Siddique Islam

The market share of state-owned commercial banks (SCBs) squeezed slightly while private banks managed to increase shares in 2009, the central bank has said.

"In 2009, SCBs held 28.6 per cent of total industry assets as against 31.1 per cent in 2008. PCBs' share rose to 57.4 per cent in 2009 as against 54.2 per cent in 2008," the Bangladesh Bank (BB) said in its annual report for fiscal year 2009-2010, released Wednesday last.

Foreign commercial banks (FCBs) held 7.4 per cent of the industry assets in 2009, showing a declining trend over the previous year.

Shares of assets held by foreign banks came down to 7.4 per cent in 2009 from 8.0 per cent of the previous year, according to the report.

However, shares of assets of the government-owned development finance institutions (DFIs) were 6.6 per cent in 2009 against 6.7 per cent in 2008.

"The market share of PCBs is increasing gradually mainly due to their aggressive banking while SCBs' share decreased because of government-directed lending," former managing director of Agrani Bank Limited Syed Abu Naser Bukhtear Ahmed told the FE Friday.

He also said PCBs are giving priority to corporate clients while FCBs are providing their services mainly to multinational corporations.

"The customer base of SCBs is increasing but the volume of businesses hasn't expanded at the desired level as they are providing credit primarily to agriculture and SME (small and medium enterprises) sectors," the senior banker said.

Total deposits of the banks rose to Tk 3037.6 billion in 2009, from Tk 2561.4 billion in 2008 showing an overall increase by 18.6 per cent.

Four SCBs' share in deposits decreased by 1.0 percent point to 28.6 per cent in 2009 from 29.6 per cent of the previous calendar year, the BB data showed.

On the other hand, 30 PCBs' deposits in 2009 amounted to Tk 1792.4 billion or 59.0 per cent of the total industry deposit against Tk 1450.7 billion or 56.6 percent in 2008.

Nine FCBs' deposits in 2009 rose only by Tk 0.9 billion over the year.

In 2009, the four DFIs' deposits were Tk 161.1 billion against Tk 137.8 billion in 2008 showing an increase of 16.9 per cent over the year.

Currently, a total of 47 banks with 7246 branches are operating their business across the country.

News: The Financiale Xpress / Bangladesh/ jan-29-2011

Bangladesh Bank will keep on its efforts to restore the normalcy at the bourses and will do everything possible to bring back investors confidence, BB high officials said yesterday.

They, however, ruled out the criticisms that BB initiatives to contain soaring inflation contributed to the debacle of the capital market. Rather, some vested quarters’ interests and somewhat policy makers’ failure were active behind the fall, they observed.

“BB mainly deals with the containment of the inflation through an increased reserve. But, it can’t be blamed for the volatility of the share market,” SK Sur Choudhury, executive director, said.

Choudhury ruled out the scheduled banks’ excessive involvement in the share business saying that banks’ present exposure to the capital market is only 3.58 percent or Tk 125.41 billion of the total market of Tk 3508 billion, which played little role in the debacle.

“You won’t see too much problem in the country’s banking sector, but it would have been in a danger if the central bank didn’t take some timely measures in line with the Bank Company Act,” he told journalists adding that banks are now well below their exposure limit--10 percent of their total liabilities--as of this January.

The heated call money rate has also been tamed to 4 to 8 percent, even lower than the rate set by the regulator, he said adding: “The call money rate rose due to mismanagement in some banks.”

News: Daily Sun/Bangladesh/24 Jan 2011

The government will sign a memorandum of understanding (MoU) with the commercial banks for introducing electronic government procurement (e-GP) mechanism as the system requires electronic payment facilities.

Initially, the MoU will be signed with 12 banks by the end of this month and by turn all other banks will be tied up with the system in a bid to ensure accountability and transparency in the government procurement.

It was decided at a meeting between the Central Procurement Technical Unit (CPTU) and the commercial banks along with the central bank at the conference room of the Implementation Monitoring and Evaluation Division (IMED) in the city yesterday.

IMED secretary Habib Ullah Majumder presided over the meeting organised by the CPTU.

CPTU Director General Amulya Kumar Debnath, Bangladesh Bank Executive Director Nazneen Sultana, CPTU Director Aziz Taher Khan, representatives from 12 banks and other officials were present at the meeting.

The CPTU made a presentation at the meeting on e-payment options for introducing the e-GP system. The representatives of the banks discussed about their existing system, capacity and involvement in the process of introducing the e-payment system.

The officials said that all the banks do not have the same capacity and system for such operation. So, it has to be sorted out between the banks and CPTU.

Bangladesh Bank representative suggested that the banks individually would fix a reasonable service charge for tenders following their bank guidelines.

The meeting decided that the banks would expedite their preparation for this and CPTU would hold further discussions with them to finalise the MoU and technical, and management issues as soon as possible.

The CPTU is implementing the Public Procurement Reform Project-II (PPRP-II) supported by the World Bank. Introducing e-GP on pilot basis in four target agencies such as LGED, REB, WDB and RHD is one of the four components of the PPRP-II, sources said.

After success of the pilot project, the system will be introduced at all ministries and divisions by June this year to ensure efficient, effective and transparent public bidding procedures.

News: Daily Sun /Bangladesh/19 Jan 2011

Rejaul Karim Byron

Most private banks have ventured into risky business to bag excessive profits that inflated share prices and call-money rates.

According to Bangladesh Bank (BB) statistics, the credit-deposit ratio in private banks was 89 percent last year, which was 73 percent in state-owned commercial banks (SCB) and 83 percent in foreign banks.

Banks are allowed to lend up to 82 percent after maintaining a statutory liquidity requirement against deposits. If any bank wants to go for aggressive banking it can raise the ratio to 85 percent by adding capital alongside deposits, the central bank said.

It was revealed that 20 out of 30 private banks lend up to 85 percent against deposits. Some banks lend more than 100 percent, which means they lend by borrowing from the call-money market at higher interest rates.

Lending growth of 30 out of 43 local and foreign commercial banks was much higher than their deposit growth.

According to senior bankers, banks cannot lend more than its deposit growth but many private sector banks, even SCBs, defy the norm.

The deposit growth of one private bank was 4 percent whereas its credit growth was 22 percent. Another private bank posted 34 percent deposit growth, while its credit growth was 64 percent.

Bangladesh Bank officials said the banks went into risky banking to make high profits overnight.

In recent times, the banks made most of such investments in the share market to take returns on investment. As a result, shares were overvalued, one of the officials said.

The chief executive officers of private banks receive high salaries, so the shareholders consider their banks will make more profits quickly, enabling them to earn more in turn, said an official of Sonali Bank to The Daily Star.

K Mahmud Sattar, president of the Association of Bankers Bangladesh (ABB) and managing director of City Bank, said there was huge liquidity surplus in the banking sector last year. As a result, the banks put emphasised increased credit investment.

While lending excessive amounts, many banks failed to manage their assets and liability properly, he added.

“Our banking sector is in a very strong position now. Depositors have no risk as the banks are going for aggressive banking. Some banks may not have maintained ideal practices though.”

Sonali Bank Chairman Kazi Baharul Islam and Krishi Bank Chairman Khandker Ibrahim Khaled said such risky and aggressive banking must be stopped.

If a bank is caught practising so risky and aggressive banking in any other country including neighbouring India, the central banks take punitive action against the delinquent banks.

Islam said it also shows the incompetence of the bank authorities in fund management. Alongside, it seems that there was lack of competent supervision on the part of the board of directors of the banks concerned.

The central bank should take stern actions in this regard, he said.

“If the central bank goes for taking actions, you reporters should write that Bangladesh Bank is up to destroying the capital market,” said Sattar.

BB Executive Director SK Sur Chowdhury said lending should be within 80 percent of its deposits for sound and safe banking. The central bank monitors it regularly to ensure that banks do not cross the limit. BB has been issuing warning letters, he said.

Many observers hold the central bank responsible for the recent slump in the share market. They say if the BB had monitored strictly and checked the aggressive banking, the shares would not have been overvalued.

A central bank official said BB was warning the banks since June last year. Despite resistance from some powerful quarters, the central bank advised the banks on July 6 last year to be cautious in lending in the capital market.

News: The Daily Star /Bangladesh/17 Jan 2011

Md Fazlur Rahman

Gone are the days when budding entrepreneurs in Bangladesh stumbled to get access to funds to start their own ventures or expand existing operations. Commercial banks and many other non-banking financiers are now more than willing to facilitate their dreams with funds.

Banks and other financial institutions have been in operations in Bangladesh since its independence in 1971. But it was not until 1999 when banks paid heed to the small and medium enterprises (SMEs), which make up 75 percent of the domestic economy.

However, getting a loan is not an easy job for the first time entrepreneur. There were a number of banks in the country before the new millennium, but they were not serious about standing next to the SMEs, say entrepreneurs. They believe there have been positive changes in how banks look at them, but there is still a long way to go.

“Banks should look at the potential of an entrepreneur and make investments accordingly, rather than giving priority to their likes and dislikes,” said Abdul Mannan, owner of Remo Chemicals in Dhaka.

“Banks still only look at things like whether the borrower will be able to make regular repayments or not. This is not entrepreneur banking.”

He said small enterprises have become large over the years around the world. “We can do the same. In Bangladesh, there are many potential entrepreneurs who can do a good job. But they cannot go far for an absence of easy credit.”

“We are still talking about the cost of funds, whereas other countries have progressed far. We cannot develop in this way.”

Mannan said the banks are more interested in trading activities rather than manufacturing.

Of late, there has been a trend among the financial institutions to reach out to the SMEs. Credit goes to the central bank for this. Bangladesh Bank (BB) set targets for the financiers in 2009 for SME banking.

Local banks disbursed Tk 38,283 crore among 234,969 SMEs in the first nine months of 2010, against a target of Tk 23,995 crore. BB data shows that less than Tk 15,000 crore was lent to the sector in 2009.

In 2009, the central bank redefined SMEs and loan limits, and directed the banks to prioritise small enterprises and women entrepreneurs. The loan range for small entrepreneurs was set at Tk 50,000 to Tk 50 lakh. For the medium enterprises, no limit has been mentioned. The banks decide the amount for such entrepreneurs on the basis of need.

There are about 6 million SMEs and micro enterprises in Bangladesh, according to Asian Development Bank.

The SME is the largest sector in terms of employment generation, even though it accounts for 6 percent of the country's $100-billion economy, according to Bangladesh Economic Review 2009.

The SME sector now contributes up to 25 percent to the gross domestic product and accounts for about 40 percent of manufacturing output, 80 percent of industrial jobs and nearly 25 percent of total labour force, according to SME Foundation. Currently, banks have marked interest rates for the SMEs at between 14 and 20 percent.

Central bank officials said there is still apprehension among banks about SMEs as they do not have a clear picture of the sector and its potential.

“However, they are gradually becoming interested. Now, banks are interested for two reasons -- new business and persuasion from the central bank,” said an official of SME and Special Programmes Division of BB.

He said under the liberalised financial system, BB can not force banks to go for any particular area. “But we have been very effective in telling them what areas and segments they should cover. We have introduced some awards for the banks that comply, like easy approval of new branches.”

“As a result, many banks have come forward and are disbursing loans to the sector.”

The central bank official said banks in Bangladesh have always wanted to net large or corporate clients. “There is huge competition among banks today as there are a significant number of banks in the market. But the number of corporate houses is not that big compared to that of financial institutions.”

Banks' scope for large loans is shrinking. As a result, SMEs have emerged as a new area of business.

BB and SME Foundation are arranging a number of programmes to give banks a better understanding about the sector, to change their mindset. “But the momentum is still not there, but we are hopeful,” the official said.

SMEs face difficulties due to reluctance by banks to provide loans. Many banks are shy to lend to them because of high processing and monitoring costs.

Bankers however said banks are enthusiastic about tapping into the sector.

“We are very aggressive. Today, clients do not need to come to banks; rather our field level officers identify them and take products to them,” said Syed Faridul Islam, head of SME banking of BRAC Bank.

“SME is a major sector for growth potential for banks. We have proved that banks can still be profitable by serving SMEs. The sector has brought new growth opportunities for us,” he said.

He said: “Whenever we receive any query about loans, our officials visit them, take note of their demand and business conditions. After verifying the applicant's qualifications, we offer products.”

“Things have changed in the last three-four years, thanks to Bangladesh Bank's awareness drive,” said Islam.

BRAC Bank is the fourth largest SME bank in the world, with 429 unit offices across the country, exclusively catering to growing entrepreneurs. Today, with over 10,000 crores of loans disbursed till date, it is the country's largest SME financier.

Since its inception in 2001, it has disbursed nearly Tk 14,000 crore among three lakh entrepreneurs across the country.

Islam said interest rates for SME loans are high due to high cost of funds and monitoring.

Non-bank financial institutions also have a strong presence in SME lending.

Shafique-ul-Azam, managing director of Midas Financing Ltd, a leading non-bank financial institution, said they need a maximum of 10 days to complete a loan process.

“We need more time as we have to collect reports from Bangladesh Bank's Credit Information Bureau about the applicant on whether he or she has borrowed money from any other bank or institution.”

He said they only ask for papers that really matter. “For any businessman, we seek the trade licence, record of six month's sales and papers if he runs his business on rented house. We do not want to discourage them.”

“We even help applicants process the application, as many still find it hard just to complete the form,” he said.

Azam said his institution gives up to 5 percent rebate on interest to entrepreneurs who make timely repayment. “I think we are unique in this regard. We see banks give incentives to people who do not make payment regularly.”

Unlike many banks and non-bank financial institutions, Midas provides up to a six-month grace period to borrowers to help them generate money. “We give them time on the basis of the project. For example, a poultry farmer will not be able generate profits in the following month of a loan. In that case, we give them three-month grace period, when he will only pay interest,” Azam said.

In the last three months, Midas disbursed TK 101 crore among SMEs, taking its total loan outstanding to Tk 400 crore in the sector.

fazlur.rahman@thedailystar.net                                                                               

News: The Daily Star /Bangladesh/17 Jan 2011