Coming up with a detailed explanation of allowing new banks, Bangladesh Bank (BB) yesterday said entry of the new banks would heighten the quality of financial services by increasing competition in the banking sector.

Explaining the economic context and rationale behind issuing new bank licences, the central bank said the economy has grown and the banking system has become more competitive when there are a large number of under-banked people in Bangladesh.

The BB said while the economy has grown and the banking system has become more competitive, 45 per cent of the population still remain unbanked.

The population per branch (21,065) and the ratio of loan accounts per 1,000 adults (42) suggests that the outreach of the formal financial sector is lower than in India (14,485 and 124 respectively) and Pakistan (20,340 population per branch and 47 loan accounts per 1,000).

It said the capital infusion by these new banks would augment the banking system’s capacity to meet the credit needs of the expanding corporate sector. Currently, because of limitations on large exposures, large corporations must approach many banks simultaneously with their credit needs, which then have to be stitched together in syndicate or participation loans.

“The entrance of the new banks will add to the aggregate capital base of these existing syndications, allowing for larger loans to be granted for productive investment and job-creation,” the central bank said.

The Daily Sun/Bangladesh/ 10th April 2012