ltd and a Dubai based IT firm are funding this project.

"We are using the software successfully and also supplied it to the locally owned Standard Bank," Irfan Uddin Ahmed, deputy managing director of Bank Asia, said, adding that the software would be exhibited in an international fair in Dubai soon to attract foreign customers.

Officials with Beximco Computers Ltd, a concern of Beximco Group, said the company supplies branch banking solutions, but it is now thinking of developing a centralised banking solution to meet the market demand.

Now over 300 branches of 15 major banks of the country use the company's software, according to the official website of Beximco Group.

Talking to The Daily Star, Shaikh Abdul Aziz, chief executive officer and managing director of LEADS Corporation Limited, a software company, said his company has developed both branch and centralized banking software including PcBANK2000 and BankUltimus. As many as 21 banks and financial institutions are using the products, he added.
Sector people attributed the competitive price and extensive after-sales-service to the increased use of local software. They said foreign solutions are dearer.

"Generally the annual service and maintenance fees account for 10-20 per cent of the total cost of a software. As the cost of local software is low, its service charge is also low," said Subodh Kumar Bhowmik, chief technical officer of Flora Systems.

He said it takes two-three years to fully customise a foreign made software because these software are made for different use in different countries. But local software are developed targeting the local market, he added.

But local customers sometimes undermine the local solutions thanking that it would not serve company purposes, Bhowmik lamented.

Source: The Daily Star, January 11, 2009

January 10, 2009

PCBs post rise in profit

Private commercial banks (PCBs) kept up a good show in 2008 despite a global and domestic slowdown in business activity, according to data received from different PCBs.

The operating profit of a PCB was as high as 97 percent and the lowest margin was 23 percent for 2008.

Bankers put the growth down to higher import payments following a huge rise in the prices of commodities from the beginning of 2008.

“The commodity price hike that lasted through the third quarter of 2008 pushed the banks' profit up in 2008,” said Shahjahan Bhuiyan, managing director of United Commercial Bank (UCB).

“Banks' commission income increased significantly because of a price rise in 2008,” said AKM Shafiqur Rahman, executive vice president and secretary of National Bank Limited (NBL).

The operating profit of Al-Arafah Islami Bank rose by 97.5 percent to Tk 158 crore in 2008 from Tk 80 crore in 2007. Shahjalal Bank and Islami Bank saw operating profit increasing by 57 percent and 55 percent respectively in 2008, from a year earlier.

National Credit and Commerce Bank recorded a 33 percent rise in operating profit to Tk 236 crore in 2008 from Tk 178 crore a year ago. The growth rate for UCB and NBL, two first-generation PCBs, was 24 percent and 28 percent respectively in 2008.

Operating profits by NBL and UCB reached Tk 374 crore and Tk 260 crore respectively in 2008.

Operating profits of BRAC Bank, a third-generation private bank, also increased by over 23 percent to Tk 200 crore from Tk 162 crore in 2007.

Prime Bank's operating profit soared to Tk 410 crore in 2008 from Tk 326 crore in 2008. Pubali Bank earned Tk 60 crore more than its 2007 income of Tk 306 crore.

Southeast Bank posted Tk 300 crore in operating profit, up from Tk 291 crore in 2007.

Of the other banks, EXIM earned Tk 260 crore, Dhaka Bank Tk 254 crore, Dutch-Bangla Tk 221 crore, Mercantile Tk 190 crore, IFIC Tk 177 crore, Basic Tk 175 crore, Standard Bank Tk 156 crore, Trust Bank Tk 138 crore, Jamuna Bank Tk 120 crore, One Bank Tk 110 crore and Social Investment Bank Tk 100 crore, according to data tallied by The Daily Star.

AB Bank's operating profit however dipped by Tk 15 crore to Tk 450 crore in 2008 from Tk 465 crore in 2007.

“Banks in Bangladesh saw a good year in 2008 despite the global financial turmoil. Credit should go for the central bank for its prudent and effective guideline,” said Nurul Amin, managing director of NCC Bank.

“We have also seen growth in the banking industry in 2008 in spite of a slowdown in the global economy,” said Syed Abu Naser Bukhtear Ahmed, chief executive officer of state-owned Agrani Bank.

Agrani's operating profit reached Tk 600 crore in 2008 from Tk 526 crore a year ago.

The operating profit of the PCBs had increased by nearly Tk 1,500 crore to Tk 5,200 crore in 2007, up from Tk 3,734 crore in 2006.

The country's imports grew by 31.66 percent in the first four months of the current fiscal year, compared to the same period of the previous fiscal year, according to Bangladesh Bank data.

The value of letters of credit against imports worth $7.898 billion was settled in the July-October period of fiscal 2008-2009, compared with $5.999 billion in the same period of the previous fiscal year.

Credit to the private sector rose by 24.72 percent to Tk 39,736 crore in October 2008, compared to the same period of the previous year.

Source: The Daily Star, January 02, 2009