The International Monetary Fund (IMF) will not release the second instalment of its $1-billion credit to Bangladesh this November if the country fails to implement conditions on VAT and banking laws.

Finance ministry officials said the lender might delay the disbursement of $141 million if the government does not pass the VAT Act and Banking Companies Act in parliament next month, incorporating its recommendations.

The lender made its stance clear during a meeting between AMA Muhith, the finance minister, and Naoyuki Shinohara, a deputy managing director of the IMF, at Imperial Hotel in Tokyo.

In response, Muhith said the government would incorporate the IMF recommendations in the two Acts before they are placed in parliament for passage, according to officials who were present at the meeting.

The minister is now in the Japanese capital to attend the semi-annual meetings of the IMF.

In the meeting, Muhith also requested the IMF to waive a condition about the exposure limit of commercial banks in the stockmarket.

He sought concession from the IMF in keeping the bank's exposure limit to the stockmarket at 40 percent of their capitals. The IMF earlier asked the government to keep the exposure limit of a bank at 25 percent of its total capital.

The existing exposure limit of a bank is 10 percent of its deposits. An IMF mission, which visited Bangladesh last month, also conveyed the same message to the government as some of the major conditions were not met yet.

According to officials, the mission found major differences in the draft of the VAT law amendment proposal given to them and the one placed in parliament. They expressed serious concern about it.

A finance ministry official said the original draft to the amendment kept VAT at 15 percent in all stages of value addition but the rate was 5 percent in some cases in the final proposal.

The IMF also objected to the planned VAT exemption to different sectors for public interest.

In case of the Banking Companies Act, the lender wanted the government to cut the authority of the Banking Division and give more power to Bangladesh Bank.

The lender has approved $987 million for Bangladesh to help it overcome macroeconomic pressures and build a buffer reserve. The country received one of the seven instalments last year.

News: The Daily Star/Bangladesh/11th-Oct-12

Bangladesh Bank asked commercial banks to comply with rules and regulations to retain public confidence in the banking business.

“As the banks are the hub of the financial intermediation, it is an important responsibility for the banking sector executives to retain public confidence in the banking system,” said Atiur Rahman, BB Governor, while unveiling the financial stability report 2011, at its office on Sunday. High officials of the central bank, managing directors, chief executive officers and other high officials of all scheduled banks were present at the event.

Atiur urged senior bankers to shield the banking and NBFI sectors from risks and vulnerabilities and said reasonable emphasis are being given to both on-site supervision and off-site surveillance by the BB.

“However, efforts of the central banks alone will not be fruitful if effective implementation of prudential rules and regulation are not properly maintained by the scheduled banks, non-bank financial institutions, and regulators of other financial intermediaries,” he noted.

Ensuring effective implementation of, and compliance with, prudential regulations and supervisory instructions of Bangladesh Bank is to keep systemic crises away from commercial banks.

These regulations and instructions will be rolled out in the coming months, he also said. “But do not be concerned that the sector will become over-regulated.

Regulations promoting stability in the sector as a whole will be complementary to regulations promoting the stability of individual institutions.

They are not conflicting in nature, nor are they intended to create an undue burden,” he said.

As Managing Directors of the banks and financial institutions, the bankers should understand that the legal and regulatory framework – in particular, expectations for risk management, minimum capital and liquidity requirements, large exposure limitations, and conservative accounting and reporting requirements including recognition of expected losses – are the best banking practices.

The central bank also warned that Bangladesh Bank will not allow imbalances and excessive linkages to build up in the banking sector as they did in some parts of the developed world.

“We are monitoring the rate of credit growth at individual institutions and in the sector as a whole.
We will not permit banks to become too tightly woven together with excessive interbank lending, borrowing, depositing, and debt and equity ownership,” BB Governor said.

News: The Daily Independent/Bangladesh/9th-Oct-12

 The Banking Division of finance ministry may place the Demutualisation Act before the cabinet today for final approval, as part of the government’s effort to ensure transparency and accountability on the country’s stock market.

The finance ministry’s wing will also seek cabinet’s final nod on the Securities and Exchange (SEC) (Amendment) Bill, 2012 and reforms to the SEC Ordinance, 1969.

The reform measures aim to empower the SEC to form tribunals to deal with capital market related cases and to strengthen the regulatory framework for the stock market, in line with the conditions the International Monetary Fund (IMF) has attached to the second installment of a $987 million credit offer for Bangladesh.

“On behalf of the Bank and Financial Institution Division, I will place the Demutualisation Act and amendments the of SEC Act and ordinance on Tuesday,” Md Shafiqur Rahman Patwary, secretary of the Bank and Financial Institution Division, told reporters Monday emerging from a meeting with Finance Minister AMA Muhith at the finance ministry.

The IMF earlier approved $987 million extended credit facility (ECF) for Bangladesh on some conditions including the demutualisation of Dhaka and Chittagong stock exchanges and amending the Bank Companies Act.

The objectives of the ECF scheme include restoring macroeconomic stability, strengthening the external position and achieving more inclusive growth.

However, the Bank companies Act might not be placed before cabinet Tuesday due to some difficulties, the Banking Division Secretary said.

The finance minister will discuss the progress in meeting the conditions set by IMF during his visit to Japan, Shafiqur Rahman Patwary informed.

Muhith is scheduled to leave for Tokyo Tuesday to join the annual meetings of the World Bank and the IMF.

In the second tranche, IMF is supposed to release $141 million under the ECF scheme.

A Bangladesh Bank official earlier said the government has already met all but four conditions which will also be “addressed shortly”. “The government could be able to convince IMF about the matter,” he hoped.

The official also expressed his confidence that the second installment of ECF will be available once the IMF approves the loan at its board meeting to be held on 29 this month.

News: The Daily Sun/Bangladesh/9th-Oct-12

The ensuing commercial banks have begun seeking final green signal of the central bank to start their operations as they fulfil requirements in line with the letter of intent (LoI).

On April 17, Bangladesh Bank (BB) issued the LoI with putting 29 conditions that the banks should comply with to get the licenses. One of the major conditions suggests that the entrepreneurs should start their banking operation in six months after getting approval of the central bank.

After complying LoI, so far two proposed commercial banks - South Bangla Agriculture and Commerce Bank Limited and NRB Commercial Bank Limited - have submitted their paper works and documents required to obtain licences from the BB.

“We're preparing to begin operations in November,” an official close to the new NRB Bank, said.

October 16 has been set for the newly approved nine commercial banks for submitting necessary documents of LoI compliance to the BB.

The BB will issue licences to the banks after scrutinising their documents, sources said.

“All proposed banks will have to apply to the central bank within the deadline seeking licences for beginning their businesses,” said a BB official.

The banks, however, would be allowed to seek time extension if they cannot meet the deadline, he said.
Only one bank has so far applied for extending the deadline for submission of documents.

The central bank has been scrutinising the documents before issuing licences to the new banks.  As part of the scrutiny, the BB officials will check tax-related issues with the National Board of Revenue (NBR) in case of local sponsors.

Sponsors of the proposed non-resident Bangladeshi (NRB) banks will deposit their paid-up capital in foreign currency, the central banker said.

The paid-up capital of a new bank will be no less than Tk 4.0 billion, the central bank said in its guidelines for setting up new commercial banks.

If an individual or any member of his or her family is or was a loan defaulter with a bank or financial institution anytime during the past five years, he or she will not be eligible to apply as a sponsor of any proposed bank.

An individual awaiting verdict of any indisposed lawsuit in any court or tribunal against his/her loan default status will not be eligible to apply as a sponsor, the guidelines added.

The central bank on April 4 approved three NRB (Non-resident Bangladeshi) banks.

The banks are sponsored by expatriate Bangladeshi in the United States, Iqbal Ahmed Chowdhury and Farasath Ali and Nizam Chowdhury who is residing in the United Kingdom.

The central bank on April 8 also approved six new banks, sponsored by local entrepreneurs.

The banks are Union Bank, Madhumati Bank, Farmers Bank, Meghna Bank, Midland Bank and South Bangla Agriculture and Commerce Bank.  The prime sponsors of the six banks are former president HM Ershad (Union Bank), Fazle Noor Taposh (Modhumati Bank), Dr Mohiuddin Khan Alamgir (Farmers' Bank), SM Amjad Hossain (South Bangla Agriculture and Commerce Bank), Ashequr Rahman (Meghna Bank) and Moniruzzaman Khan Khandker (Midland Bank).

News: The Daily Independent/Bangladesh/8th-Oct-12

Bangladesh Bank Governor Dr Atiur Rahman, speaks at the launching of the Financial Stability Report at his office in Dhaka Sunday.

Rapid credit expansion in recent years has added burden on the banks in maintaining higher annual income for provisioning and thus resulted in more risks for banks’ assets.

The Financial Stability Report (FSR) 2011 of the Bangladesh Bank (BB) released Sunday disclosed this. BB Governor released the report at the BB headquarters in the capital.

The report says the country’s banks could not improve the status of capital adequacy ratio (CAR) because of the credit risk along with two other minor factors such as operational and market risks.

According to the FSR 2011, five worst banks, of which four are state-owned commercial banks (SCBs), together share 60.3 percent of total classified loans.

Classified loans, also known as non-performing loans (NPL) of the SCBs, were Tk 148.9 billion at the end of December 2011, but fell to Tk 117.72 billion at end of June 2012, according to BB data.

Total NPL in the banking sector at present is around Tk. 270 billion, but the share of private commercial banks and foreign banks respectively amount to Tk. 80 billion and Tk 70 billion respectively. The remaining amount is accounted for the non-bank financial institutions.

In the FSR, the central bank observed that the high NPL to total loans ratio has strong implications for overall financial performance of the banks. The report says the high ratio of bad loans to total NPL significantly undermine the asset quality in the banking sector.

News: The Daily Sun/Bangladesh/8th-Oct-12