Bangladesh Bank (BB) Governor Dr Atiur Rahman warned Sunday of a bumpy ride on the road to restoring financial stability.

"Financial developments over the last twelve months have clearly demonstrated that the road to continuing restoration of financial stability in the country will not be long, but may be a bit bumpy,"

the governor said while speaking at the lunching of the Financial Stability Report 2012 at the central bank headquarters in the capital city.

The Financial Stability Report is published once a year through which the BB assesses the stability and resilience of the financial sector and the policy actions it advises to reduce and mitigate risks to stability.

  
Dr Rahman said the financial sector of this country is more comfortable than other neighbouring countries, especially the banking sector, which became comparatively stable with the BB's special drive for financial inclusion.

He, however, noted that the management and the financial situation of all banks are not equally satisfactory.
The governor said the central bank had already issued some necessary guidelines,

brought changes in rules and regulations and strengthen its monitoring system. But, the implementation of the guidelines and rules and regulations were not "reassuring" in the field of operations.

He advised banks to strengthen their own monitoring to establish and ensure corporate good governance and restore discipline in banking sector.

In this regard, the governor prioritized on state-owned banks against the backdrop of their poor performance in loan management. The current Financial Stability Report shows non-performing loan in five public banks soared to 63.0 percent last year.

Dr Rahman suggested all banks arrange trainings of bankers and management staff at home and abroad involving local and foreign experts.

Commenting on the current report, the governor said the prime objective of publishing this report is to provide an overview of the possible sources of risks and vulnerabilities to financial stability and to play an important role in preventing financial crises.

Only five state-owned banks (SoBs) had 63 per cent of non-performing loans (NPL) in the country's banking system as on December 31 last due mainly to their inefficiency in fund management. 

"The classified loans in the state-owned banks are higher due to the nature of their operations (lack of efficiency in fund management, extending obligatory financing towards social and economical priority sectors and politically motivated lending)," the central bank said in its Financial Stability Report (FSR)- 2012, released Sunday. 

The Bangladesh Bank (BB) has taken different measures including signing of memorandum of understanding with three state-owned commercial banks (SoCBs) and two specialised development banks to improve their overall financial health. 

"We've taken stringent policy to reduce the amount of their NPLs," Deputy Governor of the BB SK Sur Chowhudry told reporters after releasing the report. 

The FSR also said default loans scenario has been improving, but still almost 67 per cent of NPLs is bad loans. 

Among the worst 10 banks, based on the NPL amount, four are state-owned commercial banks, three domestic private commercial banks, and three specialised development banks. 

However, among the worst 10 banks, considering the NPL ratios, three are state-owned commercial banks, two domestic private commercial banks, three specialised development banks and two foreign banks. 

"It is a matter of concern that two foreign banks have been included among the worst 10 banks based on the NPL ratios though their total loan amount is not so significant," the report noted.

The central bank has recommended policymakers to introduce consolidated supervision in the banking industry, develop resolution regimes for banks, strengthen cooperation among various regulators of financial intermediaries and more stringent supervision of banks and other financial institutions.

The Deputy Governor also said the banks will have to improve their internal control and compliance with ensuring accountability and transference. 

He also said the BB has recommended introducing risk-based capital adequacy framework for insurance companies in line with the Basel-II and developing risk management framework therein. 

The central bank found that factors which adversely affect the financial sector stability are capital market still demonstrating price correction with lack of confidence of the market participants, some financial soundness indicators of the banking sector such as profitability, capital adequacy ratio, and non-performing loans ratio.

Besides, there has been recurrence of various scams in financial institutions, particularly in banks, leading to confidence problem in the financial intermediaries and decline in real gross domestic product (GDP) growth rate, the report said.

Regarding risks, the FSR said credit risk represents 86 per cent of banking sector risk and only ten banks share 45 per cent of it. Market risk, on the other hand, was not vibrant but it generated mostly from the equity market. 

In 2012, the BB put increased emphasis on macro-prudential regulation, stringent on-site supervision and off-site surveillance of financial intermediaries, close collaboration among various regulators, together with increased risk awareness of the stakeholders of the financial system with a view to letting them withstand and adapt to plausible shocks well ahead of their potential materialisation, according to the report. 

"The overall macroeconomic environment was favourable, and the financial intermediation process demonstrated considerable resilience amid unfolding of some financial scams in the banking industry," it noted. 

"A series of efforts and policy actions by both BB and the government contributed to maintaining financial stability. Nevertheless, there is no scope to remain complacent." 

The report also said stakeholders of the financial system should remain aware of the potential risks and vulnerabilities with a view to withstanding and adapting to those accordingly.

BB Governor Dr. Atiur Rahman earlier unveiled the FSR giving emphasis on ensuring stability in the country's overall financial sector. 

He also said although there is no immediate risk in the stability of financial sector at micro level, the state of stability in all banks is not at the same level.

The central bank chief also noted that the BB has already issued detailed guidelines for banks regarding ensuring good governance in internal audit and control but their effective implementation is not reassuring at all.

DHAKA, SEPT 15: The health of the country’s banking sector experienced some sign of deterioration in last year (2012) with rise of non-performing loan,

decline in profitability, downgrading of assets and shortfall of provisioning. The view was expressed by the central bank’s Financial Stability Report 2012 released on Sunday attributing the reasons mainly to a number of financial crimes in the banking sector, stringent regulations for loan classification and provisioning.

Despite the constraints and scams, the country’s banking system continued to demonstrate resilience in last year (2012),

said Bangladesh Bank (BB) governor Dr Atiur Rahman while unveiling the report at the banks head office amidst a gathering of heads of the banks and non-bank financial institutions on Sunday. 

Deputy governors, top BB officials and chief executive officers of schedule banks were present, among others.
The governor urged the bankers to strictly follow compliance norms of banks and establish good governance so that the country's financial institutions remain safe from any adverse impact of economic downturn at home and aboard. 

 
The governor pointed out that the profitability and other indicators of the banks deteriorated somewhat because of application of new and more stringent regulations which, he said, eventually would yield good results. 

The report, Financial Stability Report 2012, detailed the facts and notes of observation on developments of the country's financial sector in last year. 

The report observed the evaluation of Bangladesh Bank regarding major trends as well as risks and fragilities in the financial system, focusing on their implications to financial stability and efforts of the central bank in mitigating those risks. Although the financial sector experienced some tresses,

the governor said, a good number of favourable developments took place afterwards. 

The gross reserves attained a healthy level of meeting more than five months import payments and the inflationary pressure are in a much more tolerant level. Liquidity provision of the banks also improved considerably.  

To shield the banking and NBFI sectors from risks and vulnerabilities, reasonable emphases are being given to both on-site supervision and off-site surveillance, said the central bank chief. 

However, efforts from central banks alone will not be fruitful if effective implementation of prudential rules and regulation are not properly ensured by scheduled banks, non-bank financial institutions, and regulators of other financial intermediaries, he added. 

As banks are the hub of the financial intermediation process, it is an important responsibility for banking sector executives to retain public confidence in the banking system. 

According to the report, the classified loan in the country’s banking sector rose to 10 per cent last year from 6.2 per cent in the previous year. 

Five worst banks concentrate some 62.7 per cent of the total classified loans. 
Almost two thirds of classified loans are concentrated in three state owned commercial banks and two specialized commercial banks.

The classified loans in the state owned commercial banks are higher due to the nature of their operations which included among other lack of efficiency in fund management and political motivated lending.
The was also a downgrading of assets against the biggest ever identified financial crime,

committed by two corporate groups with different branches of  state owned commercial banks, said the report. 
The ongoing global recession and inadequate infrastructure to facilitate industry also intensified the growth of classified loans during the period. 

The provisioning shortfall in the banking sector, according to the report, increased to Tk 52.6 billion as of end of 2012 from a surplus of Tk 9.6 billion at the end of the previous year. 

Three state owned commercial banks, two specialized commercial banks, and three domestic private commercial banks are among those saddled with a significant provision shortfall.

To overcome the crisis and put the country’s banking sector on strong footing, the report suggested for strengthening their internal control framework, improving corporate governance,

more stringent supervision of banks and others financial institutions, introducing consolidated supervision in the banking industry and strengthening cooperation among various regulators of financial intermediaries.

After the launching programme deputy governor SK. Sur Chowdhury briefed the media on various issues discussed in the financial report.

Bangladesh Bank (BB) bought another $261 million this month from the open market to take the fiscal year’s tally close to $1 billion, the latest data shows.

“BB is purchasing the dollars to keep the exchange rate artificially stable. If it hadn’t, the greenback would have come down to Tk 70 from Tk 77.75,” said Monzur Hossain, research fellow of Bangladesh Institute of Development Studies.

The central bank bought $226 million in August and $512 million in July, according to data from BB. Last fiscal year, BB bought a record $4.54 billion without selling a cent.

The dollar-taka exchange rate has remained static at Tk 77.75 for nearly three months now, thanks to intervention by the BB. “But the central bank should slowly allow the market to set the dollar price,” Hossain added.

BB says strict provisioning rules will strengthen the banks' capital base

Star Business Report

Banks’ net profit slumped 40.6 percent to Tk 4,466 crore last year due to stricter provisioning requirements against their default loans, according to a Bangladesh Bank report released yesterday.
The banks made a net profit of Tk 7,520 crore in 2011.

However, the banks’ operating profit rose by 5.6 percent to Tk 19,730 crore in 2012 compared to a year ago.
Increased provisioning is expanding the capital base of the banks,

which will brighten their image to their foreign counterparts, BB Governor Atiur Rahman said while launching the Financial Stability Report 2012 at his office.

Chief executives of banks and other financial institutions were present.
The report said the capital market is still going through price correction amid a dearth of confidence among the participants.

 
On the weakness of the banking sector, the report said some financial soundness indicators, such as profitability, capital adequacy ratio, and non-performing loans ratio, recorded a slide.

 
Returns on asset and equity dropped in line with a fall in the net profit, the report added.

“The decline in aggregate profitability was widespread throughout the system, partly due to additional provisions for the stricter loan-loss provision regulations adopted in 2012 by the BB.”

The governor said the report would be helpful to the officials of the financial institutions in their efforts to improve the resilience in combating the adverse situations in local and international financial markets.