The state-owned Janata Bank Limited has suspended local and foreign purchase bill payment service recently due to fund shortage.

The Asset Liability Committee (ALCO) of Janata Bank has made the decision in a recent meeting presided over by Bank’s Chief Executive Officer (CEO) and Managing Director SM Aminur Rahman. The Bank authorities issued a circular to this effect last week to inform the matter to local exporters.

Meanwhile, Bangladesh Garment Manufacturers and Exporters Association (BGMEA) President M Shafiul Islam sent a letter to Banking Division Secretary Shafiqur Rahman Pathwari to express their concern about the suspension move. In the letter, he urged the government to make Janata authorities alter its decision for the sake of the garment exporters.

Local garment manufacturers are facing tough international competition due to a recession-like situation in the Eurozone countries, reducing per unit price of apparel items, the letter also reads.

A huge number of country’s working force is employed in the RMG sector, the letter said, adding that apparel manufacturers would face a huge crisis to pay workers’ salary if they fail to en-cash their bills.

About the apparel exporters’ concern, Banking Division Secretary Shafiqur Rahman Pathwari told daily sun on Monday, “We have already received the letter from the BGMEA and will inform the matter to finance minister,” Meanwhile, the financial health of the state-owned commercial banks (SCBs) has deteriorated in last three years because of concerned authorities’ failure to manage their activities properly, Banking Division sources said.

In recent months, the easy access to SCB funds by the government to meet the latter’s financing needs, in the context of growing budget deficit and deteriorating balance of payment (BOP) problems in the outgoing fiscal year, has further aggravated the situation.

The deposit growth of four SCBs including Janata has declined in recent months compared to their credit growth, which indicates their weak treasury management, Banking Division official said.

Last year Janata Bank took loan from the call money market to meet its regular financing needs, according to Bangladesh Bank information. However, Janata Bank’s classified loans were the lowest among the SCBs at the end of 2011. The deposit of the bank has scaled up to Tk 36.185 billion which was also 26.27 percent higher than that of the previous year.

The Daily Sun/ Bangladesh/ 15th May 2012

The government on Monday approved a proposal to form a Tk 1 billion fund to provide technical assistance to the projects being implemented under public-private partnership (PPP).

The approval came at a meeting of the Cabinet Committee on Economic Affairs with Finance minister AMA Muhith in the chair.

The meeting also approved a set of guidelines, prepared by the Finance Division, for some mega projects including deep-sea port, metro rail and elevated expressway.

Besides, the cabinet body also okayed a proposal to spend up to 30 percent of the projected expenditure of Viability Gap Funding (VGF) under the PPP projects.

The government, however, failed to spend any budgetary allocation for the PPP projects in the last three fiscals.

“Since coming into power, the government has allocated more than Tk 35 billion for PPP projects. But in the last three and a half years, the finance ministry failed to spend a single taka from the fund other than making a policy and setting up an office in this regard” a finance ministry official said.

According to the draft technical assistance guideline, the revolving fund will be managed by the PPP office. Financial assistance from development partners will be accepted in the fund.

The assistance to be given to PPP projects will later be deducted partially or in full from successful bidders.

The technical assistance may be used in pre-feasibility and detailed feasibility studies, purchase processing, tender document preparation and evaluation, completing technical, financial, commercial and legal assistance activities of the project.

Besides, the VGF fund will be released on the basis of the equity of private entrepreneurs and will be given on a month, quarter, half-year and yearly basis.

According to the draft guideline, the VGF assistance will be given to only those projects which will be completed on build, operate and transfer basis.

For getting such assistance, the bidder must be selected through competitive bidding and the economic rate of return of the project must be equal or more than the level fixed by the PPP unit of the Finance Division.

The Finance Division will change the level time to time through issuing circulars.

An official of the Finance Division said the guidelines were prepared after consulting with the technical assistance team of the Asian Development Bank, taking opinions of the stakeholders and reviewing the guidelines of different countries.

The government earlier adopted a public-private partnership (PPP) policy. As per the policy, a separate PPP office was established under the Prime Minister's Office. A chief executive officer was also appointed to the PPP office.

Besides, a PPP unit was formed at the Finance Division to facilitate technical assistance the PPP projects.

The government launched the PPP initiative in fiscal 2009-10, allocating Tk 25 billion in the budget in a bid to involve the private sector in big infrastructure, power, and energy projects.

The cabinet committee also gave its nod to a proposal of commerce ministry to exempt Trading Corporation of Bangladesh from public procurement rules for another three years to facilitate import of seven essential items quickly to keep the prices stable.

The exemption will allow the state-run TCB to import edible oil, sugar, pulse, gram, onion, date and baby foods quickly without following the mandatory PPR to speed up the process of market intervention ahead of the Ramadan, officials said.

TCB has been enjoying such exemption since 2009, which will expire on May 26 this year.

The Daily Sun/ Bangladesh/ 15th May 2012

Pedestrians walk past the JP Morgan Chase headquarters in New York.

Jpmorgan Chase & Co lost at least $2 billion in its failed hedging strategy not only because it was sloppy, but because it grew too big in a rarified market of complex financial instruments that it had created.

The strategy involved credit default swaps, a kind of derivative that was at the centre of the 2008 financial crisis. The swaps were originally used to hedge the bank's exposure to other investments it owns and included contracts tied to North American investment grade and junk corporate bonds, as well as bonds in Europe and Asia.

JPMorgan helped invent the market for such swaps, known as "synthetic" positions because they trade risk without trading the actual bonds. But two things made these particular positions untenable and costly for JPMorgan, according to traders in the market and derivatives experts.

First, as bond markets shifted and forced JPMorgan to realign its hedges, the bank layered swap on top of swap, complicating the structure and increasing the risk that its hedges would fail to offset losses from one swap with gains from another.

Second, the sheer size of JPMorgan's swap position became more than the thinly traded market could easily manage. The lack of liquidity meant the exit door was too small for JPMorgan to fit through quickly once the trades started to deteriorate.

Making matters worse, because JPMorgan was so dominant in this market it became clear to hedge funds and other trading entities that it was isolated and at risk -- providing opportunities for those who could successfully trade against the bank's position. The complexity of the trades made it difficult for the bank to stay on top of the risks as its position worsened.

Jamie Dimon, JPMorgan's CEO, has acknowledged sloppy execution and oversight of the trades. And he said it could take the rest of this year or longer to unwind the positions. He has declined to give details about how illiquid the positions are, but has said the bank could lose another $1 billion or more before the company can trade them away. Competing traders could force JPMorgan to pay even more to exit the trades, now that many have figured out details of the bank's position.

The effects of JPMorgan's stumble are still being tallied.

Though the bank can easily absorb a loss of $2 billion or more, its credit rating was cut on Friday by Fitch Ratings and its reputation for avoiding problems was dented. Dimon's calls to ease pending regulations have lost credibility. After all, the regulations are supposed to prevent banks from taking big risks of this kind with their balance sheets. On Friday, the bank's shares plunged more than 9 percent, wiping about $15 billion off its market value.

The bank is investigating how it got into the mess, and it is expected this week to accept the resignation of Ina Drew, the New York-based head of the Chief Investment Office where the trades were made, and ask for the resignations of two of her subordinates, London-based Achilles Macris and Javier Martin-Artajo, according to sources familiar with the matter.

A JPMorgan spokesman declined to comment for this story.

JPMorgan created the credit default swap market in the 1990s, when a team of its financial engineers designed the instruments so institutions could hedge, or speculate on, changes in the creditworthiness of bonds. In 2001, the bank launched an index of swaps that helped pave the way for the instruments to be actively traded.

At the root of the losses, traders at other firms say, were bets tied to debt through an index known as CDX.NA.IG.9, which tracks credit default swaps on about 127 investment grade companies in North America, including Target, Home Depot, Kraft Foods, Wal-Mart and Verizon Communications.

The position came to consist of layers of index positions that were both for and against corporate creditworthiness getting worse. Some of the positions were supposed to offset, or neutralise, one another. But traders say the risk that the layers would not work together as intended increased as more were added.

For two decades, "financial institutions have been gambling, and often losing, based on assumptions that historical correlations will remain constant or converge," said Frank Partnoy, a former derivatives trader who writes books on the instruments and teaches law at the University of San Diego.

Some traders believe JPMorgan's assumptions began to go awry early this year. One position in favour of a broad improvement in corporate creditworthiness lost money when credit weakened. Worse, a hedge on that position lost money, too, when credit ratings fell for fewer companies than the bank expected in that situation.

The growing problem in the layers of positions probably stayed below the surface because of the way the portfolio was constructed, said Janet Tavakoli, an expert in derivatives and structured financial instruments.

"The nature of JPMorgan's large CDS book is that even a fool will appear to be making money as revenues pour in" from selling protection against default, said Tavakoli, adding that in her view the kind of valuation models JPMorgan uses "cannot distinguish between dumb trades and smart trades." The overwhelming flaw is that assumptions can be manipulated - whether intentionally or otherwise - so that an income stream that isn't hedged appears to be hedged, she said.

But hedge funds and other institutions in the market smelled weakness and dozens took advantage of the bank, according to traders. Reports by the Wall Street Journal and Bloomberg in early April about the bank's giant positions only made awareness of JPMorgan's problem and its isolation greater.

While Dimon has declined to describe the specific positions, he said the bank made the portfolio "more complex" as it tried to "rehedge" its positions over time.

The losses from these trades are embarrassing for JPMorgan not only because the bank helped invent the market, but because the trades themselves are designed to protect the bank from losses. Like insurance policies, the contracts give a buyer the right to collect a payment from a seller if a bond goes into default. As market demand for these insurance instruments increased, banks created ways to trade cross-sections, or tranches, of the synthetic indices.

Now JPMorgan, which emerged from the financial crisis with relatively few wounds and enormous new power and influence, has, by Dimon's own admission, lost credibility because of its mishandling of derivatives.

The Daily Star/ Bangladesh/ 15th May 2012

Nurul Amin

It is difficult to stop the so-called multilevel marketing companies from cheating people without further financial inclusion, said the chairman of the Association of Bankers Bangladesh.

In an interview with The Daily Star, Nurul Amin said 50 percent of the population does not have access to health and education.

They are easily lured by the attractive advertisements and propaganda of these companies, he said.

“If people cannot be made bank-oriented, these MLM companies will continue to cheat people,” Amin said.

In India, more than 60 percent of the population has bank accounts. It is only 30 percent in Bangladesh. The number of bank account holders may have increased after the central bank allowed people to open accounts with only Tk 10.

Private banks now open an equal number of branches in urban and rural areas. “As a result after about five years, more people will have access to banks, which may narrow scope for cheating by MLM companies,” he said.

Amin, also the managing director of National Credit and Commerce Bank Ltd (NCC Bank), talked to The Daily Star on a series of issues and the much-talked-about Destiny Group.

MLM companies try to win people's trust through attractive advertisement, but eventually it becomes clear that their so-called business is not based on any ethical policy, Amin said.

Before the Destiny scandal, many such incidents like Jubok and Unipay2u occurred in Bangladesh.

In case of Destiny, the government and regulatory agencies took cautionary steps in time. “I think the government is in the right direction,” Amin said.

On an allegation that the ABB functions as an agent of the central bank instead of working independently, Amin said: “The ABB is no collective bargaining agent.”

It is a voluntary organisation working for the development of the community and has to work within the boundaries of the law, he said.

“Bangladesh Bank is the regulator and we are operators. We must have some relations. However, we think if the central bank wants to take any policy decision it is better if they take it after consulting with the ABB,” Amin said.

About the new banks recently approved by Bangladesh Bank, he said it would have been better if the banks had been of specialised types -- perhaps for the garment industry or small industries or regional.

Now, a number of banks have already been approved and the finance minister has said the permission was given on political consideration. So there is no scope to comment on it, he said.

“We hope competition and fair play will continue to be there after the new banks emerge.”

Amin also focused on banks' involvement in the stockmarket.

The exposure of banks has now become bearable and within a limit, he said.

However, if the exposure is limited to 25 percent of their capital after an amendment to the banking law, it might be initially difficult for the banks to maintain it.

NCC Bank is going to step into its 20th year. It started its journey with Tk 19 crore in paid-up capital in 1992. Its paid-up capital was Tk 695 crore in 2011.

The bank's assets now stand at about Tk 11,000 crore and the bank has been expanding its client base every day. The bank's deposits have crossed Tk 8,000 crore this year.

NCC Bank's net profit rose 3 percent to Tk 421 crore in 2011, compared to the previous year, according to data from the bank. The bank has 87 branches across the country and will open six more branches this year.

The power crisis is the biggest problem in infrastructure development, Amin said. He said NCC has bankrolled three power projects.

About the overall situation in the banking sector, Amin said there seems no big crisis in the sector now due to monitoring by the central bank and the banks' self-regulation.

He, however, said 12 primary dealer banks face some problems in maintaining the credit-deposit ratio.

He said the central bank's cooperation is required in this case.

The Daily Star/ Bangladesh/ 15th May 2012

State Bank of India has become a sponsor of the forthcoming 3rd Indo-Bangla Trade Fair (IBTF-2012), to be held in Dhaka from May 31at the Pan Pacific Sonargaon Hotel, says a press release.

A memorandum of understanding to this effect was signed this moving at the SBI office in Dhaka between the bank and event management company of IBTF-2012 Triune Exhibition and Event Management Services

Ltd (TEEMS).

Pinak Chakraborty, country head in Bangladesh of State Bank of India, and Kazi Wahidul Alam, chief co-ordinator of IBTF-2012 and managing director and chief executive officer, TEEM signed the MOU.

Dewan Sultan Ahmed, chairman, Fair Sub Committee of IBCCI, Jahangir Bin Alam, secretary, IBCCI, Gian Parkash Khetarpal, chief executive officer, and Pranay Ranjan Dwivedi, head of risk management Unit of State Bank of India, were also present among others.

Organised by the India-Bangladesh Chamber of Commerce and Industry (IBCCI), the 3rd version of the Indo-Bangla trade fair is expected to be participated by a large number of entrepreneurs, service providers, and traders from both India and Bangladesh.

The Independent/ Bangladesh/ 14th May 2012