Annual Banking Conference 2015 -...
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Annual Banking Conference 2015
Conference Proceedings
BANGLADESH INSTITUTE OF BANK MANAGEMENT
Section - 2, Mirpur, Dhaka - 1216
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Annual Banking Conference 2015 : Conference Proceedings
Editorial Team
Dr. Toufic Ahmad Choudhury
Dr. Shah Md. Ahsan Habib
Abed Ali
Md. Nehal Ahmed
Coordination Team
Dr. Shah Md. Ahsan Habib
Md. Nehal Ahmed
Published by Bangladesh Institute of Bank Management (BIBM) Plot # 4, Main Road # 1 (South), Section # 2, Mirpur, Dhaka-1216
PABX: 88-02-9003031-5, 9003051-2, Fax: 88-02-9006756
E-mail: [email protected], [email protected], [email protected]
Web: www.bibm.org.bd
Copyright© BIBM 2016
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Foreword
The banking industry is passing through profound changes. The ongoing changes in terms of faster customer
services, more efficient customer relationship management, increasing use of technology and innovations in
banking have brought remarkable changes in the banking industry throughout the world. The banking
industry needs the collective effort of academicians, researchers and practitioners to cope up with the global
banking environment of growing competition and challenges. Annual Banking Conference provides a forum
for bringing together researchers, bankers and academicians from all over the country to exchange and share
knowledge, experience and research outputs on banking and related issues.
The Annual Banking Conference-2015 organized by the Bangladesh Institute of Bank Management (BIBM)
is an endeavor for fulfilling/ addressing the need of the stakeholders of the country’s banks and financial
institutions. The conference was divided into four plenary sessions: ‘Macro and Financial Stability’; ‘Human
Resource Management and Information & Communication Technology’; ‘Financial Inclusion and
Sustainable Banking’; and ‘Corporate Governance and Risk Management in Banks’. A total of 21 papers
were presented in the conference. Academicians, researchers and senior level bank executives took part in
the two-day gathering.
On the occasion of the publication of the Conference Proceedings, I pay my gratitude to the honorable
Chairman of the Governing Board of BIBM and Governor of Bangladesh Bank Dr. Atiur Rahman for his
guidance and kind inauguration of the Annual Banking Conference 2015. BIBM is grateful to the Chairman
of the Executive Committee of BIBM and Deputy Governor of Bangladesh Bank, Mr. Md. Abul Quasem for
his presence and for delivering the concluding speech. I would also like to pay my gratitude to the member
banks for their all out support to hold the Annual Banking Conference in BIBM. I appreciate the effort and
hard work of the organizing committee and the staff of BIBM for successfully conducting the conference.
The Proceedings of the Annual Banking Conference 2015 includes all research papers and write-ups
presented in the conference. It also includes welcome address, inaugural speech, keynote paper for both the
days, concluding speech and summary of all plenary sessions. I believe the publication would benefit
academicians, researchers and practitioners in their endeavour to improve the performance of the banking
sector of Bangladesh. We appreciate and encourage feedback from our esteemed readers on the conference
proceedings which would definitely help us in organizing the Annual Banking Conference in future more
efficiently.
Dr. Toufic Ahmad Choudhury
Director General
Bangladesh Institute of Bank Management
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Content
Page
Part-I: Conference Speeches, Keynote Papers and Summary of Plenary Sessions
Welcome Address 01
Inaugural Address 03
Concluding Speech 05
A Sketch of the Journey of Bangladesh Banking towards Sustainability 06
Inaugural Keynote Paper 20
Keynote Paper (Day-2) 29
Plenary Sessions: A Summary 33
Part-II: Presented Conference Papers
Macro-prudential Policies for Financial Stability:
Does It Matter for Emerging Economy? 47
Factors Affecting Propensity to Save: A Study in Sylhet City 65
Banks, Stock Markets and Economic Growth: Evidences from Bangladesh 79
Re-examining Determinants of Performance of Commercial Banks in Bangladesh: New
Evidence from Dynamic GMM, Quantile Regression and Wavelet Coherence Approach 87
Capital Flight Taking Heavy Toll on Economy of Bangladesh 103
Does Financial Development Always Boost Economic Growth? An Empirical Analysis with
Macro and Macroprudential Aspects in Emerging Economies 115
Effect of HR Practices on Employee Performance in Banking Industry 129
Employees’ job satisfaction and switching intention associated with mergers and acquisition of
Nepalese Banks and Financial Institutions 143
Implementation of Green HRM in the Banking Sector of Bangladesh 157
Organizational Justice and Turnover Intention among Private Commercial Bank Employees in
Nepal 173
ICT Practices in Banking Operations: Comparative Study of Private and Public Sector Banks in
India 187
The Role of Technology and Financial Literacy in Financial Inclusion in Bangladesh 197
Mobile Banking: A Complimentary Channel to Financial Revolution in Bangladesh, A study on
(bKash) BRAC Bank ltd. 213
Does Micro-finance Transform Economic Status of People? Evidence from Western
Development Region of Nepal 223
Practices of Sustainable Financing in Banking Industry: A Study on Green Banking in
Bangladesh and India 233
Corporate Sustainability Reporting in Banking Sector of Bangladesh: An appraisal with G4 of
Global Reporting Initiative. 247
An Empirical Study on Corporate Governance and Islamic Bank Performance: A Case Study of
Bangladesh 267
Cost of Implementation of Basel III reforms in Bangladesh: A Panel data analysis 275
Effect of Bank Specific Variables on the Non-Performing Loan Ratio: A case study on the
Commercial Banks of Bangladesh 287
An Analytical Review of Non-Performing Loan: Bangladesh and Global Perspectives 297
Workers' Remittances of Bangladesh during the Global Financial Crisis and Beyond: A Static
Panel Data Analysis 313
Conference Organizing Committees 329
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Part-I
Conference Speeches, Keynote
Papers and Summary of Plenary
Sessions
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Annual Banking Conference-2015
Organized by Bangladesh Institute of Bank Management (BIBM)
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Inaugural Announcement and Welcome Address
Professor Dr. Shah Md. Ahsan Habib, Director (Training), BIBM
Chairman
Organizing Committee
Good Morning, Ladies and Gentlemen. It’s my pleasure to welcome you all in the Annual Banking
Conference 2015 organized by Bangladesh Institute of Bank Management.
Today, we are honored by the presence of the Chairman of BIBM Governing Board and Governor
Bangladesh Bank Dr. Atiur Rahman in this Inaugural Session as the Chief Guest. We have with us on the
stage, honourable DG of BIBM Dr. Toufic Ahmed Choudhury as the Key note speaker of the Inaugural
Session and Principal of BBTA Mr. K M Jamsedduzzamn as a speaker.
We are delighted to have such a fantastic audience comprising current and former chief executives of banks,
university professors, academicians, researchers, faculty members of different universities and institutions,
senior bank executives, media personalities and journalists. We welcome you sir, and sincerely thank you
for your kind presence. We are delighted to welcome international paper presenters and participants who
traveled all the way to BIBM to take part in the conference. Let me also welcome our newly admitted
students in the BIBM-Frankfurt School Certification Program on Risk Management in this inaugural
Session.
Respected audience, this is for your kind information that Annual Banking Conference is an annual event of
BIBM to bring practitioners, academicians and researchers in a common platform to share thoughts, ideas
and research works on banking. Our objective is to facilitate a knowledge network among practitioners,
academicians and researchers from home and abroad.
On the way to arrange the Annual Banking Conference 2015, we called for research papers on key banking
areas. We are very pleased that faculty members from a number of universities and practicing bankers from
home and abroad have responded immediately and a total number of 65 abstracts, and around 50 papers
were received primarily for presentation. From these papers, our review team selected 26 papers to present
in this two-day event in four plenary sessions: The Plenary sessions are titled as ‘Macro and Financial
Stability’; ‘Human Resource Management and Information & Communication Technology’; ‘Financial
Inclusion and Sustainable Banking’; and ‘Corporate Governance and Risk Management in Banks’. Today,
i.e. on the first day, a total of 12 papers will be presented. The remaining 14 papers will be presented
tomorrow.
BIBM invited selected senior academicians from the universities and top level bank executives to add value
to the four conference plenary sessions as session chairmen or panelists. We are really grateful for their kind
consent to be the chairmen and panelists. We are sure that the audience and participant of the conference
will be immensely benefited out of their deliberations and comments.
Moreover, two special keynote papers will be presented by the DG of BIBM Dr. Toufic Ahmad Choudhury;
and Dr. Muzaffer Ahmed Chair Professor of BIBM Mr. Khandakar Ibrahim Khaled today and tomorrow
respectively. In addition, today in the Inaugural Session, we have taken the opportunity to formally
inaugurate the BIBM-Frankfurt School Certification Program on Risk Management by our honorable Chief
Guest today.
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Ladies and gentlemen, before moving to the formal inauguration of the Conference, we want to remind an
auspicious moment in recent time. We all are aware and very happy that very recently honourable Governor
Dr. Atiur Rahman has been awarded with the 'Central Bank Governor of the Year 2015 for Asia' for his
contribution to the successful maintenance of macroeconomic stability and expanding financial inclusion in
Bangladesh. It is a recognition of his role in promoting socially responsible financing, financial
inclusiveness and green banking in the country. On this occasion, BIBM salutes the sustainability efforts of
the Central Bank and launches a special report on the Sustainable Banking initiatives titled ‘A Sketch of the
Journey of Bangladesh Banking towards Sustainability’. The report attempts to capture a few of the major
initiatives that can very clearly be linked to the country’s sustainable development.
Distinguished audience, very recently BIBM launched its first joint certification program with Frankfurt
School of Finance and Management; Germany titled ‘Certified Expert in Risk Management’. It is a program
of nine month with two modules; first one will be offered online by the Frankfurt school; and the second
module will be delivered by BIBM in its own campus. This is for your kind information that the first two
batches for the course are already enrolled. Today in this inaugural session, we would like to take the
opportunity to formally inaugurate the BIBM-Frankfurt School joint certification program by our Chief
Guest Dr. Atiur Rahman.
Dear audience, there was an effort to connect a representative of Frankfurt School, Germany in this
inaugural session through skype. Frankfurt School heartily agreed with the initiative. However, due to
timing mismatch, we had to obtain a recorded speech of the Director of Executive Education of the
Frankfurt School Mr. Andres Emser on the inaugural event.
Respected audience, we would like to convey our gratitude to the honorable Chief Guest of the inaugural
session of the conference and Chairman of the Governing Board of BIBM, Dr. Atiur Rahman for his kind
presence. We offer special thanks to the participants who have joined us today. We are extremely pleased to
see the responses of our member banks and universities that have nominated a large number of senior level
bank executives and faculty members to be presented in the conference as participants. We are grateful to
the media partners Banik Barta for their support and cooperation. We hope, the support of all concerns and
active participation of the participants will help us putting together our all efforts to make this conference a
success.
Thank you very much.
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Inaugural Address
Dr. Atiur Rahman, Chairman, Governing Board, BIBM & Governor, Bangladesh Bank
Chief Guest
Inaugural Ceremony
Distinguished participants, guests, ladies and gentlemen…….
It is an honor and a privilege for me to be invited to the Annual Banking Conference 2015, the fourth event
in the series organized by the Bangladesh Institute of Bank Management. A gathering like this serves as a
brain-storming forum, generating ideas and spawning innovative thoughts to address the current and
emerging issues facing our banking sector. The papers and the subsequent discussion will bring out the
recent thinking of our learned bankers, researchers, academicians and other participants. I am confident this
will enrich the participants' knowledge and inform our policy makers.
In recent years, you may have noticed Bangladesh Bank has strategically lengthened its policy horizon
through various initiatives. In addition to ensuring the traditional focus on macro-financial stability, BB has
emphasized a sustainable and inclusive central banking agenda. The goal is to have higher and better quality
growth that can lift all Bangladeshis, ensuring social cohesion and empowerment, while protecting the
environment.
The banking sector in Bangladesh has grown many folds since independence in 1971, accompanied by
steady and inclusive growth. The sector has undergone successive rounds of major structural and regulatory
reforms, supporting the emergence of a vibrant private sector. BB has steered this transformation by
promoting market-based principles and macro-financial stability. Recognizing that the conventional short-
term business cycle focused monetary and financial policy had failed to address the longer term needs of
inclusivity and environmental sustainability, BB stepped up its initiatives to create a deliberate directional
bias in shifting financing away from speculative and unsustainable investment towards an IT-enabled
inclusive financing agenda.
These multifaceted initiatives are creating job-rich investment and growth for the un-served and under-
served, reducing inequality and fostering social cohesion and empowerment, in line with the original dreams
conceived in 1971 of Bangladesh. Our sustained growth, underpinned by social inclusion and with an
emphasis on our environment, has made us a global role model, as recognized by the UN, IMF and WB.
The modernization of the payments system and financial IT infrastructure, including online credit
information, supervisory reporting, BACH, BEFTN, NPS, NID-based KYC, and most recently the RTGS
have spawned an exponential growth of mobile phone banking, benefitting the underserved poor. Rapid
digitization in banking has enabled MFS and will further encourage women’s participation in the financial
services.
We are all aware that the most vital challenge of our time is to save the world from environmental disaster.
BB has taken the lead in promoting eco-friendly innovations like harnessing solar energy, biogas, effluent
treatment plant and Hybrid Hoffman Kiln for the brickfields as well as generating electricity from biogas,
employing solar irrigation pumps and encouraging the banks to finance setting up of solar energy panels in
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households and business establishments. These initiatives will make our journey towards a higher middle
income country smooth.
Distinguished participants, let me highlight a few issues related to supervision. In the backdrop of current
internal control practices in some banks, BB has started introducing strategic changes in its existing
supervision techniques for ensuring financial stability. To promote good corporate governance, monitoring
has been enhanced in the areas of responsibility and accountability of the board. Internal control structures
are being strengthened and the process of risk identification, measurement and mitigation streamlined to
move closer to the international best practices. With our extensive digitization initiatives, it is expected that
the existing and potential loopholes would be effectively addressed.
Ladies and gentlemen, our movement towards a sustainable and inclusive banking ethos is deepening the
foundation of our macro-financial stability. We are now reaping the synergies between financial deepening,
inclusion and stability.
There's an old African proverb that says "If you want to go quickly, go alone. If you want to go far, go
together." Financial deepening, inclusion, and stability is our common journey. And that means we all move
to move together. And quickly.
I congratulate the BIBM for this excellent initiative to discuss and strategize about the journey ahead. I am
confident this conference would help generate new ideas we all can take back to our respective areas to help
Bangladesh continue its forward march.
With these few words, I declare the Annual Banking Conference open and wish it all success.
Thank you all for your patient attention.
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Concluding Speech
Concluding Speech of Md. Abul Quasem, Deputy Governor, Bangladesh Bank
Date :
Time :
Venue :
November 23, 2015
5.00 pm
BIBM, Mirpur-2, Dhaka
Distinguished participants, guests, ladies and gentlemen…….
I am happy to be present here to address the closing ceremony of the two-day long Annual Banking
Conference 2015 organized by the Bangladesh Institute of Bank Management. The papers presented in the
conference by academicians and practicing bankers would definitely help us in identifying many critical
issues and challenges confronting the Bangladesh banking industry. I appreciate their unique efforts where
academia and practitioners meet together to sort out crucial problems of this sector and come out with
innovative solutions to those problems. I am confident that the collective wisdom of the distinguished paper
presenters and discussants would generate valuable inputs for the policymakers to pursue.
The banking sector of Bangladesh has achieved a lot since its independence and reached to a matured state
during its journey for last four decades. But it has also passed through difficult times. Bangladesh Bank
continues to focus on strengthening the banking system and streamlining functioning of its various
segments. The initiatives along these lines included deregulation of operations of banking and financial
institutions, tightening of prudential regulation and improvement in supervisory oversight, promoting
transparency and market disclosure etc. In addition to mainstream central banking, Bangladesh Bank
initiated a comprehensive financial inclusion campaign to ensure the availability of banking services to the
un-served and under-served population segments through various support services. As a part of the financial
inclusion, Bangladesh Bank has been promoting mobile banking which will certainly bring unprecedented
change in the area of financial inclusion. School banking and financial literacy programs are also notable
development by central bank. The Bank has promoted the establishment of environmentally-benign projects
like renewable energy generation, application of energy-efficient technologies, installation of effluent-
treatment plants etc. BB has thus become an important partner with the banks in popularizing “Green
Banking”. Bangladesh Bank is also focusing on full digitization of the banking operation. All these aimed at
building a viable, dynamic and efficient financial infrastructure which would ensure financial stability and
lead the nation to achieve the sustainable development goal.
No doubt, BIBM has done a magnificent job by arranging and organizing this conference. I must
congratulate the Director General of BIBM and his competent team on accomplishing such a difficult
assignment. With these words, I declare formal closing of this program and thank the contributors whose
efforts made this conference a success.
Thank you very much.
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A Sketch of the Journey of Bangladesh Banking towards
Sustainability
1. Sustainable Development Goals and Necessity of Sustainable Banking
1.1 Bangladesh Bank, the Central Bank of Bangladesh, has been working to implement sustainable banking
strategies to support attaining the national agenda on macroeconomic stability and sustainable growth. The
Perspective Plan of Bangladesh 2010-2021 provided a road map for materialization of the national goals,
which embodies that on the eve of its 50th anniversary of independence, Bangladesh would be a middle
income country and its citizens will enjoy a higher standard of living in a more equitable socio-economic
environment. Keeping in mind the vision, the National Sustainable Development Strategy (NSDS) 2013 has
been developed with the objective of meeting the challenges of economic, social and environmental
sustainability of the economy. The implementation period of the NSDS is 2010-2021, which exactly
coincides with the National Perspective Plan period. Some strategic priority areas have been identified in
NSDS addressing long-term sustainability issues that include sustained economic growth, development of
priority sectors, social security and protection, environment, natural resources, disaster management,
climate, good governance and gender.
1.2 Bangladesh has achieved commendable success in some economic and social indicators in recent time.
The country has made noteworthy progress in respect to eradication of poverty and hunger. Agriculture, the
core sector of the economy, improved in terms of productivity through using technology, and SMEs of the
country started producing better outcome in response to the remarkable policy supports. The country made
progress towards environmental sustainability by integrating the principles of sustainable development into
the country’s policies and programs to reverse the loss of environmental resources and sustainable access to
basic sanitation. Its recent progresses on a number of indicators have surpassed its neighboring developing
nations in South Asia (Social Progress Imperative, 2014)1, and pulled itself to the list of low middle income
developing countries 2 . Now the development challenge is to maintain the pace and sustaining the
achievements. In this way of advancements, alongside a number of government and private agencies,
financial sector market players played a commendable role through their sustainable financial services.
1.3 It is recognized in Bangladesh’s development strategy that the goal of sustainable development would
not be possible if financial services cannot be made available to all. In a resource-constrained developing
country like Bangladesh, finance is a powerful intervention and access to finance especially to the poor is
crucial for promoting inclusive economic growth and eradicating poverty. An inclusive financial system
provides a number of benefits to the economy by ensuring more resources for investment, creating
employment opportunities, ensuring economic and financial stability, and reducing vulnerability. In
Bangladesh, still a big chunk of the population is out of the coverage of the financial services of the formal
financial institutions that are different poor and marginal groups including small and marginal farmers, self-
employed, unorganized sector enterprises, urban slum dwellers, migrants, ethnic minorities, disabled
population and women. The rural areas contain most of the financially excluded population.
1.4 Agriculture is the major source of livelihood of the rural people of Bangladesh and is directly related to
their employment and income. Credit flow to the agricultural sector is crucial for raising GDP, generating
1 Social Progress Imperative (2014) Database and analyses available in: http://www.socialprogressimperative.org/ accessed on October 10, 2014. 2 The World Bank’s latest estimates (July, 2015) of Gross National Income per capita (GNI) categories Bangladesh as lower-middle income
countries.
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employment and alleviating poverty. These in turn influence education and health of the rural people.
Access to credit for the farmers from the banking system is significantly low relative to their contribution to
the GDP. In 2013-14, the share of the agriculture sector in GDP was around 16 percent while share of
advances to agriculture in total advances stood at about 6 percent3. In the industrial sector, the many
compelling reasons why small and medium enterprises (SMEs) fail to realize their full potential, inadequate
access to finance is prominent and most commonly cited. Enhanced micro and SME activities in the rural
and backward regions constitute a key component of the strategy for rural development and reduction of
poverty and regional disparity (GOB 2011)4. With limited capital base of their own and little access to
institutional financing, they rely on inefficient financing. The INSPIRED SME survey1 reveals that 68.6
percent of small enterprises and 44.7 percent of medium enterprises identified access to finance as a major
constraint5. services from informal sources, which eventually proves unsustainable.
1.5 Environment and Energy are two critical interrelated issues of sustainability concerns, and are connected
with the country’s poverty and growth. The public concern of the state of environment and energy has been
growing rapidly mainly due to increasing environmental degradation, growing energy use, rising greenhouse
gases, and declining non-renewable energy resources. Poverty, growth and environmental sustainability are
intimately bound together in Bangladesh. Common people live in an over-exploited and degrading natural
resource base. Industrial and urban growths are contributing economic livelihoods but already are serious
threats to environmental and human health is improving. A recent study6 revealed, annually about 4 percent
of GDP is lost and 22 percent of diseases are due to environmental degradation. In this connection, the roles
of a number of stakeholders are well-recognized. Financial sector hold a unique position in an economic
system that can affect production, business, and other economic activities through their financing activities,
and thus also influence environmental and energy sustainability.
1.6 Millennium Development Goals (MDGs)7 are connected with the sustainable development agenda of the
country. It is more or less recognized that financial development and financial services can play a large role
in attaining the MDG goals. Several studies8 reveal that financial development supports efficient allocation
of capital between lenders and borrowers and promote greater growth. The MDG themes of poverty,
education, health, and gender equality are highly related and financial services can play a significant role in
attaining the MDGs. Especially, financing to small enterprises, women, underprivileged, and green projects
can clearly be linked to the attainment of the MDG targets of Bangladesh. Credit facilities to these
underprivileged people and beneficial sectors enable poor to earn, which in turn affect poverty. Again,
supporting women by offering financial services is expected to contribute to their employment and income
that in turn ensures gender equity.
1.7 Banking sector is the dominant component of the financial sector of Bangladesh that has traditionally
been handling short term, medium term and long term financial instruments. Following the independence, a
few government-owned banks were the only source of institutional financial services that used to offer a
narrow range of financial instruments; and the sector was largely non-competitive in structure. Improving
performances of the banking sector received priority mainly since 1990 when government launched financial
3 Mujeri, M.K. (2015) Improving Access of the poor to Financial Services, A background Paper for Seventh five year Plan, Planning Commission,
Dhaka 2015. 4 GOB (2011) 6th Five Year Plan, General Economics Division, Planning Commission, Bangladesh. 5 INSPIRED (2013) The State of SME Sector- the manufacturing SME Sector in Bangladesh Working Paper, Dhaka. 6 Planning Commission (2015) Environment, Forestry and Biodiversity Conservation, background Paper for Seventh Five Year Plan, Dhaka, Bangladesh. 7 MDGs are eight international development goals that all 193 United Nations member states and at least 23 international organizations have agreed
to achieve by the year 2015 with the aim to encourage development by improving social and economic conditions in the world's poorest countries. 8 Summarized in Habib, Shah Md. Ahsan and Pinki Shah (2006) External Financial Integration And Economic Growth, Finance India, New Delhi,
India, September Issue.
http://en.wikipedia.org/wiki/International_developmenthttp://en.wikipedia.org/wiki/United_Nationshttp://en.wikipedia.org/wiki/United_Nations_member_stateshttp://en.wikipedia.org/wiki/International_organizations
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sector reform programs. The reforms brought structural changes in the financial sector in terms of numbers
of market players 9 , nature of competition, regulatory coverage, and operational efficiency. However,
banking sector remained the core and dominant sector that accounted for 63 percent of the total assets of the
financial sector10. The other formal components of the financial sectors i.e. Non-Bank Financial Institutions
(NBFIs)11, Micro Finance Institutions (MFIs)12, and Capital Market13 are relatively narrow or shallow in
terms of business line or coverage in comparison to that of banks. The nature of financial market structure of
the country clearly indicates that the onus of supporting the sustainable development goals of Bangladesh
heavily depend on the banking sector and its regulatory and supervisory authority ‘Bangladesh Bank’14.
1.8 The changed approach of the Central Bank of the country is clearly visible. To promote its
developmental goals, BB has upgraded the country's financial market infrastructure by setting up fully
automated nationwide online clearing system and hastening automation in banks. Notable initiatives have
been undertaken up to ensure appropriate regulatory and supervisory regimes for effective oversight of risk
management, internal controls and customer interest protections. The central bank has been working in a
paradigm shift in banking with multiple approaches of inclusive financing, women empowerment, corporate
social responsibility and hence poverty alleviation, which has given the whole financial sector a unique
humanitarian face. Traditionally, banking services have mainly been targeted the higher and middle income
and socially advantaged people of the country. The developmental policy goals and initiatives of the
Bangladesh Bank brought notable changes in the approach of the banks in the country. As the outcome, low
income group of the society are getting access to the formal financial service providers; developments of
small, medium and women entrepreneurs are becoming visible; and the rural economy started receiving
momentum. More or less all banks that are in operation in the country, local, foreign, private and state-
controlled, have come forward in the developmental roles and financial inclusion drives of Bangladesh
Bank. The paper is an attempt of discussing Bangladesh Bank’s drives toward banking sustainability mainly
during 2009-15, and the responses of the banking sector. Based on the secondary information, the paper also
attempts to link sustainable banking initiatives with the country’s sustainable development goals.
2. Addressing Sustainability Issues by the Bangladesh Bank: The Central Bank’s Changed
Approach
2.1 Conventionally, there are arguments that the objectives of ‘financial stability’ and ‘price stability’ may
contradict each other and thus the objective of price stability may be hampered. Thus, policymakers and the
segment of the economics professionals interested in Central Banking focused on the task of attaining and
preserving price and economic stability. Targeting explicitly ‘financial stability’ was generally viewed as a
distraction and risking the Central Bank’s attention in achieving its price stability mandate. The renewed
recognition of the importance of preserving financial stability is entirely appropriate and perhaps long
overdue. Some Central Banks of developing countries like Bangladesh Bank has opted to deviate from the
mainstream monetary policy approach of developed economies. These Central Banks have been following
monetary and financial policies towards supporting inclusive and sustainable growth. BB's monetary policy
9 Currently, there are 56 scheduled banks in Bangladesh that include 6 State Owned Commercial Banks which are fully or majorly owned by the
Government of Bangladesh; 2 specialized banks are now operating which were established for specific objectives like agricultural or industrial development; 39 Private Commercial Banks (PCBs) including 8 Islamic Shariah based banks; and 9 Foreign Commercial Banks (FCBs) operating in
Bangladesh. 10 Mansur, Ahsan H (2015) Financial Market Development and Challenges in Bangladesh, Background paper for Seventh-Five Year Plan. 11 Currently, 31 NBFIs are operating in Bangladesh of which 3 are government owned, 1 is the subsidiary of a SOCB, 13 were initiated by private
domestic initiative and 15 were initiated by joint venture initiative. 12 The number of Microfinance institutions (MFIs) has grown phenomenally over the years and at present around 700 MFIs are licensed under the Microcredit Regulatory Authority (MRA). 13 The primary segment of capital market is operated through private and public offering of equity and bond instruments, and the secondary segment
of capital market is institutionalized by two stock exchanges. 14 Alongside regulating and supervising Banks and NBFIs, BB has policy roles to play in the functioning of the regulators of other segments of the
financial sector (MRA, BSEC, and IDRA).
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approach attempts to serve Bangladesh economy in upholding growth and stability and have been
experiencing macro financial stability amid domestic shocks and external turbulences, including the last
global financial crisis. Bangladesh Bank has been focusing on achieving its inflation targets while providing
sufficient space in its monetary program for lending to activities which support broad-based investment and
inclusive growth objectives. It has been using both monetary and financial sector policy instruments to
achieve these goals. For promoting economic development and economic stability, BB adopted two
approaches: One, through financial inclusion and developmental finance campaign, it is working to engage
financial sector to reach underserved households and businesses. Two, it is working to promote financial
stability by channeling credit away from destabilizing activities and encouraging productive investments.
2.2 For ensuring a sound regulatory and supervisory framework, Bangladesh Bank is leading from the front
by working persistently to implement a set of strategies in line with the targeted goals. Prudential regulations
have been streamlined in line with the international standards. For creating a 'Prudential Supervisory
Framework', the Central Bank has initiated arrangement for monitoring the overall banking sector by using
international standards and also by undertaking some innovative measures. Special importance has been
attached to monitoring compliance with circulars and guidelines issued for better risk management in banks
and emphasis has been laid on the capacity development of executives at the central bank for effective bank
supervision. In September 2014, the Bangladesh Bank governor declared the second strategic plan15 for BB
for the period 2015-2019 prioritizing balanced and coordinated monetary policy; supervision and regulation;
and optimization of human capital. The Central Bank has also been working to minimize financial crime
risks in the country’s banking sector. Especially, remarkable initiatives have been undertaken by the central
bank to prevent money-laundering through banks.
2.3 BB proved itself as an advanced organization in the pace of technological development, and
incorporation of technology in supervision and service facilitation brought remarkable changes in the
approach of the central bank. In connection with the regulatory environment in Bangladesh, Bangladesh
Bank has been playing notable role to maintain smooth and secured e-banking operations. Online access to
Credit Information Bureau (CIB) has been successfully started by the initiative of the Central Bank.
Installation of Bangladesh Automated Clearing House (BACH), Bangladesh Electronic Fund Transfer
Network (BEFTN) and National Payment Switch (NPS) are other remarkable events in the history of our
financial sector. Considering the paramount importance of information systems security in banks, BB has
issued ICT Security Guidelines for banking and financial institutions. Technology has brought efficiency in
the supervisory arrangement of BB.
2.4 Adoption of greater transparency and democratic approach in policy making and strategies is a notable
change in the approach of the Central Bank. Bangladesh Bank gathers opinions of the academicians, experts
and other stakeholders in undertaking major policy decisions, like formulation of monetary policy. By
publishing 'Financial Stability' report each year, BB gives information on the financial market to the
stakeholders. In this connection, BB targets to adopt up-to-date policy approach with a view to improving
mass people's progress through maintaining high economic growth and financial stability. That is why,
alongside employing modern communication channels and tools; BB is motivating entire financial sector to
take advantage of the latest technology. In a recent initiative, the Social Media Communication Gateway has
been launched in Bangladesh Bank officially so that the mass people can see the activities of Bangladesh
Bank through Facebook, YouTube, and Twitter.
15 In 2009, BB published the first strategic paper for 2010-2014. Despite various challenges, the central bank has achieved 94 percent of the targets
set in the first paper, according to a statement by BB in September 2014.
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2.5 Customers’ right and protection and better service are getting due emphasis to the Central Bank. To
ensure improved customer service, a ‘Customer Interest Protection Centre' (CIPC) was established in the
head office and branch offices of BB in March 2012. Since the inception of the CIPC, complaints have been
coming to this centre everyday through telephones, mobile phones, e-mail and by post. Recently a new
department named 'Financial Integrity and Customer Services Department' has been opened for dealing with
the complaints of the customers and clients of banks and financial institutions more quickly and easily.
Besides, for the improvement of the standard of customer services the banks have been advised to rationalize
the charges realized from the customers, BB also instructed banks to display the chart of the deposit and
interest rate as well as the schedule of charges in the suitable and easily noticeable places in banks and also
in their respective web-sites.
2.6 For mainstreaming Corporate Social Responsibility (CSR) in banks and financial institutions,
Bangladesh Bank issued a motivational instruction in June 2008-to go for voluntary CSR activities. Then in
2010, the Central Bank provided a reporting format to banks and NBFIs for monitoring the progress of their
CSR activities; and in December 2010, the financial institutions were asked to set up their own dedicated
‘CSR Desk’. In 2011 and 2013, two circulars were issued by the BB instructing banks and NBFIs to
emphasize gender equality in their CSR interventions. Again, for ensuring quality of CSR, an indicative
guideline was issued by the Central Bank segregating CSR expenditures specifying administrative set up,
and budgetary allocation process. Moreover, BB kicked off its own CSR activities16 in 2013 by creating a
separate fund named ‘Bangladesh Bank Disaster Management and Corporate Social Responsibility Fund’
with BDT 50 million from the annual profit of BB which has now been extended to BDT 100 million in
April 2015. From the funds, BDT 5.20 million was disbursed for 14 projects in FY2013-14 and BDT 5.13
million was disbursed for 30 projects in FY2014-15.
2.7 In recent years (mainly since 2009), BB has brought about deeper engagement of the country's financial
sector with a social responsibility driven financial inclusion strategy. Bangladesh Bank has ensured the
disbursement of agricultural and rural credit17 through all scheduled banks, and has formulated elaborate
guidelines for SME18 credit offering emphasis on developing women entrepreneurship. Specific policy
strategies were enforced by the BB for ensuring access to finance to the vulnerable section of people and to
promote agriculture and SME financing that mainly include: changing of branch opening rules from 5:1 to
1:1 (for opening 1 urban branch, 1 rural branch is to be opened), availability of highest quality banking
services to farmers by allowing them to open banks account with minimum initial deposit (BDT 10 only);
issuing branch licenses to all SME/agriculture service centers; easy and effective access to banking services
for physically incapable people, hard core poor, unemployed youth, and freedom fighters; relaxing
conditions of loan repayment and providing fresh facilities to natural calamity affected farmers; mandatory
participation in agriculture/rural credit for all banks including PCBs and FCBs; putting emphasis on
financing women entrepreneurs; arranging refinancing schemes for banks; developing ICT solutions (mobile
banking, smart card etc.) for inclusive banking; encouraging creative partnership between banks and MFIs;
16 BB has coordinated the support to Nepal earthquake victims from financial sector of Bangladesh in May 2015. Almost 60,000 blankets have been handed over to Nepal Embassy to Bangladesh. BB has taken initiatives under CSR activities of Banks and FIs to support the victims and volunteers
of Savar Tragedy. In addition, BB medical officials rushed to the spot with medical aids. On November, 2013, Bangladesh Bank honored 135
rescuers of Rana Plaza victims for their heroic contribution to the rescue of 2438 workers from the debris with certificates, prize bonds of Tk 5000 to
each rescuer (BB Source).
17 In line with the pro-poor agriculture and farmer-friendly policy of the government, every financial year Bangladesh Bank formulates ‘Agricultural
and Rural Credit Policy and Programs’. Under the policy and program, all scheduled banks disburse agricultural and rural credit to the farmers of simple terms & conditions and relatively lower interest rate. Agricultural credit at concessional interest rate is being extended by banks to farmers.
To support sharecropper farmers, BB launched a refinance scheme for landless sharecroppers. Moreover, donor assisted crop diversification credit
project is extending credit for growing of higher value crops in the country's poverty ridden region. 18 A separate department named ‘SME and Special Programs Department’ has been created in BB to accelerate SME activities and provide effective
monitoring.
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Agent Banking; School Banking etc. Because of the remarkable pro-poor initiatives of the Central Bank, a
recent article in China Daily (May 2014) termed the Bangladesh Bank governor as ‘Poor Man’s Governor’.
2.8 Considering the widespread developmental impact, financial inclusion strategy received special attention
to the leadership of the Central Bank mainly since 2009. Incorporation of technology, financial literacy
initiatives and coordination and linkages brought new dimension in the inclusion drives. The central bank
has been giving special priority to financial literacy programs to bring the mass population of the country
under the coverage of financial services and financial inclusion. Bangladesh Bank first took a well-planned
initiative to spread financial literacy in an organized manner with financial assistance of UK-based UKAID.
In addition, the Central Bank has started building a Non-Resident Bangladeshi (NRB) database to bring all
migrant and non-resident Bangladeshis under the reach of financial services. In order to acknowledge the
important contribution of migrant, non-resident Bangladeshi nationals and related institutions towards the
economic progress of Bangladesh, Bangladesh Bank has started the ‘Bangladesh Bank Remittance Award’
program. With the initiative of the Bill and Melinda Gates Foundation, and joint participation of Bangladesh
Bank and Microcredit Regulatory Authority (MRA), an Interactive website, FSPMaps.com, was opened in
October 2013 with the aim of expanding the reach of financial inclusion, specifically bringing financial
services to the doorsteps of the marginalized segments of the society. By using this website, a potential
customer can gather the locations of financial service providers in his vicinity as well as other important
information. The location of financial service providers such as bank branches, ATMs, microfinance
institutions, cooperatives, mobile money agents, and post offices has been identified in this website. For
undertaking remarkable initiatives on financial inclusion, BB received ‘Alliance for Financial Inclusion
Award’ in 2014.
2.9 Green banking initiatives by the Bangladesh Bank is a remarkable step on the way to attain
environmental and energy sustainability19. The comprehensive circular20 of BB titled ‘Policy Guidelines
for Green Banking’ was circulated in February 2011. As per the circular, commercial banks would have to
adopt a comprehensive GB policy by December 2013 as a part of the central bank's efforts to make banking
practices more responsible to social and environmental causes. Besides introducing internal environment
management, the banks were expected to introduce environment friendly green financing to address the
environmental challenges of the country. Segregated into three phases, the phase-I is about developing green
banking policies and show general commitment on environment through in-house performances. In phase-II
of the Green Policy Guidelines, banks were to formulate specific policies for different environmentally
sensitive sectors21 and would have to determine a set of achievable targets and strategies, and disclose
these in their annual reports and websites. The Phase-III requires banks to publish independent Green
Annual Report following internationally accepted format like GRI with the arrangement of external
verification. The BB policy circular was also enforced for the Non-bank Financial Institutions (NBFIs).
BB prepared and circulated a Guideline on Environmental Risk Management (ERM)22 in January, 2011 to
streamline solutions for managing the environmental risks in the financial sector. The ERM guideline
prescribes a set of sector specific ‘Environmental Due-diligence Checklist’ for financing environmentally
sensitive sectors23 by banks. Moreover, BB disclosed Environmental and Social Management Framework
19 A separate department in the name of Sustainable Financing Department is responsible to take care of the green initiatives of Bangladesh
Bank. 20 BB BRPD Circular No-2, February 27, 2011. 21 Agriculture, agri-business, agro farming, leather, fisheries, textile, renewable energy, pulp and paper, sugar and distilleries, construction,
engineering and basic metal, chemicals, rubber and plastics, hospitals, brick manufacturing, and ship-breaking. 22 BB BRPD Circular No-1, January 30, 2011. 23 Agri-business, cement, chemicals, housing, engineering and basic metals, pulp and paper, tannery, Sugar and distilleries, textile and apparels, and
ship-breaking.
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Financial Sector Support Project (FSSP) in March 2015 to spur investment and growth by scaling-up access
to affordable financing and enhance markets for long-term debt in order to meet the long term financing
needs of manufacturing industries including SMEs. To encourage sustainable energy, BB switched over to
solar-powered lighting by setting up a 20 kilowatt solar panel in 2010, and banks have been advised to
finance in solar energy, bio-gas plant, Effluent Treatment Plant (ETP) and Hybrid Hoffman Kiln (HHK) in
brick field under refinance program of BB24. Banks have been encouraged to finance in solar energy, bio-gas
plant, ETP and HHK in brick field under three refinance programs of BB25.
3. Responses of the Bangladesh Bank’s Sustainability Initiatives: Linking Sustainable Banking and
Sustainable Development
3.1 As expected, the banking industry expanded over the period in terms of a greater number and volume of
products and services. With the changes and development in the banking sector, supervision on the part of
the supervisory authority improved. The central bank is exercising the oversight of corporate governance
and internal control functions for establishing sound risk management processes and practices in banks. BB
has implemented the Basel II capital regime and issued a roadmap to elevate the capital base of banks in line
with the Basel III requirements, started from January 2015. As a whole, the Central Bank is working to
identify and safeguard the weaknesses and vulnerabilities in the banking sector by adopting a forward-
looking risk-based approach to regulation and supervision. In response to the BB’s initiative, risk
management frameworks have been enforced in banks. Branches of banks are coming under closer
monitoring and customers' interests are getting more attention of the BB. After having a number of reforms
program related to credit operation of banks, current banking activities have reached a stage of maturity in
view of several indicators. Banks have been given almost full freedom for their credit operation. In recent
years, availability of different tools like Credit Risk Grading, online Credit Information Bureau, legal
support, accessibility to tailored software and injection of a pool of talented bankers in the banking sector
upgraded the credit operation of commercial banks. Practically, the banking sector experienced much
improvement in terms of asset quality and capital during last five years. Almost all banks are maintaining
the minimum required capital to their respective risk weighted assets. Available data on 'Gross NPL to Total
Loans and Advances' during (2009-2013) indicates notable improvement compared to the period 2004-
2008.Though enforcement of the tighter loan classification norms, a few scams in the banking sector, and
political difficulties result slight increase in the volume of NPLs in 2014. A stable business environment is
expected to help bring down the classified loans to the reasonable level by 2015. In the context of the
country, the improved prudential regulations and the supervision of the banking sector can be linked with the
sustainability indicators like ‘financial stability’ (figure-1).
24 BB ACSPD Circular No-9, July 08, 2010. 25 BB ACSPD Circular No-9, July 08, 2010.
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Figure 1: Linking Regulatory and Supervisory Change and Development
Banking Sector
Activity/Intervention
Macroeconomic Variables
Impacted
Sustainability Variable
Impacted
3.2 In response to the Bangladesh Bank’s initiative, the expenditure of CSR activities increased over time. It
is encouraging that overall CSR expenditures of banks have increased significantly from BDT 226 million in
2007 to BDT 5105 million in 2014. Banks and NBFIs have created climate risk funds from their CSR funds
and contributing in the area of green banking. Other common areas of CSR intervention by banks include
education, health, disaster relief, sports, art and culture etc. There are evidences that the CSR interventions
are contributing to ensure greater access to finance and other basic services, and to improve better livelihood
of the low income people (figure 2).
3.3 Financial inclusion drives of the BB brought remarkable improvements in several socio-economic fronts.
Notable changes have taken place in terms of higher access to finance, and increased geographical
penetrations of the financial services. The number of bank branch per 1000 square kilometer increased from
44.24 in 2005 to 61.21 in 2014; and the number of ATM booths per 1000 square kilometer has increased
tremendously from 0.82 in 2005 to 43.27 in 201426. In terms of demographic penetration, the number of
branches per 100,000 populations increased from 4.67 in 2005 to 5.64 in 2014. The number of deposit
accounts grew by 6.62 percent per year in rural areas between 2005 and 2014 while the same was 4.34
percent in urban areas during the same period. In the rural areas, the number of deposit accounts per 1,000
persons was 126.45 in 2005, growing to 251.49 in 2014. The ratio of deposit-GDP increased from 36 percent
in 2005 to 51 percent in 2014 while banks’ advance-GDP ratio increased from 28 percent in 2005 to 38
percent in 2014. The changed approach of banking expanded credit flow to agricultural, SME, and
environmentally-friendly sectors; brought a large number of un-banked/under-banked socially disadvantaged
people into the ambit of financial services; expanded banking services to remote areas by adopting
information and communication technology (ICT) at an affordable cost.
26 Choudhury, S K Sur (2015) Financial Inclusion in Bangladesh: Trends and Approaches, Bangladesh Country Paper presented in the SAARCFINANCE
Conference in June 2015.
Increased Bank
Capital
Improved
Prudential
Regulation and
Bank Supervision
Financial Stability
Industrial Growth
Trade Growth
Improved Credit
Market
Improved Asset
Quality
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Figure 2: Linking CSR Activities and Inclusive Finance of Banks and Development
Banking Sector
Activity/Intervention
Macroeconomic Variables
Impacted
Sustainability Variable
Impacted
3.4 In a major financial inclusion initiative, banks have opened over 10 million new bank accounts in the
names of small farmers and other rural and urban people of small means at no charge, with nominal initial
deposits as low as Taka ten. These accounts are being used by the account holders for receipt of agricultural
input subsidies; social safety net payments etc.; besides use as savings and payments medium. With a view
to fostering savings habits and financial literacy among the young, banks have launched 'School Banking'
initiatives in schools. So far, almost all scheduled banks have opened around two-lac accounts for the school
students. Any student, aged between 11 and 17 years, can open an account with banks supporting the
service. This is basically a joint account between the student and the guardian. ATM cards are also issued
for the accounts. Some advantages are also offered to the account holders such as waivers of fees and
charges, free internet banking, a waiver of minimum balance requirement, debit card at lower costs, etc.
Banks do not see school banking as a profit making business; rather they hope that many of these students
would become their customers in future. It has been performing wonderfully in spreading financial literacy
among students and youth. As a whole the responses of all categories of banks are really inspiring.
Bangladesh Bank is also recognizing the contribution of banks in this connection. In the School Banking
Conferences, successful banks are being awarded by the central bank. On the drives to bring unbanked
people under the coverage of the formal financial sector, agent banking initiatives of BB has also started
contributing. By agent banking the formal banking sector is reaching out to the marginalized people of the
society through their agents that provide several banking services to the people locally. Agent banking is
attempting to ensure the access of the marginalized people to several financial services, especially in remote
areas using the services of MFIs and others. The inclusive derives of the financial sectors are contributing in
the form of reduced poverty, rural development and better livelihood (figure-2).
3.5 To increase agricultural production and rural activities, BB pursues a pragmatic agricultural credit policy
under which marginal farmers, landless farmers, and sharecroppers can access banks for demand loans.
Agricultural credit at concessional interest rate is being extended by banks to farmers for growing of pulse,
spices, lentils and oilseeds. Banks get interest subsidy from government through BB against these loans.
Local productions of these specialized crops are already contributing significantly towards reduction of
import dependence. According to BB27 information, total agricultural credit disbursement by banks has
increased manifold to BDT 160 billion in 2014 from BDT 111billion in 2010.To support sharecroppers
27 Bangladesh Bank (2015), Annual Report 2013-2014, Dhaka, Bangladesh.
Green Banking
Increased CSR
Expenditure and
Inclusive Finance by
Banks
Green Growth
Better Livelihood
Rural Development
Improved Access
to Finance
Improved Access
to Basic Services Reduced Poverty
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farmers, BB launched a refinance scheme worth BDT 5 billion in partnership with BRAC, the largest non-
bank MFI in Bangladesh in 2010. In 2014, BDT 11.65 billion was disbursed to around 4 lac sharecroppers.
In order to promote production of agricultural import substitute crops, BB arranges credit facilities at a 4
percent concessional interest rate. Agricultural credit at a concessional 4 percent interest rate is being
extended by banks to farmers for growing of pulses, spices, oilseeds, and maize. Banks get a 6 percent
interest subsidy from the government through BB against these loans. In the agricultural and rural credit
policy, banks are directed to provide credit facilities to the women on a priority basis. BB exercises close
monitoring on the activities and credit volumes in the agricultural sector.
Figure 3: Linking Agricultural Credit by Banks and Development
Banking Sector
Activity/Intervention
Macroeconomic
Variables Impacted
Sustainability Variable
Impacted
3.6 Considering SME development as one of the important development agenda of the country, BB initiated
a comprehensive policy and programs on SME credit. Accordingly, an indicative yearly target of disbursing
SME credit by the banks and financial institutions were fixed for every year since 2010. A new department
has been established in December 2009 in BB, which is solely responsible for policy formulation,
facilitating fund, monitoring and development of entrepreneurship in the SME sector. Besides, a separate
inspection department has also been established in the central bank to effectively monitor this type of credit.
BB, with the help of government and different development partners, is now implementing five refinance
schemes for banks and financial institutions against their disbursed SME credit. With a view to
mainstreaming SME credit, banks and financial institutions are advised to adopt cluster development policy.
BB has already taken various initiatives for identifying different clusters around the country and is
encouraging all stakeholders for further development of such clusters. As per directives of BB, banks and
financial institutions are also coming forward for SME cluster development. Various small-scale
manufacturing clusters have already been identified by this time in 20-25 districts of Bangladesh. Light
engineering, agricultural machineries, handloom, handicrafts, leather and footwear, small garments are some
mentionable clusters in which banks and financial institutions are disbursing SME credit. Banks and NBFIs
altogether disbursed around BDT 1009 billion to over 5.5 lac enterprises in 2014, up from BDT 535 billion
to around 3 lac enterprises in 2010.28 The interventions are distinctly related to the sustainable development
goals of the country (figure-4).
28 Choudhury, S K Sur (2015) Financial Inclusion in Bangladesh: Trends and Approaches, Bangladesh Country Paper presented in the SAARCFINANCE Conference in June 2015.
Increased Credit
to the Agriculture
Sector
Reduced Poverty
Rural Development
Improved
Access to
Finance by Farm
Sector
Improved GDP
on Agriculture
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Figure 4: Linking SME Credit by Banks and Development
Banking Sector
Activity/Intervention
Macroeconomic Variables
Impacted
Sustainability Variable
Impacted
3.7 For mainstreaming women in economic activities, BB has taken a number of policy initiatives, and in
response to these banks now have separate ‘Women Entrepreneur’s Desk’. BB has also opened a separate
‘Women Entrepreneurs Development Unit’ in its head office and branch offices. A number of banks are
sanctioning loan upto BDT 2.5 million to women entrepreneurs without collateral but against personal
guarantee under refinance facilities by BB. The SME department is operating the woman entrepreneurship
scheme through which women's empowerment and their participation in business are being ensured.
Instructions are given to banks to charge reduced interest rate at 10 percent to women entrepreneurs. In order
to include large number of micro women entrepreneurs in the SME credit facilities, a policy of group based
lending of upto BDT 50 thousand is being encouraged. In a recent initiative, BB has made it possible for all
readymade garment workers to open their own bank accounts with just a meager amount of Taka 100 only.
Banks and NBFIs also started providing required trainings to the selected women entrepreneurs as per the
instruction of the BB.
Figure 5: Linking Banking Services to Women and Development
Banking Sector
Activity/Intervention
Macroeconomic
Variables Impacted
Sustainability Variable
Impacted
3.8 BB’s initiatives have made significant changes in regard to the creation of green governance frameworks
in banks. By the time all banks formulated environmental policies and Green Banking Cells; and around
three-fourth banks have formulated one or more sector specific environmental policy guideline. Banks have
Increased GDP of
Rural Economy
Increased SME
and Micro Credit
by Banks
Reduced Poverty
Gender Equality
Rural Development
Improved
Access to
Finance of SMEs
Increased
Employment
Reduced Poverty
Gender Equality
Women Empowerment
Improved Access to
Finance of Women
Improved Women
Entrepreneurship
Financial Service to
Women
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introduced green office guides for their employees and in some banks there are notable initiatives in regard
to savings of paper, water and power etc. BB has also issued a common reporting format to all the
commercial banks to report green banking activities including the extent of carbon footprint in a structured
way. Banks and financial institutions now regularly submit a quarterly report to Bangladesh Bank on their
performance of green banking activities. BB has introduced a refinance line for banks against their loans to
environmentally beneficial projects like renewable energy generation, installation of Effluent Treatment
Plants and of new energy efficient technologies at a concessional interest rate. Utilization trends of the
Bangladesh refinance scheme show that BDT1053million has already been disbursed from this BB fund
during 2010-2014 to solar energy, biogas, hybrid Hoffman kilns, and effluent treatment plants. In 2014,
about 42 banks disbursed BDT 398 billion as green finance.29 The green initiates of Bangladesh Bank were
awarded in 2012, when the Governor of the Central Bank was presented with the title ‘Green Governor’ in
the United Nations Climate Change Conference in Doha.
Figure 6: Linking Green Banking and Development
Banking Sector
Activity/Intervention
Macroeconomic Variables
Impacted
Sustainability Variable
Impacted
3.9 Overseas remittance has been one of the most remarkable aspects of Bangladeshi labour exports. Worker
remittances have consistently increased over the years. Bangladesh is among the top ten recipients of
migrants’ remittances. As percentage of GDP also the country is within top 20 countries. Over 8 million
skilled and unskilled Bangladeshi migrants are working in more than 108 countries who contribute almost
15 percent of GDP through sending hard earned remittance to Bangladesh30. To facilitate the migrants and
remitters, Government of Bangladesh established a specialized bank ‘Probashi Kallyan Bank’ in 2012 for
the benefits of out-bound workers, swift and safe remittance of their wages and rehabilitation of the
retrenched workers. This bank is enriched with modern IT technology to offer better remittance services.
Use of ICT in the remittance flows has brought notable changes in the remittance services of banks. Other
than the branch networks, a number of banks use online network, mobile network, and money transfer
organizations in the process of faster channeling funds to the rural areas. Alongside using ICT tools and
mobile technologies, banks have started using the services of each other networks/branches and services of
MFIs more extensively. Because of the quick adaption of technology, Private Commercial Banks of the
country are now dominating the remittance market. Currently three-fourth of the total remittances of the
country flows in through private commercial banks. In spite of huge branch network of the state controlled
banks, use of technology and linkages with other entities made it possible for private commercial banks to
expand their remittance services to the rural Bangladesh. Day by day use and popularity of such channels are
29 Bangladesh Bank(BB). 2013-2014. Annual Report, Dhaka, Bangladesh.
30 Habib, Shah Md. Ahsan, Md. Morshed Millat, Md. Shahidullah, Tahmina rahman and Antara Zareen (2015) Promoting Green Economy through
Green Banking, A Seminar Paper, BIBM, Dhaka.
Energy Sustainability
Green Consumption and
Production
Green Growth
Improved Access
to Green Finance
Resource Efficient
Operation of Bank
Green Banking
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increasing and people are getting direct benefit of it. Another notable development of the remittance channel
is that, currently remitters are mainly relying on legal channels (in place of illegal channel (called hundi) to
send their money to their family members. In Bangladesh remittance has notable impact on rural
consumption and investment that are directly related to poverty, education and health (figure 7).
Figure 7: Linking Remittance Services by Banks and Development
Banking Sector
Activity/Intervention
Macroeconomic Variables
Impacted
Sustainability Variable
Impacted
3.10 Use of ICT and mobile technology brought notable positive changes in the area of channeling financial
services. To tap the opportunity of high mobile density, BB published the ‘Guidelines on Mobile Financial
Services for Banks’ in 2011as the legal framework for a mobile technology based payment system which
served as a milestone in financial inclusion activities in the country. By the time, in the banking sector, 28
banks have received permission for providing financial services through mobile technology as an alternative
payment channel. Of these, 20 banks are already carrying out activities such as disbursement of inward
remittances, financial transactions through agent/ bank branch/ ATM/ mobile operator outlet, payments of
business organizations (such as utility bills) by individuals, payment of individuals by business organization
(such as salary distribution) payment of individuals by Government (such as old-age allowance, freedom
fighter allowance, etc.), payments of Government by individuals (such as tax payments), individual to
individual transactions (from one registered mobile account to another registered mobile account) and other
transactions such as microfinance, overdraft facilities, insurance premiums, etc.
Figure 8: Linking Online Banking and ICT Based Services by Banks and
Development
Banking Sector
Activity/Intervention
Macroeconomic Variables
Impacted
Sustainability Variable
Impacted
Reduced Poverty
Rural Livelihood
Rural Development
Improved
Consumption
Improved
Investment
ICT Based Remittance Services
by Banks
Online and ICT
Based Services
Access to Finance
Access to Basic Services
Improved Rural Livelihood
Modern and
Speedy Banking
Green Banking
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4. Concluding Remarks
4.1 The social responsibility driven financial inclusion campaign launched by BB is serving to keep
productive sector away from involvement in speculative financing. The Central Bank's developmental role,
therefore, is acting as an in-built stabilizer of the financial system. The policies and measures which have
been undertaken so far in Bangladesh in the context of developmental and inclusive banking are in the right
directions and have already started creating positive impacts. The banking services of the country have
started reaching to the low-income groups and to the remote Bangladesh that are clearly related to the
sustainable development goals of the country.
4.2 Today, Central Banks in some emerging and developing world have established a roadmap to create an
innovative and enabling environment for financial inclusion through cooperation and shared experiences.
Obviously, one size does not fit all, and goals and tools should be tailored to fit specific national needs and
resource limitations; however, country initiatives and experiences offer valuable lessons in reshaping the
approach of central banking to attain developmental goals. In the context of Bangladesh experience, it is
proven that there need not be a trade-off between developmental central banking and financial and economic
stability. Some of these experiences are replicable by the developing countries.
4.3 Able leadership and extensive monitoring have been crucial for the Bangladesh Bank to attain its
developmental goals. The present leadership of Bangladesh Bank has been very active in the development
front. Poverty and development issues received extra-ordinary emphasis in the Central Bank’s policy
initiatives in recent years. Extensive monitoring and reporting arrangement has also been playing a
significant role in achieving financial inclusion goal of Bangladesh.
4.4 The initiatives of the Central Bank have already received recognition and accolades both locally and
internationally. The most recent recognition came from the Emerging Markets, a London-based financial
information provider. It declared the Bangladesh Bank Governor Dr. Atiur Rahman as the 'Central Bank
Governor of the Year 2015 for Asia' for his contribution to the successful maintenance of macroeconomic
stability in the country. It is a recognition of his role in promoting socially responsible financing, financial
inclusiveness and green banking in the country; and also an acknowledgment of the country’s effort towards
sustainable development.
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Inaugural Keynote Paper
A Review of the Banking Activities-2014
Professor Dr. Toufic Ahmad Choudhury, Director General, BIBM
1. Introduction
BIBM Annual Banking Conference 2015 is our fourth attempt to bring academicians, researchers and
bankers on the same platform to share knowledge and experiences on banking and financial sector. Like
every year, a good number of researchers from home and abroad are taking part in the conference to share
their research works and thoughts today and tomorrow. Before moving into the issue based discussion in the
plenary sessions, we would like to offer a generic review of the banking activities through this key-note
speech. Since 2012, BIBM has been undertaking review studies on important areas of operations namely,
credit, trade services, treasury, ICT, ICC and HR. From last year we have added Islamic banking activities
separately. This paper is an attempt to present the findings of the review studies of BIBM. It also identifies
some recent challenges of the banking industry and put forward some remarks.
2. Structure
Banks are at the center of the financial sector of Bangladesh. Currently the country has 56 scheduled banks.
The banking sector of Bangladesh comprises four state-owned commercial banks (SOCBs), four specialized
banks (SPBs), thirty-nine domestic private commercial banks (PCBs), and nine foreign commercial banks
(FCBs). The FCBs are operating in Bangladesh as the branches of the banks which are in operation abroad.
PCBs can be categorized into conventional PCBs (thirty one conventional PCBs) that perform the banking
functions in conventional fashion i.e. interest based operations; and Islami Shariah based PCBs (eight Islami
Shariah based PCBs) that execute banking activities according to Islami Shariah based principles. Of the
PCBs, nine are newly established that started operation in 2012 and 2013.
3. Regulation and Supervision
Bangladesh Bank regulates and supervises banking industry of Bangladesh. Over the years the banking
sector of the country expanded, which demands greater supervision on the part of the regulatory and
supervisory authority. In light of global experiences, Bangladesh Bank is emphasizing strengthening capital
adequacy structure of the banks, strengthening risk management process, introducing techniques to forecast
systemic risks, ensuring transparency in disclosing information and strengthening supervision structure. At
the same time, Bangladesh Bank has made various policy related, institutional and legal, reforms in light of
international best practices to face the forthcoming challenges. The more stringent loan classification norms
formulated by the Bangladesh Bank are being implemented in the country. The central bank has
implemented Basel II capital regime, and preparations have been taken for implementing Basel III capital
and liquidity standards. The Central Bank is exercising oversight on the effectiveness of corporate
governance and internal control functions for establishing sound risk management processes and practices in
banks. Branches of banks are coming under closer attention and monitoring, and customers’ interests are
getting growing attention of the Bangladesh Bank. Bangladesh Bank is working to identify and safeguard
the weaknesses and vulnerabilities in the banking sector of the country by shifting from compliance-based
approach to forward-looking risk-based approach in regulation and supervision.
Having a set of prudent regulatory measures, effective supervision depends upon adequate power, sufficient
resources and independence to foster good supervision. In Bangladesh, Bangladesh Bank is the true
supervisor of the private sector and foreign banks only. Recent evidences of irregularities demonstrate that
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Annual Banking Conference-2015
Organized by Bangladesh Institute of Bank Management (BIBM)
www.bibm.org.bd
21
Bangladesh Bank does not have enough supervisory grips over the state owned commercial banks. The
enhanced authority given to BB over the appointment and dismissal of senior management in SOCBs in
2013 revisions to the Bank Companies Act has provided a positive signal to the industry. Stringent financial
improvement plans have been set with the four SCBs and Basic Bank Ltd. which include differential ceilings
on loan growth. Bangladesh Bank also sought to strengthen credit and debt markets by taking steps to
improve corporate governance, supervisory capacity, stimulate higher demand for government securities and
broaden financing options. BB has been supportive of the capital market through on-going deeper regulatory
coordination and policy support.
4. Credit
In a bank based financial system an efficient credit operation of banks is prerequisite for ensuring balanced
economic growth of the country. During the year 2014, Bangladesh Bank issued a number of regulations and
guidelines for streamlining credit operations of banks. Important of these are: reduction of new ceiling of
interest rate on agricultural and rural credit at 11 percent from 13 percent; single borrower exposure limit;
large loan restructuring; incentives to good borrowers; regulation for auto-loans etc. A number of
refinancing schemes, namely, Islamic Refinance fund; refinance scheme for jute sector (Tk. 200 crore),
Tk.10 A/C holders, new SME entrepreneurs, Green finances etc. have been introduced by Bangladesh Bank.
BIBM survey observed that most of the requirements of CRM are now being followed by banks. Some of
the banks have electronic data base of CRG grades and are using customized sector specific CRG score
sheet.
The BIBM’s review of credit operations of banks observed the following facts in the credit sector during
2014:
The credit to the private sector registered 12.7 percent growth at the end of 2014 compared to program
growth of 14.0 percent. This growth was 8.88 percent in 2013.
The credit-deposit ratio of the scheduled banks was 70.45 percent at the end of 2014 compared to 78
percent at the end of June 2013 indicating liquidity surplus in the banking industry.
Organizations having good rating are gradually moving towards taking loan from foreign banks with a
view to reducing their cost of funds. However, domestic borrowings along with external borrowings of
the private sector registered 14.3 percent in 20147.
The banking sector loans are concentrated within a few sectors in 2014 (such as wholesale and retail
trade, large industries and import financing).
The gross non-performing loan as percentage of outstanding loan increased to 11.6 percent at the end
of September 2014 from 8.9 percent at the end of December 2013 (MPS, January – June 2015). To
reduce NPL and regularize loan repayment, Bangladesh Bank allows loan structuring in place of loan
rescheduling for the large loan amounting to Tk. 500 crores and above.
Interest rate spread continuously declined in 2014. The interest spreads had on average fallen to 5.17
percent in November 2014 from 5.31 in June 2014.
The major challenges of the banks in regard to their credit operations in 2014 were: slow growth of credit
demand, addressing NPL issue, financing of a few corporate clients by multiple banks, excessive credit
concentration, reluctance on the part of borrowers for getting ECAI rating, low utilization of BB refinancing,
low implementation of ERM policy etc.
5. Trade
In the context of Bangladesh, trade is the key component of international business activities, and as part of
trade facilitation, banks facilitate payment and finance services to the traders and thus contribute in
expanding international trade business of Bangladesh. PCBs as a group is the major market player in the
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22 Annual Banking Conference-2015 Organized by Bangladesh Institute of Bank Management (BIBM)
www.bibm.org.bd
trade facilitation. Over four-fifth export proceeds entered into the country and three-fourth of total import
payments were made through PCBs in 2014. PCBs were also the most dominant group in trade financing,
remittance services, and maintenance of foreign currency accounts. However, only in export financing, it
was the SOCBs that contributed most in 2014. As a whole the market share of PCBs increased in 2014.
Offshore banking market that mainly offer trade services in the country however is dominated by the FCBs.
Documentary credit remained the most prominent payment technique in import and export transactions in
Bangladesh in 2014, not different from the previous years. This is in sharp contrast to the global practice in
general where almost four-fifth payment tran