Bangladesh Bank (BB) authority Sunday asked banks to ensure uninterrupted supply of cash at ATM (Automated Trailer Machine) booths for clients during the Durga Puja and Eid-ul-Azha festivals.

Payment Systems Department (PSD) of the central bank issued a circular to this effect in the wake of complaints that banks are not caring enough to provide cash service through ATM booths during festival holidays. As a result, clients suffer due to shortage of cash which disappoints them.

“BB directive is aimed to make cash available at ATM booths near shopping malls and cattle markets to meet growing demand for funds,” said an official of the central bank, wishing not to be named.

The official said the number of ATM card users increased significantly in the country as banks have been luring clients by offering a lot of benefits.

“Often there are complaints during the festival holidays that either ATM booths are not functioning properly or there is no cash,” he said.

News: The Daily Sun/Bangladesh/22th-Oct-12

 In order to prevent unauthorised correspondence, Bangladesh Bank has directed chief executive officers (CEOs) of all financial institutions (FIs) to put respective signatures on financial statements or regulatory documents that need to be sent to the central bank authority.

A circular issued by the BB authority Sunday said the signatories of FIs authorised by respective CEOs is also acceptable on their periodic statements.

In both the cases, the FIs will need to send sample of signatures of the CEOs or authorised officials to the central bank’s Financial Institution and Market Department for verification.

A BB official said this would prevent unauthorised access to the core matters of financial sector regulations.

The official said any unauthorised access to the regulatory affairs may lead to devastation in respect to financial security.

News: The Daily Sun/Bangladesh/22th-Oct-12

The World Bank (WB) Sunday projected 6 per cent growth for Bangladesh in the current 2012-13 fiscal year (FY13) with the observation that the country would continue a healthy growth driven by improving macro-economic management.

“The real GDP growth in FY13 is projected at around 6 per cent and the healthy growth trend would continue in the current fiscal despite various constraints as there is sign of improvement in macro-economic management,” WB senior economist Zahid Hussain told reporters while announcing the country’s Economic Outlook at its local office.

Hussain said Bangladesh’s projected growth in FY13 is among the top 35 out of 150 countries in IMF’s World Economic Outlook.

He said the growth is expected to be better for Bangladesh compared to the neighboring countries when Pakistan’s growth projection for current fiscal is 3.3 per cent, Nepal 3.6 per cent, Malaysia 4.7 per cent, Vietnam 5.9 per cent, India 6 per cent, Sri Lanka 6.7 per cent and China 8.2 per cent.

The World Bank in its outlook said that tighter monetary policy and favourable international price trends decelerated inflation when fiscal policy returned on track, sound exchange rate management eased pressure on the balance of payments, but the growth performance remained below target due to weak global economy and infrastructure constraints.

The lending agency also identified four key internal and external risks that the country would have to face in future.

These are intensification of the euro area crisis, escalation of global food and oil prices as balance of payments vulnerability to an international oil price shock has increased, heightened risk in the banking sector, increased political uncertainty in the run up to elections.

Hussain said that achieving desired 7.2 per cent growth in FY 13 would be a challenging proposition because of two factors - weak external demand and domestic investment constraints continue to drag growth below potential.

Answering a question, The World Bank’s senior economist observed that the country could achieve 6.5 per cent or even more growth rate in the current fiscal if there is close surveillance of macroeconomic development, stronger monitoring and supervision of banks, improved infrastructure management and building policy space by pressing ahead on tax reforms, harnessing concessional external; resources and improving expenditure management.

Addressing the media briefing, WB country director Ellen Goldstein said that they are monitoring the financial sector very closely given the recent concern in the banking supervision side.

“Bangladesh continue to suffer from some other major structural problems including persistent electricity and gas shortages and less than optimal investment climate and this continue to hold Bangladesh’s growth below to what the country is capable of achieving,” she said.

News: The Daily Sun/Bangladesh/22th-Oct-12

Left, WB Country Director Ellen Goldstein and senior economist Zahid Hussain

Poor roads and ports are becoming a challenge for Bangladesh's economy, the World Bank said in its economic update released yesterday.

The lender forecast the country's economic growth in the current fiscal year at around 6 percent, saying such a growth rate is healthy given the unfavourable global conditions.

The WB's senior economist Zahid Hussain presented a keynote at a press conference in Dhaka, while its Country Director Ellen Goldstein was present.

The report said Bangladesh's economy is performing below its potential, mainly due to weak external demand and domestic investment constraints.

Deteriorating conditions of roads and ports and a gas shortage in the manufacturing industries are among the factors that hinder investment, it said.

The country's economy grew by 6.3 percent and 6.7 percent in 2011-12 and 2010-11.

The government projected this year's growth at 7.2 percent, which the WB said is a challenging proposition.

“Progress in important highway development stalled due to irregularities in project implementation,” it said. “At Chittagong Port, the improvements in equipment availability and berth occupancy were overshadowed by disruptions from the rising turnaround time and low productivity,” it said.

The port handled Bangladesh's 80 percent export-import business worth more than $60 billion in 2011-12. But the Dhaka-Chittagong highways have been in bad conditions for years. Sometimes, congestion on the roads severely delays export-import business.

Though power generation increased by more than 24 percent between February 2010 and February 2012, the demand-supply gap was 1,000 megawatts in June this year.

“The expensive rental power plants have a short-term positive impact on growth, but longer-term solutions are needed,” the WB said. “Gas supply to industries also declined.”

The report also said a deepening crisis in the Eurozone is posing another threat to Bangladesh's economy, already evident in exports, particularly of knitwear products.

The global lender also focused on the deterioration in governance at state-owned commercial banks. Underutilisation of development programmes, especially big projects, and growing subsidies also cast a shadow on the higher growth prospects.

However, the WB said there are some silver linings, especially the improvement in macroeconomic management.

These are resilient remittances, declining inflation and international commodity prices, and a tight monetary policy. Flexible exchange rate and interest rates were also in favour.

A 57.4 percent rise in manpower exports in 2011-12 has helped the country maintain a double-digit growth in remittances.

Inflation fell to 7.4 percent in September from 12 percent in the same month a year ago, mainly due to a decline in commodity prices on the international market, said Hussain of the WB.

News: The Daily Star/Bangladesh/22th-Oct-12

The headline of a front-page story in the October 02, 2012 issue of the Financial Express was, "Banks' stock market exposure set at 40pc, BB denied control over SCBs." The news basically says that in the proposed amendments of Bank Company Act (BCA), 1991, the maximum limit of a bank's exposure to the capital market has been set to 40 per cent of the total paid-up capital of a bank. The existing exposure limit of a bank is 10 per cent of its total liabilities as stipulated in the existing BCA (amended), 2003. On October 03, 2012, other leading newspapers also carried news on this subject and said that this decision would benefit the stock market in Bangladesh as banks will be able to invest more once the amendment comes into effect. All those news and the aftermath pointed out two facts: one, market is smart and the other, there is severe regulatory failure.

The proposed amendment, available on the Bangladesh Bank's website, says that banks will be able to invest in the stock market 40 per cent sum of their total paid-up capital, share premium and statutory reserve - not only paid-up capital. All these three components, total paid-up capital, share premium and statutory reserve, are subset of total equity on the balance sheet. Total equity component of a bank can include many other items beyond those three elements. Many times, banks' statutory reserve could be higher than paid-up capital. Share premium could be zero to any amount.

It is not correct to say that setting banks' stock market exposure at 40 per cent in the proposed amendment will increase banks' investment in the stock market. And of course, data doesn't support that kind of conclusion. Because of the nature of its business, bank's total liability is much higher than its paid-up capital or even total equity. To make our analysis easier and consistent across the board, let's make an assumption that in the amendments of Bank Company Act, banks are allowed to invest 40 per cent of their "total equity" instead of only paid-up capital, share premium and statutory reserve. Generally speaking, sum of paid-up capital, share premium and statutory reserve is lower than total equity of a listed Bank. As already has been mentioned, the paid-up capital, share premium and statutory reserve are elements of total equity component on the balance sheet.

This article is based on my study of balance sheets of 21 listed Bangladeshi banks in 2011. (See the Table). For nine out of 21 banks, 21, 10 per cent of the total liability is even greater than total equity. For all the sample banks, 10 per cent of total liability is more than double when compared with 40 per cent of the total equity. On Average, 40 per cent of total equity looks like 4 per cent of total liability. Thus, in the proposed amendment, the ability of banks to invest in the stock market is actually reduced, on average, by more than 60 per cent when compared with existing exposure limit, i.e., 10 per cent of the total liabilities. So, if proposed amendment comes into effect, it will actually demand banks to reduce their investment in the stock market substantially.

Market also responded immediately to the newspaper reports on the proposed amendment of the Bank Company Act. On October 02, DSE (Dhaka Stock Exchange) General Index (DGEN) increased 2.55 per cent or 117 points. Out of 2.55 per cent increase in DGEN Index, banking sector alone represented 1.31 per cent or 60 points. However, the market is smart. The market found the loopholes in the newspaper reports and quickly adjusted as necessary which was reflected in the subsequent market returns. After the October 02 market rise, stock market declined for the next four consecutive business days.

Unfortunately, the whole situation is also an example of regulatory failure. None of the regulatory organisations, such as, the Bangladesh Bank, Securities and Exchange Commission (SEC) and the Dhaka Stock Exchange (DSE), came up with proper explanation of the proposed amendments in the Bank Company Act (BCA), and ultimately general investors had to pay the price. It takes years to instill confidence among investors but needs just a second to destroy it. The incident actually raised serious doubt on SEC's effort to control rumour and manipulation in the stock market. When will the regulators actually act like regulator?

The writer is a Faculty, School of Business, Independent University, Bangladesh (IUB).

mainul188@gmail.com

News: The Daily Financial Express/Bangladesh/21th-Oct-12