Bangladesh Bank on Sunday warned the non-bank financial institutions that it would take strict action against them if they were found involved in corruption. The warning came from a quarterly meeting between the central bank and the NBFIs at the central bank’s headquarters in the capital. BB governor Atiur Rahman presided over the meeting while senior officials of the central bank and the managing directors of the NBFIs were present. Atiur said, ‘The central bank has taken a strict stance against corruption and anomalies. The BB has already appointed observers to two NBFIs due to their involvement in corruption.’ The directors of the NBFIs were involved in the corruption, which is not acceptable, he said. The central bank will arrange a meeting with the owners of the NBFIs in the coming days to ensure corporate governance in the entities. He said that the central bank had recently unearthed that a former chairman of a NBFIs had taken more than Tk 700 crore in loan from his own organisation violating rules and regulations. The former chairman’s wife and daughters were involved in the corruption, he said. The organisation also showed its classified loans as unclassified ones and many of its loans were not submitted to the CIB, he said. The central bank has recently removed the director from the NBFI to ensure good governance in the entity. Atiur said, ‘The central bank has already framed policy to save the managing directors of the NBFIs. So, the MDs should play strong role in checking corruption and anomalies in their respective NBFIs.’ The BB has recently prepared risk management guidelines for the NBFIs to identify their risks, he said. The BB will issue the guidelines in the shortest possible time. The central bank has recently approved the Bangladesh Infrastructure Finance Fund Ltd to issue commercial papers worth Tk 40 crore. The BB is now working to prepare guidelines for issuing the commercial paper as the instrument is now gradually becoming popular in the country. Such type of investment may bring new dimension to the business of the NBFIs, Atiur said. 

Banks in Hong Kong are intensifying the battle for young customers key to their future retail profit, offering online perks and mobile banking products in a bid to erode the dominance of HSBC in its Asian stronghold. Like peers around the world, banks operating in Hong Kong including Bank of China Ltd and Citigroup Inc are trying to improve their online banking products to lure tech-savvy students and young professionals as they are about to open their first bank account. For HSBC the battle to win the hearts of young Hong Kongers is particularly important as retail banking activity in the Asian financial centre helped drive its overall profit up 2 per cent in the first half of this year. The London-based bank, which has put China at the centre of its global strategy, is also in the process of deciding whether to move its global headquarters to Hong Kong. A survey of 2,500 people conducted in November by specialised research firm RFI, gave Bank of China a bigger market share among bank customers aged 18-24 than HSBC, which dominates in all other categories. These customers loathe spending time at bank branches and seek a lender that can allow them to carry out multiple transactions from their smartphone. ‘I would rate both the online and mobile services offered by Bank of China as good as they allow me to pay my parking tickets instantly, and this is very important to me,’ said Chun Hoi Lau, a 23-year-old student at the University of Hong Kong. Bank of China, which says the young generation is a key customer segment, allows clients to carry out cross-border payments through an app, uses the popular WeChat social media platform to handle customers’ queries and has introduced a popular virtual securities investment contest for students. ‘We have been developing a comprehensive strategy with a set of products and services delivered through their preferred channels to suit their life styles,’ the bank told Reuters. The jury however is still out on which lender is making effective inroads among the young, a segment targeted because people often stick with a bank for life once they have made their choice, analysts said. In a detailed survey commissioned by HSBC, and conducted by Nielsen last year, the bank said its market share of 18-24 year olds was nearly double that of Bank of China. It said it was aware of the increasing need to offer more online services. ‘We are investing heavily in developing new capabilities to meet customers’ needs,’ said Kevin Martin, HSBC’s head of retail banking and wealth management, Asia Pacific. HSBC will next year launch more products for smartphones and digital payments as well as new security features, Martin added. Citibank is also appealing to younger customers with 19 ‘smart’ branches in Hong Kong that boast the sleek lines of Apple Inc’s retail stores, touch panels, video conferencing facilities and iPads to access a wide range of banking services. Hong Kong spokesman James Griffiths said Citibank was also offering customers discounted fees on stock and forex trading via digital platforms to encourage more transactions. The question now for HSBC’s challengers is whether they can convert young people lured by attractive rates or flashy online offerings into lifelong customers. ‘HSBC isn’t that popular among young people,’ said John Pang, a 24-year-old civil servant who banks with the lender. ‘It hasn’t changed a lot in the past 5-10 years, the online interface still looks the same.

Excludes their equity in subsidiaries from exposure calculation

A file photo shows the Dhaka Stock Exchange building in the city. Bangladesh Bank on Sunday relaxed the provision for scheduled banks’ investment in the capital market by excluding their equity investment in subsidiary companies in calculating the banks’ capital market exposur.

Bangladesh Bank on Sunday relaxed the provision for scheduled banks’ investment in the capital market by excluding their equity investment in subsidiary companies in calculating the banks’ capital market exposure. The BB issued a circular to the managing directors and chief executive officers of all banks saying that the banks’ equity share in their subsidiary companies (merchant banks and brokerage houses) would not be included in the banks’ exposure in the capital market with an effect from January 1 next year. The central bank issued the circular on special power in line with the article 45 of Bank Company Act 1991. The BB relaxed the policy to make the capital market more vibrant, according to the circular. A BB official told New Age on Sunday that the banks were now allowed to invest maximum 25 per cent of their four heads of capital in the capital market on solo basis. The equity investment of the banks in their subsidiary companies is now also included in the 25 per cent. The four heads of the banks’ capital are paid-up capital, retail earnings, statutory capital and share premium account. The capital market exposure of six banks, however, crossed the limit of investment on solo basis. But, under the new provision the banks will be able to invest the 25 per cent excluding their equity share in their subsidiary companies from the calculation, the official said. He said that the banks would be able to provide capital to their subsidiary companies as per requirement of the banks. The banks have so far provided capital more than Tk 5,600 crore to their subsidiary companies while their (banks) total investment in the capital market stood at around Tk 23,000 crore. According to the bank company act, the banks are now allowed to invest maximum 50 per cent of their capital in the capital market on consolidated basis. The BB data, however, showed that the banks’ average investment in the capital market stood at 35 per cent on consolidated basis meaning that the banks will get enough scope for increasing their market exposure. On the other hand, the banks’ average investment in the capital market was 34 per cent on solo basis. The central bank took the decision following intensive pressure from the capital market stakeholders. The key index of Dhaka Stock Exchange, DSEX, had lost around 500 points from September 28 to November 11 as investors were apprehending that the market would fall further ahead of the capital market exposure adjustment deadline in July 21, 2016. On November 4, some 20 subsidiaries of banks and non-bank financial institutions urged the Bangladesh Securities and Exchange Commission to get Bangladesh Bank’s support for saving the capital market from institutional share sales worth around Tk 6,000 crore –Tk 7,000 crore by extending the banks’ capital market exposure deadline till December 31, 2020. The Dhaka Stock Exchange also proposed the same in a letter to the commission. Due to the prolonged market fall, commerce minister Tofail Ahmed at the inaugural ceremony of the DSE Brokers Association of Bangladesh on October 31 called on the authorities concerned to extend the deadline by another two years for adjusting the banks’ capital market exposure. Following intensive pressure, finance minister AMA Muhith on November 15 said the government would extend the July 2016 deadline for banks for reducing their stock market exposure by another two years. Muhith said that the government would amend the act and he would recommend extending the deadline by another two years as the banks would not be able to adjust their exposure within the existing deadline. ‘The capital market is being affected by the provision [of the existing deadline] of the law. We have decided to amend it as it has created panic among investors in the present crisis [stocks’ bear run],’ he said. After the Muhith’s statement, the DSEX recovered around 220 points till December 3.

Four state-owned commercial banks opened talks to lower their lending rates by 1-2 percentage points in a bid to compete with private lenders and spur investment in the economy.

The development came after the managing directors of the four banks held a meeting on December 13 at the Agrani Bank headquarters.

One state bank first made the proposal as the mismatch between deposit and credit growth rates continues to widen.

On November 5, the state banks' credit growth stood at 8.49 percent and the deposit growth 13.34 percent, according to central bank statistics. For instance, the deposit growth of the largest state bank, Sonali, was 15.27 percent while its credit growth was negative. 

Subsequently at the meeting, Agrani proposed cuts of up to 2 percentage points, which Sonali supported. Rupali and Janata were in favour of holding 2-3 more meetings to review the proposal. A high official of Sonali said in many cases the state banks have been losing borrowers to private banks, which offer lower interest rates.

At present, the state banks offer interest rates within the 10 to 15 percent range.

The rate of interest on term loans is 13-14 percent, while that for working capital is 14 to 15 percent, according to the central bank's November statistics.

In contrast, the private banks offer 11 percent for both term and working capital loans.

When contacted, Agrani Bank Chairman Zaid Bakht confirmed that the banks have discussed the matter of lowering lending rates but no decision has yet been taken.

However, Agrani has been considering giving rebates of up to 20 percent to their best customers as a new year's gift.

Borrowers who make timely payments now must be given 10 percent rebate, according to a Bangladesh Bank directive, which Agrani is offering to its good borrowers.

At the meeting, some were in opposition of lowering the rates this year as they have provision and capital shortfall. If the rate is cut this year, their profitability will fall. Instead, they suggested making the call in January next year.

Subsequently, it was decided that a meeting will be held in January to take the decision on the lending rate cut.

Meanwhile, several state bank officials said the reason for the sluggish loan disbursement is that the bankers are shaky about giving out credit after the spate of scams in recent times.

Though there is pressure from the head offices, the officials at the field level are reluctant to grant loans.

This shaky feeling is a new type of problem the banks have been facing, said a board member of a state bank.

Bangladesh Bank has relaxed the rules related to banks' investment in stocks in a move that analysts say would boost the ailing market.

From January, banks' capital given to their stockmarket subsidiaries will not be counted as stockmarket exposure, the central bank said in a notice yesterday.

The Banking Companies Act 1991, which was amended in 2013, has limited a bank's stockmarket exposure to 25 percent of its capital. The capital includes paid-up capital, share premium, statutory reserve and retained earnings.

The latest development will enable banks to make fresh investments in stocks, although the stockmarket exposure remains unchanged at 25 percent of their capital, said a senior official of the central bank.

There are 51 full-fledged merchant banks in Bangladesh, and most of them are owned by banks as their subsidiaries, according to Bangladesh Securities and Exchange Commission.

Stakeholders such as banks, merchant banks and brokerage houses have welcomed the move, which they believe would bring dynamism to the bearish market.

The decision will give banks a cushion against the hardship they are facing now with poor business, said MA Halim Chowdhury, managing director of Pubali Bank.

Pubali's subsidiary merchant bank has a paid-up capital of Tk 160 crore.

But from next month, it will no longer be counted as the bank's capital market exposure, meaning Pubali will get some fresh funding capacity to invest in stocks.

Similarly, AB Investment Ltd, a merchant bank owned by AB Bank, has a paid-up capital of Tk 500 crore.

If AB Bank's capital, including reserves and surplus stands at Tk 2,000 crore, it cannot invest a single penny in the stockmarket, as it would have already reached its exposure ceiling by way of its merchant bank.

The move to relax the conditions comes as the BB was under tremendous pressure to extend the deadline for banks to bring down their stockmarket exposure to 25 percent of their capital.

“But that is not possible without changing the law, which is also time-consuming. So, we have done it in another way,” a central bank official said.

Non-bank financial institutions also own some of the merchant banks, and another BB official hinted that a separate directive may be issued for them soon.