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Last updated: 22nd May 2016

Finance and Banking

 

Overview

The financial sector in Bangladesh is continuously evolving towards a more modern and efficient system of finance which is supportive of greater investment and inclusive economic growth. The financial system of Bangladesh consists of The Bangladesh Bank, scheduled banks, non-bank financial institutions, micro finance institutions, insurance companies, co-operative banks, credit rating agencies and stock exchange.

Banking Infrastructure*

Type of Bank
No.
No. of Branches
State owned
4
3,404
Specialized
4
1,382
Private
30
2,816
Foreign
9
62
Total
47
7,664
* As of February, 2011
Source:Bangladesh Economic Review-2011 (Bangla version), Ministry of Finance

An Overview of Financial Sector in Bangladesh

financial_sector

Source: Policy Analysis Unit (PAU), Bangladesh Bank

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Investment Freedom

The Foreign Investment Act of 1980 guarantees the right of repatriation of invested capital, profits, capital gains, post-tax dividends, and approved royalties and fees. Foreign firms are able to repatriate funds without much difficulty, provided the appropriate documentation is in order.

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Economic Freedom in Bangladesh

Bangladesh's economic freedom score is 53.0, making its economy the 137th freest in the 2010 Index. Its overall score is 3.6 points higher than last year, mainly reflecting improvements in trade freedom and investment freedom. Bangladesh is ranked 29th out of 41 countries in the Asia–Pacific region. Bangladesh has enjoyed impressive economic growth of around 6 percent per year over the past five years, driven mainly by its limited but growing services and industrial sectors

economic freedom score

Source: Index of economic freedom 2011, The Heritage Foundation

Comparison on economic freedom in Asia Pacific region

Name of the country
Business freedom (%)
Trade freedom (%)
Monetary freedom (%)
Investment freedom (%)
Bangladesh
68.7
54
67.5
55
Cambodia
40.7
65.2
80.7
60
China
46.4
71.6
74.2
25
India
35.5
64.1
62.9
35
Indonesia
54.6
73.9
75.2
35
Philippines
54.3
75.5
77.1
40
Singapore
97.2
90
84.8
75
Sri Lanka
78
77.1
68.5
30
Thailand
72.5
75.2
69.3
15
Vietnam
61.1
79.6
75.1
15
Source: Index of economic freedom 2012, The Heritage Foundation

 

Country's Score Over Time

countrys score over time

Source: Index of economic freedom 2011, The Heritage Foundation

Ten Economic Freedoms of Bangladesh

Ten_economic_freedom

Source: Index of economic freedom 2010, The Heritage Foundation

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Short History of Banking

The banking system at independence (1971) consisted of two branch offices of the former State Bank of Pakistan and 17 large commercial banks, two of which were controlled by Bangladeshi interests and three by foreigners other than west Pakistanis. There were 14 smaller commercial banks. Virtually all banking services were concentrated in urban areas. The newly independent government immediately designated the Dhaka branch of the State Bank of Pakistan as the central bank and renamed it Bangladesh Bank. The bank was responsible for regulating currency, controlling credit and monetary policy, and administering exchange control and the foreign exchange reserves. The Bangladesh government initially nationalized the entire domestic banking system and proceeded to reorganize and rename the various banks. Foreign-owned banks were permitted to continue doing business in Bangladesh.

The insurance business was also nationalized and became a source of potential investment funds. Cooperative credit systems and postal savings offices handled service to small individual and rural accounts. The new banking system succeeded in establishing reasonably efficient procedures for managing credit and foreign exchange. The primary function of the credit system throughout the 1970s was to finance trade and the public sector, which together absorbed 75% of total advances.

The government's encouragement during the late 1970s and early 1980s of agricultural development and private industry brought changes in lending strategies. Managed by the Bangladesh Krishi Bank, a specialized agricultural banking institution, lending to farmers and fishermen dramatically expanded. The number of rural bank branches doubled between 1977 and 1985, to more than 3,330. Denationalization and private industrial growth led the Bangladesh Bank and the World Bank to focus their lending on the emerging private manufacturing sector.

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Bangladesh Bank (BB)

Bangladesh Bank has been working as the central bank since the country's independence. Its prime jobs include issuing of currency, maintaining foreign exchange reserve and providing transaction facilities of all public monetary matters. Bangladesh Bank is also responsible for planning the government's monetary policy and implementing it thereby. Bangladesh Bank, which is the designated central monetary authority of the People's Republic of Bangladesh, has a governing body comprising of nine members with the Governor as its chief. Apart from the head office in Dhaka, it has nine more branches, of which two in Dhaka and one each in Chittagong, Rajshahi, Khulna, Bogra, Sylhet, Rangpur and Barisal.

Source: Bangladesh Bank

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Scheduled Banks (SB)

Out of 6,562 Scheduled Bank branches operating in the country, up to end December 2006 the nationalised commercial bank's operate 3,384 branches, of which 2,146 are in rural areas and 1,238 are in urban areas; Scheduled Banks have 1,354 branches of which 1,200 are in rural areas and 154 are in urban areas; Public Commercial Banks have 1,776 branches of which 488 are in rural areas and 1,288 are in urban areas.

Source: Bangladesh Bank

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Cooperative Banks

In Bangladesh 119 cooperative banks are operating, of which 64 are central cooperative banks, 48 are land mortgage and the rest seven are other cooperative banks. The maximum share of total assets, 90%, is controlled by central cooperatives. Similarly the maximum share deposits (85%) and advances (90%) are handled by the same central cooperatives.

Source: Bangladesh Bank

Investment Corporation of Bangladesh (ICB)

The Investment Corporation of Bangladesh was established in 1976 with the objective of encouraging and broadening the base of industrial investment. ICB underwrites issues of securities, provides substantial bridge financing programmers', and maintains investment accounts, floats and manages closed-end & open-end mutual funds & closed-end unit funds to ensure supply of securities as well as generate demand for securities. ICB also operates in the DSE and CSE as dealers.

Source: Investment Corporation of Bangladesh

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Securities and Exchange Commission (SEC)

The Securities and Exchange Commission (SEC) was established on 8th June, 1993 under the Securities and Exchange Commission Act, 1993. The Chairman and Members of the Commission are appointed by the government and have overall responsibility to administer securities legislation. The Commission is a statutory body and attached to the Ministry of Finance.

Source: Securities and Exchange Commission

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Dhaka Stock Exchange (DSE)

Dhaka Stock Exchange (generally known as DSE) is the main stock exchange of Bangladesh. It is located in Motijheel- the heart of the Dhaka city and its central business district. It was incorporated in 1954. Dhaka Stock Exchange is the first stock exchange of the country. At the end of March 2010, the amount of all issued capitalize securities and debenture was $8,179m which is 23% greater than the value of June 2009 ($6,611m). During 30th June 2009, the price of all securities of Dhaka Stock Exchange was $18,951m, which has increased by 73% at the end of March 2010 where the value was $32,850m. The share indices of DSE increased by 85%, where the value was $434m on June 2009 and reached to $805m at the end of March 2010.

Dhaka Stock Exchange is a public limited company. It is formed and managed under the Companies Act 1994, Security and Exchange Commission Act 1993, Security and Exchange Commission Regulation 1994, and Security Exchange (inside trading) regulation 1994. According to stock market rule, only members can participate in the floor and can buy shares for himself or his clients. At present it has 238 members.

Source: Dhaka Stock Exchange

DSE_Index2

* As of March, 2010
1 crore Tk = 10 million
Source: Bangladesh Economic Review-2010 (Bangla version), Ministry of Finance

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Chittagong Stock Exchange (CSE)

Chittagong Stock Exchange (generally known as CSE)-the first automated and modern trading bourse in the country. The Chittagong Stock Exchange began its journey in 10th October of 1995 from Chittagong city through the cry-out trading system with the promise to create a state-of-the art bourse in the country. Introduction of automated trading system in June 1998 replacing the practice and culture of age-old manual cry-out system of trading in the stock market of Bangladesh was a revolutionary step made by the Chittagong Stock Exchange in the history of the country's capital market. At the end of March 2010, issued capital increased by 29% compare to June 2009, reached to the amount of $2,539m. In addition, total market capital had a growth of 93% at March 2010, compare to June 2009, reached to the amount of $26,894m. Moreover, share index reached to 12,194 at the end of March 2010, with an increment of 54% compared to the index of June, 2009.

Source: Chittagong Stock Exchange

CSE_Index2

* As of March, 2010
1 crore Tk = 10 million
Source: Bangladesh Economic Review-2010 (Bangla version), Ministry of Finance

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Investment Opportunities

  • Foreign investment or joint venture investment in the Export Processing Zones (EPZs) or outside EPZs (with the exception of the five industries mentioned earlier).
  • Portfolio investment by purchasing shares in publicly listed companies through the stock exchange.
  • Investment in infrastructure projects such as power generation (private power generation policy announced); oil, gas and mineral exploration, telecommunication, ports, roads and highways.
  • Outright purchase or purchase of shares of state-owned enterprises, which are under process of privatization.
  • Investment in private EPZ (Private EPZ Act recently passed).

Legal Security for Investment

Non-Bank Financial Institutions (NBFI)

Non-bank financial institutions are an important part of financial system in Bangladesh, operations are regulated under the Financial Institutions Act, 1993. The non-bank financial institutions consist of investment, finance, leasing companies etc. There were 29 financial institutions operating in Bangladesh as of 31 December 2006. Of these one is government owned, 15 are local (private) and the other 13 are established under joint venture with foreign participation. Bangladesh Bank has introduced a policy for loan and lease classification and provisioning for non-bank financial institutions from December 2000 on a half-yearly basis. Among the 29 financial institutions, 12 have been listed in the stock exchanges up to 31 December 2006 to strengthen financial capability and the rest are under process to be listed in due course.

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Insurance

The insurance sector is regulated by the Insurance Act, 1938 with regulatory oversight provided by the controller of insurance on authority under the Ministry of Commerce. A separate insurance regulatory authority is being established. A total of 62 insurance companies have been operating in Bangladesh, of which 18 provide life insurance and 44 are in the general insurance field. Among the life insurance companies, except the state-owned Jiban Bima Corporation foreign owned American Life Insurance Company, and the rest are private. Among the general insurance companies, state-owned Shadharan Bima Corporation is the most active in the insurance sector. A total of 31 insurance companies are listed in the capital market, of which eight offer life insurances.

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Micro Finance Institutions (MFI)

Micro fiance institutions in Bangladesh were left unregulated for a long time since their inception. The government, with the close cooperation of Bangladesh Bank, undertook efforts to establish a regulatory framework which culminated in the enactment of the Micro credit Regulatory Authority Act, 2006. An executive board consisting of eight members is responsible for executing the general and administrative tasks of the management. The board consists of the Governor of Bangladesh Bank as ex-officio chairman, six government officials nominated by the government and one executive vice-president who serves as the member secretary of the board. The main responsibilities of the authority include issuance and cancellation of the license for micro credit, overseeing, supervising and facilitating the entire activities of micro finance institutions.

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Recent developments in the financial sector

The stock market grew by 82% in 2009 compared to the year 2008, representing a total capitalisation of $275m. In order to encourage corporate houses with good fundamentals to come forward with new Initial Public Offerings (IPOs), the regulatory body introduced the 'book building mechanism'. In the year 2009, the Securities and Exchange Commission also asked Dhaka Stock Exchange to open Order Confirmation Transaction (OCT) market to facilitate trading of de-listed companies from the floor. Moreover, preparations are afoot to set up Bangladesh Institute of Capital Market to work for its expansion. The scheduled banks in Bangladesh will be able to get credit reports of their clients online from the Credit Information Bureau from mid 2010. BRAC bank plans to open exchange houses in Malaysia, Singapore and Italy, in order to attract more remittances through its own channel.

The Asian Development Bank (ADB) has signed deals with 12 local private commercial banks for expansion of its trade finance facilitation programme in Bangladesh. Under the agreement, the banks will be able to offer more trade financing support to their clients particularly exporters and importers through international banks. The banks are Bank Asia Ltd., BASIC Bank Ltd., Dhaka Bank Ltd., Dutch Bangla Bank Ltd., Eastern Bank Ltd., Export Import Bank of Bangladesh Ltd., National Bank Ltd., Premier Bank Ltd., Prime Bank Ltd., Southeast Bank Ltd., Standard Bank Ltd., and United Commercial Bank Ltd.

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Quick facts relating to the financial sector in Bangladesh

  • Bangladesh has applied for membership of Egmont Group to operate its newly-established financial intelligence unit in line with international standard.

  • Bangladesh Post Office is going to introduce postal cash card (e-money order) system through which people, across the country even in the remotest areas, will be able to send and receive money through mobile phone.

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

  • The Bangladesh Bank launched the automation project of its Credit Information Bureau aiming at providing credit information in a faster and efficient way.

  • Bangladesh Bank has once again lowered different banking charges, fees and commissions to provide assistance to businessmen hurt by falling exports.

Economic data relating to the financial sector of Bangladesh

Money and Credit (bn* taka)

Money data
2006-07
2007-08
2008-09
2009-10
2010-11*
Money suppy (narrow)
506.50
593.15
664.27
879.88
971.63
Money supply (broad)
2,119.86
2,487.95
2.965.00
3,630.31
4067.85
Scheduled banks time deposits
1,613.36
1,894.80
2,300.73
2,750.43
3096.22
* As of February, 2011
Sector: Bangladesh Economic Review-2011 (Bangla version), Ministry of Finance

Government Finance (bn* taka)

Data
2006-07
2007-08
2008-09
2009-10
2010-11
Revenue receipts
494.72
605.39
691.80
794.84
951.88
Revenue expenditure
454.12
569.89
671.25
771.19
832.43
Public sector development expenditure
179.16
243.49
247.12
318.17
394.21
Foreign exchange reserves (m US$)
5,077
6,149
7,471
10,750
10,731*
* As of March, 2011
Sector: Bangladesh Economic Review-2011 (Bangla version), Ministry of Finance

Yearly Interest Rates (% per annum)

End of period
Bank rate
Call money market's weighted average interest rates on
Schedule bank's weighted average interest on
Spread
Borrowing
Lending
Deposits
Advances
2010*
5.00
3.51
3.51
     
2009
5.00
5.04
5.04
     
2008
5.00
10.27
10.27
7.31
12.31
5.00
2007
5.00
9.31
9.31
6.77
12.75
5.98
2006
5.00
7.17
7.17
6.98
12.99
 
2005
5.00
8.41
8.41
5.90
11.25
5.35
2004
5.00
4.93
5.74
5.56
10.83
5.27
2003
5.00
6.88
8.17
6.25
12.36
6.11
2002
6.00
9.49
9.56
6.49
13.09
6.67
*As of March, 2010.

Bank Deposits ($ m)

Items
February, 2010
January, 2010
February, 2009
% changes of February, 2010 over
January, 2010 February, 2009
Demand deposits*
4,885
4,786
3,655
2.03
33.63
Time deposits*
36,919
36,094
30,398
2.29
21.45
Total
41,804
40,880
34,054
2.26
22.76
* Excludes inter bank and government deposits
m=million, bn=billion. Source: Statistics Department, Bangladesh Bank.

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