The following is the speech that Bangladesh Bank Governor Dr. Atiur Rahman delivered at “Redefining Central Banking: Financial Stability, Early Intervention and Crisis Preparedness” in Ontario, Canada on June 27:

Financial sector supervision for upholding financial stability has been a longstanding traditional central banking responsibility, although in the later decades of twentieth century this got shifted to separate authorities in some countries.

The global financial crisis of 2008 brought back into focus the interrelated nature of monetary and financial stability and the need for closely coordinated supervision of both.

Wherever this separation took place, the central banks have got themselves reengaged in financial stability issues after the global crisis. I see this more as a return back to, rather than as redefinition of traditional central banking.

Bangladesh did not go for separation of monetary and financial sector supervision authority, both rests with Bangladesh Bank (BB), the country’s central bank. Our financial sector with its limited, regulated external exposure was virtually unaffected by the global financial crisis, remaining solvent, liquid, and free of contagion from toxic assets.

Safeguarding of financial stability remains nevertheless at forefront of BB’s priorities.

Alongside supporting ongoing market development, we are continually upgrading our financial sector regulatory and supervisory structure, practices and capacities in line with evolving local context and international best practices.

Basel II capital regime implementation has strengthened risk focus in financial sector management and supervision; work towards phasing in of the Basel III modifications is in progress. Basel III liquidity coverage requirements are soon to be introduced, following completion of preparatory exercises.

Stress testing routines have been introduced as mandatory practice in banks, to identify and address vulnerabilities.

BB’s prudential regulations and onsite examination/offsite supervision procedures and practices are also now risk focused, in line with international best practices recommended by Basel Committee (BCBS).

Supervisory CAMELS rating exercises and Early warning systems at BB maintain vigilance on risk management, corporate governance and internal control processes and practices in the financial sector.

A problem bank unit at BB’s Offsite Supervision Department oversees restoration of weak banks to health. BB’s supervisory departments are increasingly focusing on consolidated supervision of banks/financial institutions and their subsidiaries, as also on closer contact and information exchange between host country and home country supervisors for effective supervision of banks with branches/subsidiaries across borders.

A new Financial Stability Department has been created in BB for focused oversight of systemic stability related issues, taking over from the offsite supervision department tasks like conducting of stress tests and forward looking assessments of banks.

Creation of contingency planning and crisis management structures are also underway. Efficacy of BB’s financial sector supervision is evidenced by relative rarity of bank/finance company failure episodes, four in as many decades since independence.

In all these cases BB restructured the failing institutions into viable ones without involving any fund of its own and without causing loss for depositors and other creditors. Nonetheless, BB is not complacent and is fully aware of gaps and weaknesses in capacity of coping with existing and upcoming challenges, including impacts of fiscal and other macroeconomic imbalances of domestic and external origin.

The Daily Sun/Bangladesh/ 2nd July 2012

Bangladesh Bank governor Dr Atiur Rahman has stressed the need for sustained expansion of productive capacity in all economic sectors by entrepreneurs utilising investment resources efficiently and innovatively to continue broad-based job creation in developing economies.

“Small enterprises producing goods and services figure importantly in output growth and job creation,” he said while addressing a function at the UN Headquarters, New York.

United Nations Department of Economic and Social Affairs arranged the event tilted ‘Financial Inclusion, Productive Capacity and Youth Employment,’ according to a message received here on Saturday.

Atiur said youth employment has always been a challenge and a key priority in populous low-income developing economies like Bangladesh. “Many advanced Western economies are now facing much the same challenge in lingering growth slowdown since the global financial crisis.”

The Daily Sun/Bangladesh/ 1st July 2012

Bangladesh Bank has decided to float a tender to procure one-taka and two-taka coins to meet demand as it fears the country would face coin crisis in the future, official said on Thursday.

“After canceling the previous tender of tagging health conditions, the new tender will float within a month to overcome shortage of metal coins in the country,” said a senior official of Bangladesh Bank.

The official also said the central bank fears coin crisis in the future as six local and international companies have lodged complaints against the tender procedure.

The new tender committee for procurement of metal coins is likely to sit today (Sunday) at the Bangladesh Bank to finalise the conditions for procurement of the coins, sources in Bangladesh Bank said.

The central bank estimated that two billion pieces of coins will be required till December 2013 as most of the paper notes have torn out during last five years since 2007, they said.

The conditions for tender might be amended as the committee wants to drop the provision of DNA tests of DIN 1061, much essential for metal coins to make sure that users are secured from all health risks from the coins may carry.

The central bank did not consider the health issues as it initiated the new tender process with DNA tests, they added.

The first tender process was canceled after six companies lodged complaints against it as the condition which asked to ensure health hazards with the coins.

Meanwhile, the official sources said different companies from Japan, France, Canada, the UK, Netherlands and Salvia raised complaints against the condition of DNA test.

Earlier, a Malaysian company failed to supply coins after receiving work order from the central bank, while another Indonesian company had no sufficient experiences.

Indonesian company, however, spent huge central bank funds to supply five-taka paper currency. Five foreign companies have sufficient experience to make coins.

Some metal coin and paper note manufacturing factories have procured their blank sheet from other sources.

Blank sheets are usually made from different types of components of products, sources in Bangladesh Bank said. Bangladesh may be facing risk in procuring coins and paper notes from Indian companies. Usually, extra blank sheets are destroyed in present of officials of Bangladesh Bank, sources said.

The central bank has re-allocated Tk 1.2 billion in the next fiscal’s budget. The cost of procurement of two types of coins is estimated at Tk 1.4 billion.

The Daily Sun/Bangladesh/ 1st July 2012

The new Bangladesh Bank directive on loans will compel many businesses to default and slow down export growth, the Exporters Association of Bangladesh (EAB) said yesterday.

“Such a move will only add to the woes of the already troubled export sector. Plus, it will put a damper on investments in the country,” said Abdus Salam Murshedy, president of the association.

The central bank's new rule, which comes into effect from July 1, states ongoing loan operations are to be classified as bad loans within three months of non-payment of an installment, instead of the six-month timescale currently in place.

EAB urged the central bank not to keep any specific time frame for loan repayment. aAnother rule which takes effect from July 1 narrows down the bank rescheduling period from six months to three.

Only exporters facing a massive stocklot are allowed rescheduling after the expiry of the three-month deadline at a 7.5 percent down payment.

EAP asked for bank loan rescheduling facility to be extended to all beyond the three-month timescale, for the greater interest of country's export and industrial growth.

The body added that the Bangladesh Bank move will eat into the profitability of private commercial banks, thanks to the increasing number of defaulters.

Anwar-ul-Alam Chowdhury Parvez, a former president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA), also expressed his concern over the new rules' impact on the export sector.

He cited examples of India and Malaysia, where the loan rescheduling period enjoyed is 12 months and 6 months respectively. “If the new circulars materialise, about 60 percent of the industry will be classified and banks will register more than 50 percent loss in profits,” Parvez added.

The Daily Star/Bangladesh/ 29th June 2012

The readymade garments (RMG) and textile sector entrepreneurs Wednesday urged the government not to enforce the recently issued Bangladesh Bank (BB) circular which tightened rules for classification, provisioning and rescheduling of term loans.

Top apparel industry leaders at a joint press conference in Dhaka said enforcement of the new rules would hamper export-import activities of the RMG and textile sectors.

They said the new circular has curtailed the time limit for repayment of credit, which ultimately would raise the volume of classified loans as RMG and textile industry entrepreneurs depend on bank loans for raw materials import, to expand industrial units and for setting up new projects.

In the circular issued on June 14, Banking Regulations and Policy Department (BRPD) of the central bank curtailed the time limit for assessing probability of loan recovery from borrowers on the basis of qualitative judgments.

The BRPD circular suggests that banks reduce timeframe by three months for classification, provisioning and rescheduling of term loans as per the BB prescribed format for sub-standard (SS), doubtful (DF) and bad/loss (BL) accounts.

Industry leaders say the new BRPD rules would restrict the Bank-client relationship which is a major avenue to recover bank assets by avoiding classification, provisioning and rescheduling.

“Thus, the BRPD’s circular is an untimely move and it would create an impasse in the country’s overall trade and commerce,” said Shafiul Islam Mohiuddin, President of Bangladesh Garment Manufacturers and Exporters Association (BGMEA), in a written statement.

“Once a loan is written as BL (bad or loss) account, borrowers will not be sanctioned further credit (short-term) from banks. As a result, the entrepreneur will lose competitiveness as the bank loan will become burden on him or her,” he said.

“On the other hand, the bank will lose its strength when a large amount of money will be blocked as classified,” he said.

He said the RMG and textile industry is reeling under tremendous local and international pressure.

He said two major festivals – Eid-ul-Fitr and Eid-ul-Azha – are approaching and RMG entrepreneurs will need to get prepared for additional payments as bonus.

He said local causes disruptive to production include acute gas and electricity crisis, high tariff for utility services, hike in wages, political impasses including shutdowns, labour unrest, raising tax at source, high rate of interest for bank loans and non-availability of credit from banks.

The Daily Sun/Bangladesh/ 28th June 2012