'Know Your Client' (KYC) criteria is set to be made mandatory soon for all share market investors as it is done in the case of bank clients to restrict easy entry of tainted money into the capital market, highly placed sources in the Ministry of Finance(MoF) and Bangladesh Bank(BB) said Saturday.

A clear instruction to this effect will be issued soon by the Financial Intelligence Unit (FIU) of the BB as the draft of the guideline has recently been okayed by Securities and Exchange Commission (SEC), they said.

The government has undertaken the initiative to introduce the 'KYC' to meet the requirements of global anti-money laundering watchdogs -- Financial Action Task Force (FATF) and Asia Pacific Group (APG) on money laundering, a senior finance official said.

Stock brokers, stock dealers and other capital market intermediaries, under the proposed guidelines, will have to report to the FIU of BB regularly in the event of suspicious transactions in the share market, a BB official said.

"We have to trace suspicious transactions in the share market by introducing reporting system for capital market intermediaries to brighten our image globally," Abu Hena Mohd. Razee Hassan, Deputy Governor, Bangladesh Bank, told the FE on Saturday.

"The country cannot afford to downgrade its status internationally due to loopholes in the enforcement of provisions in the current Anti-money Laundering act," he added.

The flow of investment from both local and foreign sources into the capital market might increase once the guideline is issued, he expressed the hope.

It is now largely believed that local share market is a safe haven for money earned through corruption, bribery and tax evasion. No reporting system or 'KYC' is now mandatory either for individual or institutional investors or brokerage firms.

Besides, the government is actively considering amending the current Anti-terrorism Act to declare a terrorist of any country of the world as a terrorist of Bangladesh and make the local laws on anti-terrorism equally applicable to foreign terrorists.

The FATF and the APG, especially the US, have long been pressing the government of Bangladesh for keeping a provision to this effect in the Anti-terrorism Act, 2012.

News: The Daily Financial Express/Bangladesh/18-Nov-12

Bangladesh Bank will host the 12th Saarc Payment Council (SPC) meeting with the central bank officials of eight Saarc countries at Sonargaon Hotel in Dhaka today.

BB Governor Atiur Rahman will inaugurate the meeting, according to a statement of Bangladesh Bank.

BB previously also hosted the seventh meeting of the council on March 28, 2010, and the meeting is usually held twice in a year and rotates among the member countries on consensus basis.

Bangladesh Bank is hosting the council meeting with a wider vision of cooperation among the member countries especially in the area of legal and regulatory reforms, oversight policy and framework and in-frastructural development of payment systems.

Saarc Payments Initiative (SPI) is a regional payment group formed by the member central banks/ monetary authorities of the SAARCFINANCE Group to help each other to reform national payment and settlement systems (PSS) individually and regional PSS collectively.

The initiative of establi-shing the SPI was originated at the SAARCFINANCE Conference on �Towards a Regional Payment

Group� held in Colombo in July 2007.

News: The Daily Star/Bangladesh/18-Nov-12

The government's borrowing from the banking sector in four months till October of the current fiscal year decreased by 42 percent compared to the same period last year.

The amount fell as the government refrained from taking abnormally huge loans from banks seen in the period last year.

However, such borrowing has started to go up again after mid-September.

In the first four months and six days (till November 6) of the current fiscal year, the government's total borrowing from the banking system was Tk 7,591 crore, down from Tk 13,042 crore in the same period last year.

Of the total amount, the government borrowed Tk 1,807 crore from the central bank.

But in mid-October the scenario was different when no amount was borrowed from the central bank rather the government repaid Tk 141 crore to Bangladesh Bank.

But the government borrowed Tk 4,640 crore from commercial banks on October 18.

The recent borrowing pattern also shows that though non-food inflation rose, the government continues to borrow from the central bank, creating more inflationary pressure.

When money from the central bank gets circulated in the market, it increases non-food inflation by increasing the money supply.

According to Bangladesh Bureau of Statistics, non-food inflation again crossed the double-digit mark and reached 10.46 percent in October.

An official of the central bank said the overall inflation came down to single digit and is slightly above 7 percent now.

The official also said they have been maintaining the borrowing pattern in such a way that it does not create any problem for the private sector to get credit.

The trend of borrowing from the central bank changes every month, he said, adding that they will closely monitor the increase in government's borrowing from the BB in line with their monetary policy.

The data of development expenditure till October 30 is not available yet.

However, in the first quarter of the current fiscal year the government's development expenditure was Tk 6,381 crore or 12 percent of the total annual development programme (ADP).

Of the total development expenditure, Tk 4,307 crore was spent from own resources.

However, a finance ministry official said the government had to borrow from the banking system as non-development expenditure marked a rise.

He said statistics of the non-development budget is available now for the first two months of the current fiscal year.

In the first two months of the current fiscal year, the expenditure in non-development budget increased by 11.4 percent over the same period last year.

During the July-August period of the current fiscal year, the total non-development expenditure was Tk 12,852 crore.

Of the total expenditure in the first two months, the expenditure on interest payment went up by 17.7 percent.

As the government's borrowing increases every year, its expenditure is also going up due to higher interest payment.

In the budget this year, the highest allocation was made for interest payment, which is 26.38 percent of the total non-development budget.

News: The Daily Star/Bangladesh/18-Nov-12

The average banking spread, difference between lending and deposit rates, remained as high as more than 5.50 per cent, pushing the money market in to bad competition, official sources said. The high spread shows that banks are realising high interest rate from creditors and paying low interest to depositors, meaning higher profits for the banks.
The banks have long been asked by the central bank to bring the spread below 5 per cent but none complied.
The Bangladesh Bank (BB) data showed the weighted average lending rate for all banks in September was 13.93 per cent while average deposit rate was 8.40 per cent.

Twenty-nine banks failed to maintain the interest rate spread for lending and deposits set by the central bank, according to BB.

Interest rate spread is the interest charged by banks on loans to customers, minus the interest that banks pay against savings, deposits.

Spread of foreign banks is much higher than the local banks. Among the nine foreign commercial banks, spread of four banks--Standard Chartered Bank, Citibank NA, Woori Bank and HSBC -- crossed eight per cent in September, according to the BB data during the month of September.

The other five foreign banks having spread over between 5 and 8 per cent are State Bank of India, Habib Bank, Commercial Bank of Ceylon, Al-Falah Bank and National Bank of Pakistan.

Twenty local commercial banks, including two state-owned commercial banks and a specialised banks having spread between 5-8 per cent are Agrani Bank, Sonali Bank, BASIC Bank, AB Bank, National Bank, The City Bank, IFIC Bank, Pubali Bank, Uttara Bank, Eastern Bank, Prime Bank, Dhaka Bank, Social Islami Bank, Standard Bank, ONE Bank, EXIM Bank, Premier Bank, Jamuna Bank, BRAC Bank and Dutch-Bangla Bank.

As per the recommendation of the International Monetary Fund, the central bank in January this year lifted the cap on interests on all types of loans, except agriculture and pre-shipment exports.

“This was suicidal decision on the part of the central bank,” said Mohammad Farashuddin, an ex-BB governor.
In early 2011, average banking spread came down in the range of 4.93-4.96 per cent from its peak of 7.78 per cent three years ago.

Most depositors are of the view that the banks make profits at their cost as the banks gain from the high spread.
A BB report prepared in July said the upper cap on the rate of interest on credit was withdrawn earlier and it resulted in an upward movement of interest rate on both credits and deposits.

The borrowers complain that high lending rates are hurting business and hampering economic growth.
In some cases, cost of lending range between 18 to 27 per cent, alleged some borrowers. Some corporate loans also pay as high as more than 18 per cent interest.

The highest interest is paid by consumer loan receivers as they remain vulnerable and meet their demands for fund with harsher conditions.

“Higher interest rate will definitely stifle the growth,” said AK Azad, president of apex trade body FBCCI.

A central bank official said an unhealthy competition was going on among the banks in mobilising deposits. “So they were offering higher interest rates on deposits, and as a result the rate of interest on credit was also going up,” he said.

He also said it is worrisome problem especially for small depositors who have the major share in bank deposits but get very little in return.

The central bank earlier took action against some banks for charging higher interest rates on deposit and credit but without any effect.

“The banks imposed more interest rates on credit disbursement for earning more profit from the clients,” said a banker requesting not to be named.

He said if the rate of interest on deposit could be kept low, the rate of interest on credit would have also remained low and, resulting in the decline in spread.

News: The Daily Independent/Bangladesh/16-Nov-12

The Bangladesh Bank (BB) has proposed a string of measures to the Ministry of Finance (MoF) to shore up the troubled state-owned commercial banks (SCBs).

Putting an end to the practice of sanctioning loans under pressure from powerful quarters and stopping the purchase of loans of questionable quality from private commercial banks (PCBs) -- are two major steps suggested by BB to help four SCBs to strengthen their financial base and overcome their image problem, a central banker said.

"Our suggestions to MoF to revive the status and image of four SCBs need special attention of the finance ministry officials as directives from them to senior bankers of state-owned banks matter most," a top BB official told the FE on Wednesday.

He said the BB is also serious about enforcing the measures, submitted to the ministry, in all four SCBs -- Sonali, Janata, Agrani and Rupali.

The proposals of central bank said the SCBs must bring an end to all fraudulent activities involving the sanctioning and disbursement of loans.

The BB in its proposals said the SCBs have to comply with the directives of BB on managing their loan portfolios and asset quality to avert any debacle in the future. The banks under no circumstances should exceed the approved limit of large non-funded loan and they must secure approval from their chief executive officers in the process of sanctioning large amount of non-funded loan. The banks also should undertake special drive to recover their huge classified loans, BB proposals said.

Furthermore, the proposals said without meeting the credit risk grading and due diligence no new loan should be sanctioned. Besides, the SCBs should fully comply with the conditions set in the Memorandum of Understanding (MoU) signed with the BB and initiate special audit of its all branches, if needed.

The BB officials said the major problems lie with SCBs in granting loans being influenced by powerful quarters of the government ignoring the basic fundamentals and requirements in lending criteria.

"In many cases, we have to entertain requests or orders from top policy makers of the government in sanctioning bank loans to undeserving entities or individuals," a general manager of an SCBs told the FE.

"We are threatened with dire consequences like termination or transfer from powerful quarters in case we express inability to sanction loan or refuse to provide any unethical loan rescheduling facility," he added.

News: The Daily Financial Express/Bangladesh/15-Nov-12