Rejaul Karim Byron

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Most of the forty-seven commercial and specialised banks have dodged various risks to successfully maintain their capital adequacy.
However, according to Bangladesh Bank (BB) information, five banks -- two private commercial banks and three specialised banks -- failed to meet the capital demand.
The central bank set a mandatory timeframe for the banks to maintain their capitals against 8 percent of the risk weighted assets by June 2010 and 9 percent by June 2011.
According to BB statistics, on December 31, 2010 two specialised banks and one private commercial bank had their capital in the negative, and one specialised and one private commercial bank's capital was below the required 8 percent.
A BB official said the two specialised banks give most of their loans to agriculture sector as per a government directive. As a result, these banks cannot maintain their financial health up to the standard.
Of the two private commercial banks, one has long been a problem bank and it was closed once. After resuming its operation under new ownership it is yet to restore its health.
Capital adequacy focuses on the total position of the banks' capital and protects the depositors from potential shocks of losses that a bank might incur, said the central bank official.
He said it helps absorb major financial risks such as credit risk, market risk, foreign exchange risk and interest risk.
According to central bank statistics, most of the private commercial banks could maintain capital above 9 percent. Some banks maintained capital up to 11 percent to 14 percent, and only four will have to take their capital adequacy to 9 percent by June. Of these four banks, two could not meet the 8 percent target.
The four state-owned commercial banks succeeded in maintaining 8 percent capital but two of them are still having deficit in maintaining 9 percent capital by June.
Till December, the total risk weighted assets were Tk 4,08,134 crore against which the banks maintained a capital of Tk 35,803 crore, and the overall deficit was Tk 1,006 crore.
The BB officials said the overall deficit occurred as some banks had negative capital. However, the private commercial banks had a capital surplus of Tk 3,070 crore.
They expressed satisfaction over the overall capital situation of the banks. An International Monetary Fund (IMF) mission recently suggested more cautious monitoring of the banks' capital situation.
The IMF said, further progress in financial sector reforms is essential to ensure overall stability and reduce fiscal risk. It said the BB needs to enforce a sound regulatory and supervisory framework over the commercial banks.
The IMF especially stressed better financial health of the state banks. It also said the capital adequacy indicator for the state banks is not in line with the Basel-II standards and thus provides a false impression about the financial health of these banks.
The BB officials said the government is going to augment the capital of the state banks soon.
They said the commercial banks' exposure to the capital market has increased in the recent times. Although the banks had to run their business amid various risks, they could maintain the capital at a satisfactory level, the officials said.
The BB is continuing its monitoring drive so that all banks can maintain required capital by June this year, they added.

News: Daily Star/Bangladesh/ Apr-03-2011

A larger number of the merchant bank without professionalism would create unhealthy competition in the stock market making investment a very risky venture, experts say.
They also view that more merchant banks would not mean greater liquidity as they cannot mobilize resources without having to tap the banking system. The experts’ view came in response to the recent government decision to allow more merchant banks to operate in the stock market in an effort to increase liquidity in the market.
“A larger number of banks would have much less business to do,” said Mirza Azizul Islam, ex-finance adviser to the caretaker government. “The merchant banks only mobilise resources from the banking system and depositors’ money. So the strategy for boosting liquidity by issuing more merchant bank licences is wrong,” he said. Finance minister Abul Maal Abdul Muhith recently told Parliament that the government is contemplating raising the number of merchant banks to stabilize the capital market and increase its liquidity. Currently, 35 merchant banks are operating in the stock market and the market capitalization of the Dhaka Stock Exchange is around $40 billion.
The Securities and Exchange Commission (SEC) has raised the ceiling on the maximum number of licences to be issued to merchant banks, from 35 to 50.
Merchant banking in Bangladesh is growing along with the capital market signalling a growing competition.
“Competition as well as a minimum scale of economy is required for smooth functioning of a bank,” said Islam, also ex-chairman of the SEC. “Depending the market size, some 34 to 35 professional and financially strong merchant banks is fairly good,” he said.
Instead of raising the number, the regulator should look at how the merchant bankers are supposed to play their role, he said and pointed out that these banks are functioning as stock brokers, which bodes ill for the market, he added.
According to the merchant banking regulation 1996, the activities of merchant banking are limited to issue management, underwriting, lending to stock investors, portfolio investment and management services.
Salahuddin Ahmed Khan, professor of finance at Dhaka University, said: “Operations of the merchant banks should be widened to allow them to have a broader range of functions including corporate financing and corporate restructuring and takeovers to bring variability in the market.”
“Loan-based merchant banking now dominates the market, increasing financing risks in the stock market,” he said adding that merchant bankers should be encouraged to manage their own portfolios to help stabilize the market. Merchant banks should be able to conduct their business in a professional manner in the greater interest of the market as millions are investing money in the capital market every day, he said.
While a merchant bank working only as issue manager has to submit at least a documented proposal for an initial public offering of a company in a year, a merchant bank licensed to act only as portfolio manager has to form at least five new portfolios of its clients besides its own. A merchant bank working as a full-fledged merchant bank has to manage one IPO, to be underwriter of two issues and form five new portfolios of its clients besides its own in a calendar year.
So far, the SEC has cancelled licences of six merchant banks because of violation of securities rules or their inactiveness after obtaining licence.

News: the independent/Bangladesh/ Apr-03-2011

Bangladesh Bank Governor Dr Atiur Rahman on Saturday called upon the small and medium enterprise (SME) entrepreneurs to build Bangladesh as a self-reliant country, saying that the government cannot take the country forward alone. “The SME entrepreneurs have to play a pioneering role in building Sonar Bangla as it is not possible for the government alone to take the country forward,” he said while addressing a meeting after visiting foundries and a biogas power plant here.
With Rajshahi Krishi Unnayan Bank (RAKUB) Managing Director Pradeep Kumar Dutta in the chair, the meeting was also addressed, among others, by Deputy Managing Director of National Bank Shafiqur Rahman, President of Bogra Chamber of Commerce and Industries Momtazuddin and President of Poultry Industry Owners Association Mahfuz Siddiqui Liton.
Referring to the massive flourishing of foundry industry in Bogra, the central bank governor also said, “We always listen to failure than success. But now the extent of success is more than failure.”s
Atiur also said that once a tailor industry has now been turned into a huge garment industry and it earned US Dollar 21 billion last year.
“The SME industries are flourishing immensely in the country creating employment for millions of people,” he said.
The governor said 10 Asian countries would lead the world in future and Bangladesh would be one of those 10 countries. “We should not be frustrated in little failure, there are lack of entrepreneurs, not money,” he added.
He also called upon the entrepreneurs to take biogas power projects to solve electricity problems in the country.
Earlier, the central bank governor visited foundries in BSCIC Estate here.
Chairman of Social Islami Bank Ltd Sultan Mahmud Chowdhry, General Manager of National Bank of Pakistan Faruq Abbas and President of Bangladesh Foundry Owners Association Ainul Haque Sohel were also present on the occasion.

News: the independent/Bangladesh/ Apr-03-2011

Mohd Safwan Choudhury and Mohammed Lakiotullah have been re-elected vice chairmen of Bank Asia, it said in a statement yesterday.

The election was held at the bank's board meeting in Dhaka on Wednesday.

Former president of Sylhet Chamber of Commerce and Industry, Choudhury is the managing director of M Ahmed Tea & Lands Company Ltd, Phulbari Tea Estates Ltd and M Ahmed Cold Storage Ltd. He is also the current chairman of Bangladesh Tea Association.

Lakiotullah was the founder managing director of Export Import Bank of Bangladesh. He is also the former managing director of Jamuna Bank.

News: Daily Star/Bangladesh/ Apr-03-2011

Bogra, agriculture based light engineering industry will be expanded through distribution of Small and Medium Enterprises (SME) loan programme said the Governor of Bangladesh Bank Dr. Atiur Rahman in Bogra at the Agriculture Based Light Engineering Machinery Displayed Fair.  The Fair was organised by Bangladesh Bank at the Central High School field.
In this fair more than hundred light engineering industries took part where they displayed their products.
After inaugurating the fair the governor took part in the “SME Loan Distributing and View Exchanging Conference” at Titumilotian in Edaward Park. In this conference he said that Bogra offers a bright future to the agriculture based light engineering industry.
Every year more than TK 500 corer worth productions are produced from here which comprises 80 per cent of the total productions of agriculture machineries in the country.
After fulfilling the demand of the country these products are exported to neighbouring countries such as India, Nepal, and Bhutan.
Currently the industry is marred by problems such as shortage of capital, accommodation, raw materials, skilled labours etc.

News: the independent/Bangladesh/ Apr-02-2011