Primary dealer banks will now be able to show 50 percent of HTM (held to maturity) securities, up from 25 percent, as tradable assets, according to a new decision by Bangladesh Bank.

HTM securities are debt securities purchased by banks with intent to hold them until they mature. On the other hand, HFT (held for trading) securities can be traded anytime.

Now, banks can sell up to 50 percent of HTM securities anytime.

Bankers said the move will not ease the liquidity crisis but help minimise accounting losses, not actual losses. The banks at a meeting with the BB deputy governor on May 26 suggested that up to 50 percent of HTM securities, up from 25 percent, should be shown as the statutory liquidity ratio (liquid assets).

Source: The Daily Star/Bangladesh/May 31, 2011

The Bangladesh Bank (BB) has almost completed the draft of the proposed amendment to the Bank Company Act in order to reduce numbers of private bank directors, streamline bank's capital market exposure and empower central bank to directly penalise individuals or organizations for breaching the law. The proposed draft law also aims to bring on changes in cash reserve requirements of banks and it would allow more than one person as nominee, the central bank sources said. “We have almost completed the draft amendment of the Bank Company Act. We are hopeful that we would be able to submit it to the finance ministry by next month,” Jahangir Alam, executive director, Bangladesh Bank, said.

Sources said the draft amendment proposes to keep the maximum number of directors at 20. Currently, many banks have 30 to 40 directors, which the central bank committee identified as a barrier to becoming a well governed company.

“We have found that bank boards, endowed with a sizeable number of directors, face various problems especially in providing loans,” an official said preferring anonymity. The committee is also considering barring more than two members of a family from sitting on a bank board at a time.

The draft amendment is likely to propose formation of a central financial regulatory authority, involving in it all the financial regulatory bodies including the central bank, the insurance authority, the micro-credit authority and the Securities and Exchange Commission, so that, in future, the body can monitor banks’ exposures to other areas as well.

The draft law also proposes to amend Section 109 of the Bank Company Act empowering the central bank to penalize individuals and organizations without having to go court, the official said.
Currently, many offenders go to court after conducting grave financial offences including siphoning of money from banks’ vault.

The committee will also introduce changes to Section-35 of the Act to accommodate more than one person as nominee of an account holder. Currently, a depositor can keep only one person as his nominee. The committee is also mulling setting up a central corporate memory to keep track record of any individual who committees offence in his professional carrier.
“If the criminal record could be preserved and managed centrally, it would benefit all the commercial banks in terms of checking background of people seeking loans. It would help reduce corporate crime significantly,” the official explained.

The Bank Company Act is being modified to meet global standards, by accommodating suggestions of donor groups, as it is one of the major priorities of the government.
Sources said the central bank is working on updating all laws related to the banking sector, particularly Bank Company Act, 1991, BB Order, 1972 and the Bankers' Book Evidence Act, 1891.
Clause 7A (a) of the Bangladesh Bank Order, 1972, clearly says that one of the major functions of the central bank is formulation and implementation of monetary policy from time to time.
The BB initiated the move about one year back as per an ordinance promulgated by the immediate past caretaker government (CG). The CG could not implement the ordinance owing to stiff opposition from the parliamentary standing committee and influential quarters of the government itself, sources alleged.

The ordinance, promulgated by the caretaker government, limits the number of directors on a bank board to a maximum of 13. But, the Bank Company Act, 1991 (Amended) does not limit the number of bank directors. The commercial banks appoint directors as per their respective Articles of Association, banking sources said.

The new draft of the Bank Company Act seeks to change the definition of defaulted  loan and double the existing amount of capital for commercial banks.

Source: The Independence/Bangladesh/May 26, 2011

Bangladesh Bank governor, Dr Atiur Rahman, on Tuesday urged the managements of banks engaged in Islamic banking in the country to remain alert against terrorism financing. "I would like to remind you all about the need of due alertness against aiding extremists and abetting terrorism," Dr Atiur told bankers at an international seminar on "The Global Crisis and the Strength of Islamic Banking System", organized jointly by Islamic Bank Bangladesh Ltd. (IBBL) and Islamic Banks Consultative Forum (IBCF), at a hotel in the city.

The central bank governor also hailed the role of Islamic banking by saying, "Its ethos serves well to check laundering money that is associated with crime."
He said the profit and loss sharing nature of liabilities of Islamic banks is a good safeguard against solvency risk.

He said Islamic banking constituted 18.5 per cent of deposits and 19.7 percent of advances of the banking system in 2010, in Bangladesh. He said, recently, the central bank has circulated a comprehensive guideline to the banks for proper growth of Islamic banking in the country.

He said the country still lacks a secondary market for Islamic financing products for which a portion of the money deposited in the central bank by Islamic banks remains idle.
Speaking on the occasion, IDB (Islamic Development Bank) president Dr Ahmed Mohamed Ali said Islamic banking provides a relatively stable Shari'ah compliant alternative to the financial needs of the society.
"This stability demonstrated by Islamic banks during the recent financial crisis in comparison with their conventional counterparts, has already been recognised," he said.   The IDB president said the Islamic financial service industry is also expanding its scope by including microfinance namely micro-Takaful.

As Bangladesh pioneered the idea of microfinance, the micro-Takaful system has been designed to give low-income individuals in communities quick and easy access to socio-economic services, opportunities for self-employment and thus the chance to uplift themselves out of poverty, he said. 

IBCF chairman Prof Abu Nasser Mohammad Abdul Zaher said that the Islamic banks are working to free the people of Bangladesh from the curse of interest. The first day of the seminar was participated by some 275 officials of 11 banks those have been operating Islamic banking in the country completely or by opening a separate branch or a window.  Former IDB research head, Dr Ausaf Ahmed has presented a key-note paper at the seminar.
Among others, IBCF vice chairman Nazrul Islam Mojumder spoke at the seminar.

Past and present presidents of Federation of Bangladesh Chambers of Commerce and Industry, Salman F Rahman and AK Azad attended the first day's concluding session of the seminar. Organisers said several business sessions linked to Islamic banking will be held on the second day, on May 25, of the seminar which will be open for bankers and traders.

Source: The Independent/Bangladesh/May-25-2011

Kazi Sayedur Rahman has been promoted as general manager for the foreign exchange reserve and treasury management department of Bangladesh Bank.

Rahman started his career with the central bank in 1988 as an assistant director.

Prior to this promotion, he served as deputy general manager for the same department. He is an accounting graduate of Dhaka University.

News: The Daily Star/ Bangladesh/ May-18-2011

Rejaul Karim Byron

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Bangladesh Bank (BB) has taken a tough stance against private and foreign banks who will fail to reach their targets of farm loan disbursement.

In case of failure, the banks will have to deposit the money with the central bank for one year.

The BB yesterday issued a circular in this regard. However, bankers have expressed their disappointment over the directive, but a BB official said the central bank can issue such a directive.

The private and foreign banks will have to fix a target of distributing agriculture or rural loans to the tune of 2.5 percent of their total loans disbursed till March 31 of the previous fiscal year, said the BB circular.

It also said, the bank concerned will review in every quarter whether the loans have been disbursed in line with the target. If it fails to meet the target, the unfulfilled portion of the target will have to be deposited with the central bank for one year.

The central bank will give interest at 5 percent on the deposited amount. The circular also said the banks will have to set their target considering the demand for agriculture and rural loans and the bank's ability and efficiency in disbursing loans in this sector every year.

The BB asked both public and private banks to contribute equally to the farm sector.

“Many private and foreign banks do not have any investment in agriculture and rural sectors. Though many banks have small investment, the amount is not satisfactory compared to their total loans and advances.”

The central bank said all banks should participate with a logical level of investment in giving agriculture and rural loans.

An official of the central bank said, according to banking regulations, the BB can give such directive to any bank. He said, in 2008 a specific guideline has been given to every bank for their participation in agriculture and rural loan disbursement.

He also said, in the first nine months of the current fiscal year eight private banks could not reach 20 percent of their target for distributing agriculture loans.

The official said, in the current fiscal year a bank set 16 percent as its target of disbursing agriculture loans, but another bank's target was at 0.4 percent.

He said the private and foreign banks do not show interest in disbursing the amount they set as target for agriculture loans. He also said, in India it is mandatory for the banks to disburse 18 percent of their total loan in the agriculture sector. If any bank fails to fulfill its target, the amount has to be deposited with Indian agriculture bank on a mandatory basis.

The official said there is also provision for such action in Sri Lanka and Nepal.

Managing directors of some private banks on condition of anonymity told The Daily Star that at present there is a slight liquidity crunch in their banks. They will hold discussions with the central bank on how much logical such a step will be.

A chief executive of a private bank said, “We are now forced to close the credit-deposit ratio. In such a situation, the circular may create money problem for many banks.”

Association of Banks, Bangladesh (ABB) President K Mahmood Sattar said he has not yet seen the circular. He said, if such a circular has been issued, he will talk about it with the central bank.

He said they will discuss with the BB what types of problems the banks will face in implementing the directive of the central bank.

News: The Daily Star/ Bangladesh/ May-17-2011