Bangladesh Bank Governor, Dr Atiur Rahman said urban and rural citizenry and civil society groups can contribute significantly to sustainable development by fostering energy efficient, environmentally sustainable output practices; and also by adopting sustainable consumption practices and ways of life.

"Higher public and private investment in sustainable agriculture, land management and rural development will be needed to ensure sustainable agricultural production and productivity globally," he said while addressing as chair in a session on "Sustainable Production and Consumption patterns" of a day long programme on "National Consultation Workshop for the formulation of Work Plan for Rio+20 conference."

The programme was orgranised by Palli Karma Sahayak Foundation (PKSF) at its auditorium on Saturday.

BB governor said key areas for investment and support requires inclusion of sustainable agricultural practices; rural infrastructure, storage capacities and related technologies.

Ferreting to "Rio+20 conference" he said poverty eradication and promoting sustainable patterns of consumption and production, and protecting and managing the natural resource base of economic and social development are the essential requirements for sustainable development.

"This needs to be achieved by promoting sustained, inclusive and equitable economic growth; fostering equitable social and human development while promoting ecosystem conservation, regeneration and resilience in the face of current and emerging challenges," Dr Atiur added.

BB governor said Bangladesh is a low energy consuming country with per capita annual consumption of only 220 KW hours, supporting production of zero or low carbon emission energy generation. The Government of Bangladesh is trying to make the demand side management (DSM) of energy through energy efficiency and conservation measures involving making efficient appliances and equipment, he noted.

It is estimated that nearly 400MW power can be saved by changing fluorescent bulbs to CFLs and another 400MW by making electric fans efficient, he said adding  Besides, nearly 30 per cent load reduction is possible by increasing energy efficiency of fridge and air-conditioners, Dr Atiur added.

On power sector investment he said the government is investing substantially in renewable energy, particularly solar power and biogas for rural households and enterprises.

He further said the current electricity generation from Solar Home Systems (SHSs) in the country amount to 65 MW.
The target is to install 2.5 million SHSs by 2014 through IDCOL, he said.

Bangladesh plans to generate 5 per cent of its electricity from renewable energy sources by 2015 and 10 per cent by 2020, he added saying, "The government needs to focus on off-grid areas (60 per cent of rural areas) for power generation through renewable to address poverty elimination and achievement of all the MDGs."

He also said that BB has issued guidelines for Environmental Risk Manage-ment and Green Banking in 2011 aiming at ensuring environment friendly business practices by banks and financial institutions. Banks have been instructed to install solar power system while opening bank branches in rural areas.

BB has introduced Taka 2.0 billion refinance line for financing solar energy, bio-gas and effluent treatment plant (ETP), at only 5 per cent interest rate, he said adding "BB has financed 18MW PV module manufacturing plant of Rahimafroz at a cost of USD 4.5 million through BB green fund."

News: The Daily Independent/Bangladesh/11-Nov-12

Fahmida Khatun concluding her three-part write-up on the 'State of governance in the banking sector: Dealing with the recent shocks’

The recent financial scam is an eye-opening incidence for all associated with the banking sector as well as the policymakers exposing the inherent weaknesses of the banking sector of the country. In view of the recent irregularities, appropriate measures ought to be undertaken in the short to the medium term towards improved performance of the sector. This should range from proper investigation and punishment of involved persons to improvement of the monitoring and governance of the SCBs.

Specific recommendations are the followings:

Absence of risk management policy: The absence of a comprehensive risk management policy in many banks makes it difficult to handle fraud and other extra-ordinary cases. The Bangladesh Bank (BB) has identified six core risks and asked banks to formulate and implement appropriate guidelines on those. These core risks include the following: (i) Credit Risk Management; (ii) Foreign Exchange Risk Management; (iii) Asset-Liability Risk Management; (iv) Internal Control and Compliance Risk Management; (v) Money Laundering Prevention Risk Management; and (vi) Guidelines on Information and Communication Technology.

Such guidelines, however, are hardly followed by most of the banks, specially the SCBs. The manual for loans and advances containing policies, procedures, processing and reporting of transactions, review of security and collateral and responsibilities at different levels is not followed by many banks due to which it becomes difficult for them to handle and manage clients with various levels of exposures.

Lack of internal control: The Internal Control department which ought to be the most critically important department of any bank is weak in the state-owned commercial banks (SCBs). This is mainly due to incentive failure which prevents hiring of qualified persons for this department. As the nature of the job involves patient scrutiny of compliance, people are reluctant to work here, and those who do, are often in a way dumped in this department. Absence

Lakes of information technology (IT) makes their work even more boring. Bangladesh Bank guidelines on internal control require that if there is any incidence of a loss equivalent to Tk. 10 million (1.0 crore) the Board of Directors of Banks should be informed immediately. Besides, any major irregularities, fraud and embezzlement have to be presented through a report during the monthly assessment of banks. In the case of Hall Mark scam, it seems that the bank management was hiding the illegal activities in the said branch for a prolonged period.

Political baggage of the Board of Directors: The tradition and practice of appointing Directors of the Board of the SCBs based on the political loyalty and affiliation have to be changed. The members of the Board of the SCBs should be independent, qualified, efficient and socially acceptable persons with unquestionable integrity. Bangladesh Bank Guidelines 2010 for the Directors of banks spelt out the 'Fit and Proper Test Criteria' for the nomination of Directors along with their responsibilities and power. These criteria are yet to be implemented fully.

Due to political baggage, the Directors of SCBs cannot perform their duties independently and remain morally obliged to listen to political instructions of the government. This results in weak corporate governance. As the Broad members are also the members of various committees of a bank constituted to closely guide various operations of the bank, the independence of the audit committee, the most important board committee which has to ensure compliance of business strategy and policy of the Board, cannot be maintained as well. Given the emerging challenges and dynamism of modern banking business, it is thus important that Directors of the Board have the pertinent knowledge and skill of running bank with efficiency and sincerity.

The accountability of the Directors should also be determined clearly. In case of the Hall Mark scam, it has been reported that the Board was not informed of the unscrupulous inland bill trading. However, the fact that the responsible branch was not audited and the accused branch manager was not transferred even after completion of his three years tenure are some of the issues which the Board cannot shrug off its oversight responsibility.

Inappropriate appointment of CEOs and senior officials: The scam has also exposed total failure of the Chief Executive Officer (CEO) and responsible senior managers of the bank in discharging their duties. In the SCBs, the pre-occupation of most CEOs is to keep the Board in good humour and sing the songs the way the Board likes to hear so that their position is well secured under any circumstances. It is difficult to find any instance where the CEO has been asked to leave the job because of bad performance. One may argue that in a setting where the Board is constituted of political candidates, the CEO is handicapped in taking any decision guided purely by banking ethics, norms and perceived risks. This, however, is not a saleable point.

Good business plan, effective people management programme, regulatory compliance practice, effort towards clients' satisfaction and high work ethics of any CEO of a bank are bound to be endorsed by a Board, no matter how political it may be. The performance of CEOs should be evaluated from time to time by the Board based on Key Performance Indicators (KPI). The Board can only guide and support the CEO to achieve the targets that are of benefit to the bank.

In appointing GMs, suggestions have been made to have a common and single selection and promotion committee under the BB and the Ministry of Finance for selecting GMs or promoting DGMs to GMs and for posting them in different banks following their selection. GMs should also be transferred from one SCB to another in order to not only help transfer of good practices, but also to reduce the possibility of fraudulent and unethical practices.

Shortcomings of human resource policy: Human resource (HR) development has been a neglected issue in the SCBs. As mentioned earlier, the World Bank supported reform of 2007 recommended a number of measures for the improvement of skills and performance of the officials in the SCBs. However, the HR department of the SCBs remains weak and powerless to take decisions on recruitment and promotion, partly due to lack of capacity and partly due to external influence.

In the modern day business, banks have to provide value added products and services to customers in addition to traditional banking functions. However, the SCBs suffer from lack of skilled and qualified human resources for undertaking such operations. The HR policy of banks should not only arrange for appropriate training, but should also include the reward and punishment practices of the bank.

Inertia for automation and management information system: An issue related to the HR development is the automation and management information system (MIS) in banks. It is apprehended by experts with fair amount of certainty that there may be many more Hall Mark cases that wait to be uncovered in other banks. Unless these are dug out through transparent and automated banking practices with the help of IT, the mess may be piled up and reach an unmanageable stage. Even after several reform initiatives, the inertia of the SCBs in adopting IT-based banking services and the MIS is not only disappointing but also quite surprising. Due to lack of MIS, the Hall Mark case was not detected in time even though clearing was going against SBL continuously for many months due to loan increase in a branch of the bank.

There have been comprehensive programmes for the last several years to establish automated clearing house and credit information bureau (CIB), computerisation of the head offices and branches of all banks, electronic banking services, online corporate banking service, electronic fund transfer, automated teller machine (ATM) and internet banking. While all the foreign banks (FCBs) and most private commercial banks (PCBs) have implemented these automated and electronic banking services, the SCBs are way behind in meeting these requirements. This is not only affecting their efficiency and profitability, but also giving rise to opportunities for committing scams such as the Hall Mark.

The archaic manual system of transaction records has indeed facilitated the Hall Mark forgery. It is mentionable here that as part of the reform programme, the World Bank had supported a consultant in the rank of the General Manager (GM) for IT in the SCBs for two years with a higher compensation package. GMs for IT were supposed to work on procuring computers, developing and buying software, and training officials of the SCBs. These initiatives are yet to see any meaningful result as the automation process is almost non-existent in the SCBs.

Dualism in the regulatory mechanism and regulator's oversight: It is no secret that there exists a strained relationship between the BB and the Ministry of Finance (MoF) over the supervisory and regulatory role on the SCBs. Though the BB can exercise its full authority in supervising the private commercial banks (PCBs) and foreign banks (FCBs), the MoF oversees the SCBs to some extent. The MoF appoints the Directors of the Board, CEOs, DMDs and GMs of the SCBs. However, due to less articulated mandate, the BB faces problems in implementing recommendations of audits and ensuring overall governance of the SCBs.

Full autonomy of the central bank has been suggested by many concerned stakeholders including the donors. The International Monetary Fund (IMF) has asked for amendment of the Banking Company Act (BCA) giving full legal supervisory and regulatory authority of the BB over all commercial banks by September 2012 as a pre-condition for contracting a loan to Bangladesh for USD 987.06 million under the Extended Credit Facility (ECF) in April 2012. There has also been suggestion by many to dismantle the Banking and Financial Institutions Division at the MoF in order to keep the SCBs away from political influence. While this is necessary for smooth functioning of the banking sector the supervisory and monitoring role of the BB needs to be significantly strengthened as well.

Though the MoF is in the driving seat to monitor and control the SCBs, the BB has to perform audit and inspection in all commercial banks including the SCBs. As in the other previous financial chaos in the country such as the capital market debacle, the BB played a reactive role long after the irregularities have actually been in place. Firm supervision and effective monitoring could have controlled the damage suffered by the Sonali Bank Limited (SBL). The fact that clearing of SBL was going against the bank, the amount of loan was increasing, and finally the bank became a borrower from a lender in the inter-bank market, indicates the weak off-site supervision mechanism of the BB.

Need for a commission for the financial sector: Though the country's banking sector has achieved considerable success due to the reforms in the 1990s and 2000s, it still needs to be prepared well for the next generation global regulatory framework and to meet emerging clients' needs. In the coming days the banking industry will have to achieve the ability to absorb shocks arising from financial and economic stress, improve risk management and governance, and strengthen banks' transparency and disclosures through complying with Basel III requirements which is scheduled to be introduced from 2013 until 2018.

In view of the recent shocks in the banking sector and emerging challenges, a Commission for the financial sector should be formed which will scrutinise the overall performance of the sector, assess the need of customers and the economy, identify the current problems and emerging challenges, and suggest concrete recommendations for prudential banking to be implemented in the short to medium terms.

Considering the emerging need and in order to build up more transparent and responsible banking sector, the Commission can also include non-bank financial institutions such as insurance companies and capital market under its jurisdiction as they are interconnected. The broad terms of reference (ToR) of the Commission will be to critically assess the problems and weaknesses of the banking industry in order to find whether there is any disconnect between demand of the growing economy and the realities of a backdated financial system that is failing to meet the emerging need. On the basis of a comprehensive scrutiny, the Commission will prepare guidelines and make recommendations as regards automation, risk management, internal control, the role of various players in banks and other financial institutions.

Concluding remarks: The Hall Mark incidence is not only a case of financial loss, but also a deep dent on the confidence and trust of the customers of the bank. It is also not about the loss of good will of the particular bank only, but of the total banking industry. Such an erosion of reputation of banks could have multiple chain effect including reduction of deposit in the concerned bank and fall of share prices of the whole banking sector. This can also constrain the role of the banking sector in catalysing the growth of the economy. Without radical changes in the banking practices of the country such expectations may remain largely unfulfilled. During the run-up to attaining the ambition of being a middle-income country there is a need to significantly strengthen the banking industry if goals are to be realised.

From the 1990s onwards, the Bangladesh economy has evolved, and the banking sector has evolved as well. With the speed-up of economic growth through higher investment the demand on the banking sector will still be higher. This reiterates the need for improved efficiency of the sector in terms of resource allocation for the productive sectors and management. As the global regulatory environment is becoming tighter, global economic environment is facing more volatility and resources are getting more scarce, banks in Bangladesh will have to find innovative ways to conduct their business. There will be demand for higher capital and more skilled human resources for smooth functioning of banks and for ensuring compliance in the coming days.

Therefore, the banking sector in Bangladesh has to focus on using both its financial as well as human resources in a far more innovative and efficient way to cater to the demands of the future.

The writer is an Economist and the Head of Research at the Centre for Policy Dialogue (CPD). This write-up in three parts is a shorter version of the paper presented at a dialogue organized by CPD on November 05, 2012. fahmida@cpd.org.bd

News: The Daily Financial Express/Bangladesh/10-Nov-12

 Bangladesh Bank (BB) has approved a new rating agency named Waso Credit Rating Company (BD) Limited (WCRCL), which takes the total number of local External Credit Assessment Institutions (ECAIs) to seven.

The remaining six rating agencies are—CRISL, CRAB, NCRL, ECRL, ACRSL and ACRL.

In a circular issued Monday, the central bank urged all the scheduled banks to nominate single or multiple rating agencies for their own and counter-part credit rating to calculate the Risk Weighted Asset (RWA) against credit risk as per Risk Based Capital Adequacy (RBCA) guidelines.

As per the RBCA, the RWA against credit risk is to be computed on the basis of credit rating conducted by ECAIs, duly recognised by the central bank.

Consequently, calculated RWA and Capital Adequacy Ratio (CAR) will be reported as per specific reporting formats enclosed in the RBCA guidelines, the BB circular reads.

News: Daily Sun/Bangladesh/31-Oct-12

The International Monetary Fund (IMF) has softened its stance on a move of the government to increase banks' exposure to the capital market to 40 per cent of the total capital of a bank company to stabilise the flagging market.

On the other hand, the multilateral lending agency remains rigid about enhancing the authority of the central bank to regulate state-owned commercial banks (SCBs) meaningfully, sources at the Ministry of Finance (MoF) said.

The MoF and IMF have been in discussions to settle the two disputed issues in the process of amending the current Bank Company Act (BCA), 2003.

Against the backdrop of the Hall-Mark scam in collusion with an SCB, the justification to empower Bangladesh Bank (BB) to regulate the boards of SCBs, as suggested by the IMF and a government-commissioned high-powered committee, has been endorsed by economists and former central bankers.

The draft BCA (amended), 2012, despite being approved by Finance Minister AMA Muhith, is yet to be submitted to the Cabinet Division as the issue pertaining to empower BB has not been settled with the IMF yet, a top finance official said.

The conditions of IMF tagged under the Extended Credit Facility (ECF) include, among others, amending the BCA with the provisions of banks' exposure to the capital market by 25 per cent of the total capital and empowering BB to fire bank directors, managing directors and abolish boards of directors of four SCBs.

The existing exposure limit of a bank is 10 per cent of its total liabilities as stipulated in the existing BCA (amended), 2003.

"It is because of the persistent efforts by Finance

Minister AMA Muhith, who during the annual meeting of WB-IMF, held in Tokyo recently, convinced the top policy-makers of the multilateral lending agencies to accept the enhanced exposure of the banks in the capital market," a senior finance official told the FE on Sunday.

He said the draft BCA, however, kept the provision to lower the exposure to 25 per cent, if the situation demands.

The finance ministry officials are still in discussion with the IMF as the government wants to convince the Fund officials that BB has yet to be efficient enough to have all the powers to regulate the SCBs.

A meeting was held on Sunday at Bank and Financial Institution Division under the MoF. Eteri Kvintradze, Resident Representative of IMF, led a delegation to the talks, which was attended by Bank and Financial Institution Division Secretary Shafiqur Rahman Patwary, among others.

None of the participants elaborated on the meeting. But meeting sources said two contentious issues got the highest priority at the discussion.

"I cannot comment now on the issues as discussion is still going on," Eteri Kvintradze told the FE on Sunday, when she was approached by the FE on cell phone.

The IMF asked the government to implement the provisions concerned in the proposed BCA, 2012 as a condition for release of the second installment of its about $1 billion loan for Bangladesh.

The lender approved a $987 million loan to help it overcome macroeconomic pressure and build a buffer reserve.

Bangladesh entered the three-year loan deal by committing to a wide range of structural reforms.

According to the provision of Clause 46(6) of BCA, 2003(amended), the BB cannot remove the government-appointed bank directors, chairmen and MDs. It could only submit report to the government about the malpractices on their part, if the same take place in the banks concerned, the provision says.

The Clause 47 of the same Act also bars the BB from abolishing boards of government-owned banks. The appropriate authority of the BB after meeting certain conditions and formalities could fire bank directors, managing directors (MDs) and abolish the board of directors of private commercial banks only, stipulates the BCA, 2003.

Sources in the finance ministry said they want to hold more meetings with the IMF to keep the current provisions in the BCA on BB's authority on SCBs unchanged.

"We are not submitting the draft BCA to Cabinet Division now. We will fight to the last to convince IMF on the particular issue," a senior official concerned said.

News: The Daily Financial Express/Bangladesh/22th-Oct-12

ANM Abul Kashem, General Manager of BB, and Mubasher Munaf Moin, Chief Operating Officer of Core Knowledge Limited, are seen signing an agreement in Dhaka Sunday.

Bangladesh Bank has signed an agreement with Core Knowledge Limited, a sister concern of Rahimafrooz BD Limited on providing Online Learning Tools (OLT) for its officials.

ANM Abul Kashem, General Manager of BB and Mubasher Munaf Moin, Chief Operating Officer of Core Knowledge Limited signed the agreement on behalf of their respective organisations in Dhaka Sunday, said a press release.

Dr. Hassan Zaman, Senior Economic Advisor, Md. Ahsan Ullah, ED and Project Director of CBSP, and other high officials of Bangladesh Bank were present.

Through this new initiative, 500 officials of BB will get access to a wide range of world renowned e-Learning tools and resources for soft skills development in personal development, performance management, change management, team building, public speaking, business communications, leadership and management essentials, accounting and IT fundamentals. Deputy Governor Nazneen Sultana, in her speech emphasised on Human Resource Development where soft skills play a vital role to build up strong and competent professionals in an organisation and affirmed e-Learning for BBofficials as a milestone event in BB getting digitally ahead.

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