Private banks that almost went out of the capital market at the end of 2010 have decided to come back as they found the present market is good for investments.

Four such banks have already announced that they would invest Tk 900 crore in next two months. Many banks are in the pipeline to announce their investment plans, bankers said.

“We believe institutional investments would stabilise the ailing market and bring back investors' confidence,” said SA Farooqui, managing director of Standard Bank.

Explaining Standard Bank's announcement to invest Tk 100 crore in two months, Farooqui said, “The market looks very lucrative for investment.”

Like Standard Bank, Pubali, EXIM and NCC have got a green light of their boards to invest Tk 500 crore, Tk 200 crore and Tk 100 crore respectively in two months.

“Other banks are also thinking to make a comeback,” said Farooqui.

The central bank also sees no problem with the banks' plans to invest depositors' money in the speculative market.

“Legally, a bank can invest 10 percent of its deposits in the stockmarket, but most of the banks now have it within 1-3 percent,” said SK Sur Chowdhury, deputy governor of the Bangladesh Bank (BB).

Though Bangladesh's stockmarket is retail-driven, institutions, especially banks, made hefty profits in 2009 and 2010 at the cost of these retail investments. At that time, according to BB reports, many banks invested up to 30 percent of their deposits in the stockmarket violating the law.

A huge flow of banks' money had fuelled the market and everyday transaction reached more than Tk 3,000 crore.

The benchmark DSE General Index soared to 8,918 points on December 5 2010, more than double compared to a year ago.

“Our board has approved Tk 500 crore to invest in the capital market. They are willing to boost the ailing market,” said Helal Ahmed Chowdhury, managing director of Pubali Bank.

Chowdhury said they would invest the money by complying with all regulatory requirements.

However, as listed companies, banks were bound to disclose the information on their investment plans to the SEC and the stock exchanges within 15 minutes of their respective board approvals. But in this case, this regulation was not followed.

The banks' plans about their investments in the stockmarket has already boosted the market as the retail investors think institutional investors have the capacity to bring back confidence in the market.

Investors, however, look cautious if the banks do not invest despite announcements through newspaper advertisements.

But the central bank said the banks cannot backtrack on their plan after making public announcements.

“Regulators -- the Securities and Exchange Commission and the BB -- can catch them (banks) if they don't invest after making the announcements,” said the BB deputy governor.

The Daily Star/Bangladesh/ 23th July 2012

The Microcredit Regulatory Authority (MRA) plans to form a fund to minimise the risk of losses of small savers in the event of failure of a microfinance institution (MFI).

The Tk 30 crore fund, known as the Depositors Safety Fund, will be raised in six years. The government will provide Tk 5 crore to the fund and the rest will come from premiums paid by licensed MFIs.

Under the fund, a poor saver is likely to get up to Tk 3,500 in coverage if an MFI goes out of business. The amount of coverage will provide security to 80 percent of depositors in the MFI sector, the regulator said yesterday.

"It's a very good initiative. I expect the Depositors Safety Fund will be effective soon and become a support for small savers," Finance Minister AMA Muhith said at a seminar on the fund, organised by MRA at the CIRDAP auditorium yesterday.

Bangladesh Bank Governor and MRA Chairman Atiur Rahman and Palli Karma-Sahayak Foundation (PKSF) Chairman Qazi Kholiquzzaman Ahmad also spoke at the occasion that was chaired by MRA Executive Vice Chairman Khandakar Muzharul Haque.

This is the first time MRA plans to open a fund to secure the deposits of poor savers in MFIs in line with the Deposit Insurance Scheme opened by Bangladesh Bank (BB) in 1984 to provide cushioning to depositors in banks.

The idea of floating a fund to cushion micro-savers, mostly poor, comes after the fraud at Jubok, which began operations in 1994 by providing microcredit to its members and raised deposits.

MRA says the fund will protect customers. It will also build public confidence in depositing money with the institutions and reduce the risk of systematic crisis such as panic withdrawal of deposits from sound MFIs, it adds.

Under the fund, an MFI will have to pay premiums to MRA semi-annually. The premium will be determined based on the risk based rankings of MFIs.

An MFI with low risk will require paying low premiums and an MFI with high risk will have to pay higher premium, said Fahim Anwar, chief executive of Index Capital Group, consultant of MRA for DSF.

Muhith said the proposed threshold (support to depositors) should not remain static forever.

"It may be necessary to revise the threshold from time to time," he said.

Currently, nearly 600 MFIs operate on licences from MRA. The total outstanding loans of authorised MFIs and Grameen Bank have exceeded Tk 40,000 crore and total savings stand at nearly Tk 30,000 crore, said Governor Atiur Rahman.

The number of depositors in licensed MFIs stands at 2.6 crore, according to MRA.

However, still a majority of the MFIs, the number of which would be over 3,500, do not have licences from the regulator, according to MRA data.

Muhith said MRA has done good job in fixing the interest rate or service charges on loans by MFIs.

The Daily Star/Bangladesh/ 23th July 2012

Al-Arafah Islami Bank Limited opened its 95th branch at Sherebangla Road, Gollamari in Khulna Wednesday.

Badiur Rahman, Chai-rman of Al-Arafah Islami Bank inaugurated the branch as chief guest, said a press release.

Ekramul Hoque, Managing Director, Alhajj Md Anowar Hossain, former chairman of the Bank, former deputy director of Rural Development Board Rustam Ali Howladar, former district primary education officer GM Abdur Rahim, President of Khulna City Corporation Wholesale Market Md. Nazrul Islam Khan and General Secretary of Sohrawardi Market Traders Association Ataur Rahman Raju also sopke.

Md. Mofazzel Hossain, Deputy Managing Director, Syed Masodul Bari, Executive Vice President, Engr. Md. Habib Ullah, Senior Vice President, Abed Ahmed Khan, Senior Vice President and Jalal Ahmed, Assistant Vice President of the bank were present.

The Daily Sun/Bangladesh/ 22th July 2012

 Without the board of directors’ approval, the management of Agrani Bank Ltd, a state-owned commercial bank, paid Tk 13.8 million as advertisement bills to a private TV channel.

Audit Inspection Report (AIR) of Bangladesh Bank recently found this ‘anomaly’.

The report said Agrani Bank management made a one-year deal with the channel to sponsor its ‘News Hour’ programme paying Tk 1.15 million per month including 15 percent value added tax.

According to AIR, Tk 13.8 million was paid between first of January and 17th of April this year. daily sun managed to obtain a copy of AIR.

The report identified such advertisement payments without board of directors’ approval as ‘financial irregularity’, recommending punitive actions against those involved.

The AIR said a private TV channel that broadcasts hourly news round-the-clock sought Agrani Bank’s sponsorship of the programme on 3rd August 2010. The sponsorship application was placed to the 194th meeting of the bank’s board on 3rd November same year.

But the board could not make any decision regarding it, the report added.

In the mean time, the public relations department of the bank gave a ‘Work Order (Advertisement/1000/2010)’ to the TV channel on 15th November 2010 under the managing director’s approval. In the approval paper, MD wrote that the board chairman had given verbal consent to the issue.

But the BB inspection report said according to the rules, such approval must be in written form.

When contacted Friday, Syed Abdul Hamid, MD of the bank, claimed that the entire process was done on prior written approval of the board chairman.

“Yes, we had written approval from the board chairman. But, the fact might be that our staff failed to show it to the BB inspection team,” he said.

The Daily Sun/Bangladesh/ 22th July 2012

The headquarters of European Central Bank in Frankfurt.

Why is it that the US, Britain and Japan, despite their huge debts and other economic problems, have not succumbed to the financial crises that are threatening national bankruptcy for Greece, Spain and Italy -- and perhaps soon for France?

After all, even the strongest British and American banks, such as HSBC and JPMorgan Chase, have now admitted that they were as accident-prone as their continental rivals. Borrowing by the US, British and Japanese governments is well above European levels relative to the size of the economy. These governments are not even considering fiscal consolidation as ambitious as the 3 percent deficit targets now being written into national constitutions across most of Europe -- and Britain has missed by a wide margin the much less demanding targets David Cameron set himself in 2010.

Given that financial markets are supposed to be dispassionate arbiters of economic management, why are they punishing Mediterranean countries with cripplingly high interest rates, while the British, US and Japanese governments are left free to borrow without any apparent limits at almost zero cost?

In the US, the standard answer is that the dollar enjoys “reserve currency status,” since it is the main currency of global trade and investment. But this explanation is clearly wrong, or at least irrelevant, as evidenced by the equally low interest rates in Japan and Britain, without this supposed ”status.” Moreover, the euro has been increasingly used as a reserve currency, but this has been no help to Greece, Italy or Spain.

Which brings us to the less flattering Eurocentric explanations of the unequal treatment meted out by investors to what they often describe as “the Club Med” countries. These range from philosophical statements whose precise meaning is never clear -- such as Europe's lack of “political solidarity” or “economic convergence” -- to claims verging on racism that prudent investors would never lend money to these countries because their national characters are rotten to the core: The Greeks are all corrupt, the Spaniards inefficient and the Italians lazy. As for the French, well maybe they are oversexed or rude -- or just French.

Such impressionistic explanations of market behaviour are not just insulting and morally repugnant (imagine if such national stereotypes, which appear constantly in the German and British media, were applied to Jews, Africans or Muslims). They are also factually wrong -- for example, Italians on average work 27 percent longer than German workers (1,773 hours each year versus 1,390, according to the US Bureau of Labour Statistics, and Italy's long-term pension liabilities are smaller than Germany's (relative to GDP), according to the IMF.

Worst of all, however, the racist stereotyping that passes for rational analysis of the European crisis deflects attention from a genuine difference between Europe and the rest of the world that perfectly explains the markets' behaviour. There is one simple difference between all the European victims of financial crisis and the lucky countries that are given a free pass by investors, despite even bigger deficits and worse banking crises. The countries with immunity control their own currencies and central banks. They thus have the power to print money, which they use to the full. By the principle of Occam's razor, this one simple explanation should be viewed as the main reason for Europe's present crisis.

The ability to print money, officially known as quantitative easing (QE), has allowed the US, British and Japanese governments to run whatever deficits they wanted and to offer their banks unlimited support without suffering the sky-high interest rates that are now driving the Club Med countries toward bankruptcy. Instead of raising money from private investors, these governments finance their public spending and deficits by borrowing from their own central banks. This means that the US, British and Japanese governments are actually much more solvent than their huge deficits suggest, because much of their debt does not really exist. They are an accounting fiction -- an IOU from one branch of government, the treasury, to another, the central bank. The Bank of England, for example, is lending £375 billion to the British government in 2009-12, out of a total planned deficit of around £450 billion. The Fed's $3 trillion balance sheet effectively reduces the US government's total debt by 20 percent, from $16 trillion to $13 trillion.

Of course using printed money to finance government deficits cannot permanently solve structural economic problems such as poor education, crumbling transport infrastructure or unaffordable pension commitments -- and in some circumstances financing of deficits by central banks can be extremely dangerous, generating rapid inflation. But the world today is not threatened by inflation and overspending, as it was in the 1970s and 1980s. Instead the danger is generally thought to be deflation caused by inadequate investment, weak consumer spending and falling wages, as in the 1930s. Thus a policy that would rightly have been denounced as counterproductive and irresponsible 40 years ago, is now both necessary and prudent -- as demonstrated by the willingness of every major central bank in the world, including the ultimate guardians of monetary stability at the Swiss National Bank, to undertake QE. The only important exception has been the European Central Bank.

On Wednesday this week the IMF issued a report publicly urging the ECB to implement a “sizeable” programme of quantitative easing. If the ECB did this, the euro crisis would soon be resolved. If, on the other hand, Europe will not allow its central bank to play by the same rules as the Fed and the Bank of England, then all efforts to save the euro are doomed to failure.

Anatole Kaletsky is an award-winning journalist and financial economist who has written since 1976 for The Economist, the Financial Times and The Times of London before joining Reuters.

The Daily Star/Bangladesh/ 22th July 2012