Left, WB Country Director Ellen Goldstein and senior economist Zahid Hussain

Poor roads and ports are becoming a challenge for Bangladesh's economy, the World Bank said in its economic update released yesterday.

The lender forecast the country's economic growth in the current fiscal year at around 6 percent, saying such a growth rate is healthy given the unfavourable global conditions.

The WB's senior economist Zahid Hussain presented a keynote at a press conference in Dhaka, while its Country Director Ellen Goldstein was present.

The report said Bangladesh's economy is performing below its potential, mainly due to weak external demand and domestic investment constraints.

Deteriorating conditions of roads and ports and a gas shortage in the manufacturing industries are among the factors that hinder investment, it said.

The country's economy grew by 6.3 percent and 6.7 percent in 2011-12 and 2010-11.

The government projected this year's growth at 7.2 percent, which the WB said is a challenging proposition.

“Progress in important highway development stalled due to irregularities in project implementation,” it said. “At Chittagong Port, the improvements in equipment availability and berth occupancy were overshadowed by disruptions from the rising turnaround time and low productivity,” it said.

The port handled Bangladesh's 80 percent export-import business worth more than $60 billion in 2011-12. But the Dhaka-Chittagong highways have been in bad conditions for years. Sometimes, congestion on the roads severely delays export-import business.

Though power generation increased by more than 24 percent between February 2010 and February 2012, the demand-supply gap was 1,000 megawatts in June this year.

“The expensive rental power plants have a short-term positive impact on growth, but longer-term solutions are needed,” the WB said. “Gas supply to industries also declined.”

The report also said a deepening crisis in the Eurozone is posing another threat to Bangladesh's economy, already evident in exports, particularly of knitwear products.

The global lender also focused on the deterioration in governance at state-owned commercial banks. Underutilisation of development programmes, especially big projects, and growing subsidies also cast a shadow on the higher growth prospects.

However, the WB said there are some silver linings, especially the improvement in macroeconomic management.

These are resilient remittances, declining inflation and international commodity prices, and a tight monetary policy. Flexible exchange rate and interest rates were also in favour.

A 57.4 percent rise in manpower exports in 2011-12 has helped the country maintain a double-digit growth in remittances.

Inflation fell to 7.4 percent in September from 12 percent in the same month a year ago, mainly due to a decline in commodity prices on the international market, said Hussain of the WB.

News: The Daily Star/Bangladesh/22th-Oct-12

The headline of a front-page story in the October 02, 2012 issue of the Financial Express was, "Banks' stock market exposure set at 40pc, BB denied control over SCBs." The news basically says that in the proposed amendments of Bank Company Act (BCA), 1991, the maximum limit of a bank's exposure to the capital market has been set to 40 per cent of the total paid-up capital of a bank. The existing exposure limit of a bank is 10 per cent of its total liabilities as stipulated in the existing BCA (amended), 2003. On October 03, 2012, other leading newspapers also carried news on this subject and said that this decision would benefit the stock market in Bangladesh as banks will be able to invest more once the amendment comes into effect. All those news and the aftermath pointed out two facts: one, market is smart and the other, there is severe regulatory failure.

The proposed amendment, available on the Bangladesh Bank's website, says that banks will be able to invest in the stock market 40 per cent sum of their total paid-up capital, share premium and statutory reserve - not only paid-up capital. All these three components, total paid-up capital, share premium and statutory reserve, are subset of total equity on the balance sheet. Total equity component of a bank can include many other items beyond those three elements. Many times, banks' statutory reserve could be higher than paid-up capital. Share premium could be zero to any amount.

It is not correct to say that setting banks' stock market exposure at 40 per cent in the proposed amendment will increase banks' investment in the stock market. And of course, data doesn't support that kind of conclusion. Because of the nature of its business, bank's total liability is much higher than its paid-up capital or even total equity. To make our analysis easier and consistent across the board, let's make an assumption that in the amendments of Bank Company Act, banks are allowed to invest 40 per cent of their "total equity" instead of only paid-up capital, share premium and statutory reserve. Generally speaking, sum of paid-up capital, share premium and statutory reserve is lower than total equity of a listed Bank. As already has been mentioned, the paid-up capital, share premium and statutory reserve are elements of total equity component on the balance sheet.

This article is based on my study of balance sheets of 21 listed Bangladeshi banks in 2011. (See the Table). For nine out of 21 banks, 21, 10 per cent of the total liability is even greater than total equity. For all the sample banks, 10 per cent of total liability is more than double when compared with 40 per cent of the total equity. On Average, 40 per cent of total equity looks like 4 per cent of total liability. Thus, in the proposed amendment, the ability of banks to invest in the stock market is actually reduced, on average, by more than 60 per cent when compared with existing exposure limit, i.e., 10 per cent of the total liabilities. So, if proposed amendment comes into effect, it will actually demand banks to reduce their investment in the stock market substantially.

Market also responded immediately to the newspaper reports on the proposed amendment of the Bank Company Act. On October 02, DSE (Dhaka Stock Exchange) General Index (DGEN) increased 2.55 per cent or 117 points. Out of 2.55 per cent increase in DGEN Index, banking sector alone represented 1.31 per cent or 60 points. However, the market is smart. The market found the loopholes in the newspaper reports and quickly adjusted as necessary which was reflected in the subsequent market returns. After the October 02 market rise, stock market declined for the next four consecutive business days.

Unfortunately, the whole situation is also an example of regulatory failure. None of the regulatory organisations, such as, the Bangladesh Bank, Securities and Exchange Commission (SEC) and the Dhaka Stock Exchange (DSE), came up with proper explanation of the proposed amendments in the Bank Company Act (BCA), and ultimately general investors had to pay the price. It takes years to instill confidence among investors but needs just a second to destroy it. The incident actually raised serious doubt on SEC's effort to control rumour and manipulation in the stock market. When will the regulators actually act like regulator?

The writer is a Faculty, School of Business, Independent University, Bangladesh (IUB).

mainul188@gmail.com

News: The Daily Financial Express/Bangladesh/21th-Oct-12

The average spread between lending and deposit rates of banks crossed 5.50 per cent despite the central bank's directive to bring down the gap to the level below 5.0 per cent, said sources with the Bangladesh Bank (BB).

Twenty-nine banks are not complying with the directive of the central bank on cutting the spread between interest rates. The spread between lending and deposit rates of the banks is more than 5.0 per cent, the latest data available with the BB shows.

Of them, six banks have the spread above 7.0 per cent and three banks between 9.0 and 12.44 per cent, according to data available with the central bank.

The lending rate means the interest rate a bank charges on a loan and the deposit rate means the interest rate it offers to a client on a deposit.

In August alone the banks' average spread stood at 5.56 per cent against 5.47 per cent in July last, as per the BB data.

The banks' average lending rate in August was 13.90 per cent against 13.77 in the previous month.

On the other hand, the deposit rate increased to 8.34 per cent in August, up from 8.30 per cent in July, the data shows.

The spread increased due to raising the lending rates by banks, BB sources said.

Most depositors are of the view that the banks make profit at their cost as the banks gain from the high spread.

In a meeting of bankers last month, all banks were told to comply with the BB directive on cutting the spread to the level below 5.0 per cent.

Chief executives of all banks attended the meeting, presided over by BB Governor Dr Atiur Rahman.

In that meeting, the BB placed a report on the rates of interest on credit and deposit for the month of July last.

The report said the upper cap on the rate of interest on credit was withdrawn earlier. It resulted in an upward trend in the rate of interest on both credit and deposit.

A central bank official said an unhealthy competition was going on among the banks in mobilising deposits. So they were offering higher interest rates on deposits, and as a result the rate of interest on credit was also going up.

The BB official said the spread in the private and foreign banks was much higher than that in other banks.

A bank was fined under the Banking Company Act for offering a higher interest rate than its official rate, said the report.

The BB report also said the credit flow to the small and medium enterprise (SME) sector was drying up due to the higher rates of interest.

A high official at a first generation private bank blamed some weak banks for ruing the healthy competition in the banking sector.

These banks resort to various ill practices to attract depositors, the official said, requesting not to be named. "As a result, other banks have to increase their rate of interest as well."

Another official at a private bank said if the rate of interest on deposit could be kept low, the rate of interest on credit would have also remained low and, resulting in the decline in spread.

He said the central bank should strengthen monitoring so that the banks do not go for any unhealthy competition.

News: The Daily Financial Express/Bangladesh/21th-Oct-12

 European leaders agreed Friday to police thousands of eurozone banks beginning next year as they sought to create much-needed jobs in their austerity-battered economies.

By the close of a two-day summit, France and Germany had patched up differences over how to beat the debt crisis, with the new watchdog for 6,000 banks a key condition for allowing a dedicated rescue fund to re-float troubled lenders. Leaders cited "significant progress" on a 120-billion-euro ($155-billion) package of measures to try to kickstart a climb out of recession as social and political unrest hits Spain as well as Greece.

But the bank deal appeared to come too late for Spanish lenders, who need recapitalisation to the tune of some 40 billion euros that Madrid had hoped would not be added to its public debt burden for fear of sparking new pressures on money markets.

German Chancellor Angela Merkel told reporters that direct recapitalisation by the eurozone rescue fund could not be retroactive, that it "will only be possible for the future."

Fellow hardliners the Netherlands and Finland adopted the same view when finance ministers from the three states met last month in Helsinki, seemingly reversing plans carefully laid down by the eurozone in June.

France is still pleading for the "Helsinki" trio to come round. A top EU official speaking anonymously after the summit ended said Paris has concerns about spillover effects from Spain, and maintained Merkel's remark came as "a surprise" as the 27 EU bloc leaders "did not settle this."

This official said the Spanish bank bailout could benefit from some direct recapitalisation later in the process, once the watchdog is up and running -- supposed to be later in 2013.

Spanish Prime Minister Mariano Rajoy faces growing political problems with a general strike called for November 14 and key elections in the autonomous Basque Country on Sunday and independence-minded Catalonia next month.

Rajoy said the direct aspect of recapitalisation was not an "urgent" issue for Spain, while talk of sovereign aid -- expected to take the form of a credit line initially -- also remains on the back-burner.

With market pressures considerably eased since the summer, the fresh commitment bird's eye bank supervision led by the European Central Bank is supposed to anchor a re-designed economic and monetary union.

Leaders are beginning to believe -- after three years in full crisis mode -- that the euro can be made more attractive to influential EU states still outside the currency bloc like Poland, one of the bloc's strongest economies.

After an 11-hour session into the wee hours to reach the bank supervision deal, Merkel said it was about ensuring a "solid legal framework" as the ECB puts in place "hundreds" of staff.

The target date here is January 1, 2013, Merkel citing a need for "democratic legitimacy," including a change to voting rights to assuage concerns in non-euro territories where eurozone banks operate, namely the global financial centre of London.

The eurozone voice at the ECB could have out-voted non-euro members in adjudication by an existing network of national supervisors at the European Banking Authority, so it was agreed this would be re-weighted, an "unprecedented" decision according to the earlier participant.

Difficult decisions remain to be taken in two more summits before Christmas, as seen by Britain's David Cameron threat to veto the European Union's budget for the rest of the decade and snub the Nobel Peace Prize-giving ceremony in Oslo in December.

News: The Daily Independent/Bangladesh/21th-Oct-12

City Bank Limited has signed an agreement with Siemens Bangladesh Limited at City Bank head office recently, said a press release.

Sohail R. K. Hussain, additional managing director of City Bank, and Shouvik Bhattacharya, managing director of Siemens, signed the agreement. Also some high officials from both the organisations were present at the signing ceremony.

Siemens Bangladesh Ltd, a global power house in electronics and electrical engineering, operating in the industry, energy and health care sector in Bangladesh from 1974 has recently been approached with the product of American Express corporate Cards by City Bank which is an innovative expense management solution for Siemens employees working across the country.

As per the agreement City Bank American Express Corporate Cards automates the official expense management process of a organisation that drive down the processing cost and free up the valuable time of the employees.

News: The Daily Independent/Bangladesh/21th-Oct-12