The Current State of the Financial Sector of Bangladesh

The Current State of the Financial Sector of Bangladesh:

An Analysis

Abstract

Introduction

Article Summary

The Banking Industries in Bangladesh

Brief History:

After achieving independence in 1971, the government of the newly-found Bangladesh declared the Dhaka branch of 'State Bank of Pakistan' the new Central Bank and named it the 'Bangladesh Bank'. Bangladesh Bank was responsible for controlling currency and credit and monitoring exchange control. It was also the official foreign exchange Reserve. The government took over all the existing national banks and renamed them. The existing foreign banks were given permission to continue their business in Bangladesh.

In the 70's, the primary focus of Bangladeshi government was agricultural development. The Krishi Bank, an agricultural banking institution, increased lending amount to farmers and fishermen. From the year 1977 to 1985, the number of rural banks all over the country went up to an astonishing number of 3,300.

Slowly the government started focusing on private industries. This shift in financial priorities did not come without problems. There were no proper project approval system to identify potential borrowers and projects. Banks and financial institutions did not have proper guidance from which they could choose borrowers and projects. Slowly the banks and lending institutions had to deal with the problem of loan recovery. By the year 1987, only 27% agricultural loans were recovered. The recovery rates of industrial loans were even worse. Loans were given mainly to people with political power and most of them did not repay their loans. Slowly, major donors started to avert their funding to the banks and the government.

In 1985, the government adapted new policies of credit recovery for the sake of financial stability. This effort was a little more effective than before. Foreign exchange reserves by the end of financial year 1985 were 476 US Dollar.

The banking industry has grown in proportion since the mid eighties. Now a lot of private banks are operating in the country; most dominant being the Uttara Bank, AB Bank and IFIC Bank.

Present Scenario of the Banking Industries:

The financial system in Bangladesh includes Bangladesh Bank (the Central Bank), scheduled banks, non-bank financial institutions, Microfinance institutions (MFIs), insurance companies, co-operative banks, credit rating agencies and stock exchange. Among scheduled banks there are 4 nationalized commercial banks (NCBs), 5 state owned specialized banks (SBs), 30 domestic private commercial banks (PCBs), 9 foreign commercial banks (FCBs) and 29 non-banks financial institutions (NBFIs) as of December 2006 after that total number of institutions are increasing rapidly.

The financial system of Bangladesh is mainly bank dependent. Though in the recent years, a number of non-banking financial institutions (leasing and merchant banks) have been established, yet the banking sector still captures the lion share of the financial market.

In our suggested article we have found that after crossing a number of stages our banking industries are here. The authors showed many prospect and problems faced by our banking industries. After reviewing a number of articles and journals we found a very good economic prospect of our country. In spite having such a good prospect why our economy are lagging far behind and facing lots of problems. We have started our work on the basis of these questions. Through our work we have tied to show you the present condition of our banking sector, problems faced by it and reasons behind this. Actually through this paper you will be able to know right now what is happening in our economy.

Banking sector challenges in Bangladesh

In our suggested article the authors has showed some challenges or problems that that our banking industries had to face previously. On September 2010 a number of newspapers published news on this regard and here we have made a summary of those reports.

In Bangladesh the banking industry has flourished over the years, making double-digit profit percentages, sustaining growth and surviving cut-throat competition while providing attractive returns to shareholders. However, the greed for more without befitting platform and fundamentals brings its own challenges and questions in people's minds.

News about bank directors and chairmen's involvement in politics and underhand deals using banks' goodwill raises question about the banks' independence in running their operations. It also makes you think whether all the disclosures in the annual reports and other regulatory paperwork are only the glowing shell over a huge hollow.

The image of the banking industry has many times been marked by several stories regarding the owners in recent media releases. Despite the considerable progress made, foreign countries are still somehow treating our banking industry activities as questionable.