Annual Banking Conference 2015 -...

Annual Banking Conference 2015

Conference Proceedings

BANGLADESH INSTITUTE OF BANK MANAGEMENT

Section - 2, Mirpur, Dhaka - 1216

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

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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

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

Part-I

Conference Speeches, Keynote

Papers and Summary of Plenary

Sessions

Annual Banking Conference-2015

Organized by Bangladesh Institute of Bank Management (BIBM)

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1

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.

2 Annual Banking Conference-2015 Organized by Bangladesh Institute of Bank Management (BIBM)

www.bibm.org.bd

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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3

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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11

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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13

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



Impacted


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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15

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


Macroeconomic

Variables Impacted


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



Impacted


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


Macroeconomic

Variables Impacted


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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17

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



Impacted


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


www.bibm.org.bd

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



Impacted


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



Impacted


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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19

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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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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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

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