Bangladesh Bank Governor Atiur Rahman yesterday called for more control over state-run commercial banks to help them run professionally and enhance their accountability.

Exemption of state-owned banks from some of Bangladesh Bank's supervisory empowerments of Banking Companies Act stands in the way of effective supervision of these banks, Rahman said.

"Unless this differential treatment is done away with, management weaknesses from insufficient accountability are likely to linger in the state owned banks," he said.

Rahman spoke at a seminar, "Towards Bangladesh at 50: Financial Sector Resilience- Issues and Prospects" organised by Dhaka School of Economics at the Diploma Engineers' auditorium in the capital.

Rahman's comments came as the central bank's inability to govern the country's state banks the way it supervises the private commercial banks is widely blamed for the underperformance and irregularities at the state banks.

The central bank has full control over the private banks, but it does not have the same control over the state-run banks.

The Banking Companies Act stipulates that the central bank can dissolve a board of a private bank and appoint an administrator to it if its board of directors cannot run the bank properly. But in case of state-run banks the central bank can only recommend actions to the government.

The law says that the government will seriously consider the recommendation. But experts say the government does not always consider the recommendation of the central bank as seen recently when Bangladesh Bank recommended the finance ministry to restructure the board of Sonali Bank Ltd for its gross irregularities in lending Tk 3,600 crore to Hall-Mark Group and some other companies.

The finance minister came up with comments that the central bank cannot make such recommendations, which surprised many.

The governor also said the financial sector has fared in terms of resilience and stability under BB's evolving supervision approach outlined above.

Non-performing loans as percentage of total assets are at single digit levels, liquidity stresses arising from unduly high advance deposit ratios in some banks last year have eased off, according to Rahman.

“Stress testing exercises conducted by us and by World Bank and International Monetary Fund financial sector assessment missions have assessed Bangladesh's financial sector as resilient against moderate shocks,” he said.

Rahman however said this fairly reassuring overall view does not however mean that the country has now no issue in financial sector stability and resilience to be concerned about.

"The overall picture masks considerable variation in capital adequacy and solvency positions between bank groups.”

Foreign banks maintain capital cushions well above prescribed minimum and local private sector banks generally meet requirements but state banks fall well behind in asset quality and capital adequacy, he said.

"Even in local private sector banks, the reported low nonperforming loan levels are due in part to somewhat looser local loan classification and provisioning requirements relative to international best practices,” he said.

"On the whole our financial sector continues suffering from (and to some extent sharing) the general deficiencies of local business culture in respect of corporate governance and financial disclosures."

Although not serious immediate threats to institutional resilience and financial stability, these deficiencies limit capacities of banks in forging strong, deep relationships in international financial markets to attract investment inflows in volumes needed for realising the nation's growth aspirations, Rahman said.

The recent BB revision of instructions on loan classification, rescheduling and provisioning are intended to address this shortcoming, by aligning local standards with international norms.

The governor also said much of the country's growth related new investments will have to be attracted from abroad, which would heighten the country's financial sector's exposure and vulnerabilities to market volatilities in the global scene.

"In step with rising external exposures, our financial sector will need to build up and bolster resilience against shocks from perennial volatilities and instabilities of the international markets."

Besides external shocks, there are demand and supply shocks of domestic origin to build resilience against.

Rahman said preparatory work for Basel III implementation in Bangladesh financial sector is ongoing, for full implementation by the 2018 deadline or earlier.

Rahman said fallouts on financial sector from two stock market price bubble collapse episodes of 1995 and 2010 were likewise limited and easily contained.

News: The Daily Star/Bangladesh/7th-Oct-12

The Asian Development Bank (ADB) on Wednesday said the net losses of the 48 non-financial state-owned enterprises (SOEs) expanded markedly to $2.1 billion in FY2012 from the previous year’s $1.2 billion. The Bangladesh Petroleum Corporation (BPC) recorded the largest loss, at $2.0 billion, reflecting increased oil imports, needed to run the numerous small rental power plants that came on line, and reflecting that BPC was not allowed to pass through higher international oil prices in full. The Bangladesh Power Development Board (BPDB) loss grew by $0.4 billion to $1.1 billion, despite several adjustments in power tariffs. The increase stemmed from higher volumes of powerpurchased at higher prices, because of increased fuel costs, from the rental power plants.

The $3.1 billion combined loss of BPC and BPDB absorbed just a little over four-fifths of government subsidy spending for the year, equaling 2.7 per cent of GDP, the ADB quarterly review said.

During the fiscal year, the government released $1.9 billion to enable BPC and BPDB to settle part of their past liabilities to banks and other creditors. Large profits of $740 million earned by the Bangladesh Telecommunications Regulatory Commission helped to narrow the enterprise sector’s overall loss, the review said.

To cut BPC losses, the government in FY2012 raised diesel, kerosene, and gasoline prices by 19.0 per cent–32.6 per cent, and furnace oil, mostly used in power generation, by 42.9 per cent. The government also raised bulk power tariffs by 52.9 per cent and retail tariffs by 27.9 per cent to reduce BPDB losses, as well as the price of compressed natural gas used by vehicles by 20 per cent.

Despite these measures, the government will need to implement further substantial price increases in FY2013 to meet the budget target for subsidy spending.  Export growth dropped to only 6.2 per cent in FY2012 from 39.2 per cent in FY2011.

Garment exports, providing over three-fourths of earnings, grew by only 6.6 per cent, from 43.4 per cent a year earlier. This downdraft in exports partly reflected the reversal of the large spike in cotton prices a year earlier, partly weak demand in the European Union (EU) and US, and partly, as export volume declined, buyers aggressively seeking lower prices. Export growth for other products also tracked dropping demand, the statement said.

Overdependence on garment exports and sales concentrated in the EU and US markets exposes Bangladesh to risks from sudden changes in demand. Garment exports to new markets have been growing, but their share is still quite small.

Imports grew by only 5.3 per cent in FY2012, slowing from 41.8 per cent a year earlier. As the garment industry depends heavily on imported inputs, lower prices for cotton and other raw materials were important contributing factors, as were easing prices for petroleum products during the fiscal year. Moreover, food grain imports declined sharply because of the earlier high build-up of stocks. Only imports of consumer goods—a small share of total imports consisting mainly of sugar, milk, edible oil, and oil seeds—grew rapidly.

Xinhua adds: The Asian Development Bank and partners will fund an infrastructure upgrading project to cushion vulnerable rural communities in Bangladesh’s over a dozen coastal districts from the worsening impacts of climate change, said the Manila-based lender Wednesday.

It said the project will finance upgrading of around 540 kilometres of roads, bridges, culverts , as well as improvements of rural markets, and will build and improve cyclone shelters and animal shelters.

Road upgrading will involve improving existing roads to climate- resilient standards and the widening and rising of embankments, with suitable slope protection against erosion and wave action, said the Bank in a statement.
It said road safety measures will be incorporated, along with road maintenance plans, and job opportunities for women.

Market improvements will include paved access roads and trading areas devoted to women traders, elevated sheds, water supply systems and drainage and sanitation facilities, with beneficiaries receiving training to operate and maintain facilities, it added.

News: The Daily Independent/Bangladesh/4th-Oct-12

Al-hajj Mohammad Hasan, Chairman of the EC of Shahjalal Islami Bank presides over the 502nd EC meeting at the bank’s head office in Dhaka recently.

The 502nd Executive Committee (EC) meeting of Shahjalal Islami Bank Limited was held recently at the bank’s head office. Al-hajj Mohammad Hasan, Chairman of the EC presided over the meeting, said a press release.

The meeting discussed various issues related to investment in different sectors. Alhaj Anwer Hossain Khan, Chairman of the Board of Directors, Al-hajj Tofazzal Hossain, Vice Chairman, Md. Abdur Rahman Sarker, MD, Md. Mukhter Hossain, AMD, Md. Abdul Jabber Chowdhury and Md. Shafiul Azam, DMDs and Al-hajj Akkas Uddin Mollah, Al-hajj Eng Md. Towhidur Rahman, Al-hajj Mohammed Solaiman and Al-hajj Mohiuddin Ahmed, Directors were present in the meeting.

News: The Daily Sun/Bangladesh/4th-Oct-12

Al-hajj Nur Mohammad, Chairman of Jamuna Bank Foundation, is going to attend the future of international conference on ‘Corporate Social Responsibility’ (CSR) beginning today (Thursday).

The three-day conference will be held at Humboldt University in Berlin, Germany, said a press release.

Al-hajj Nur Mohammad, invited by Humboldt University to attend the conference, will present a speech on activities of Jamuna Bank and its CSR activities in the banking sector of Bangladesh.

News: The Daily Sun/Bangladesh/4th-Oct-12

Bangladesh Bank (BB) advised the commercial banks to encourage traders for opening Letter of Credit (LCs) for import of essentials to keep the prices of the essential commodities stable ahead of two major festivals – Eid-ul-Azha and Durga Puja.

Sources said the central bank has already sent letters to the state-owned and private commercial banks to this effect.

The central bank’s latest advice came in the wake of declining trend of overall imports in recent months as the central bank maintains a tightening monetary policy to contain the inflationary pressure.

Sources said the directive was given to contain price spiral of essentials during the upcoming festive seasons since some dishonest traders try making hefty profit by taking advantage of supply crisis ahead of any major festival.

After announcing its monetary policy in last July, the central bank asked the commercial banks not to fund any non-productive import. The BB is executing the same monetary policy since immediate-past fiscal.

According to the central bank statistics, opening of LCs against imports declined by slightly above 13 percent to $ 2.4 billion in August compared to $ 2.8 billion in July last. The settlement of LCs fell by 12 percent to $ 2.4 billion in August compared to $ 2.8 billion in the previous month.

News: The Daily Sun/Bangladesh/4th-Oct-12