Bangladesh Bank is the central bank of Bangladesh and the apex regulatory body for the country’s monetary and financial system. It was established in Dhaka as a body corporate vide the Bangladesh Bank Order, 1972 (P.O. No. 127 of 1972) with effect from 16th December, 1971.

Today, the Bangladesh Bank has nine offices located at Motijheel, Chittagong, Sadarghat, Khulna, Bogra, Sylhet, Rajshahi, Barisal and Rangpur. The total manpower of the Bangladesh Bank stands at 4,926 with 3,910 officials and 1,016 subordinate staff.

Functions of the Bangladesh Bank

Bangladesh Bank performs all core functions of a monetary and financial sector regulator that it is along with a number of other non-core functions. Some of the major functions are the Bangladesh Bank are as follows:

• Formulation and implementation of monetary and credit policies.
• Management of Bangladesh’s international reserves.
• Issuance of currency notes.
• Regulation and supervision of banks and non-bank financial institutions, promotion and development of domestic financial markets.
• Acting as banker to the Bangladesh government.
• Regulation and supervision of the payment system.
• Money laundering prevention.
• Implementation of Foreign Exchange Regulation Act.
• Managing a Deposit Insurance Scheme.
• Collection and furnishing of credit information.

Core Policies of the Bangladesh Bank

Monetary Policy

The main objectives of monetary policy of the Bangladesh Bank include:

• Internal and external price stability
• Sustainable growth and development
• Economic and efficient use of resources
• High employment
• Stability of financial and payment system

Bangladesh Bank declares the monetary policy by issuing Monetary Policy Statement twice a year (in January and July). The tools and instruments for implementation of the monetary policy in Bangladesh are bank rate, open market operations, repurchase agreements and reverse repo, and statutory reserve requirements.

Reserve Management Strategy

Bangladesh Bank maintains the foreign exchange reserve of Bangladesh in different currencies so that it could minimize the risk from widespread fluctuation in exchange rate of major currencies and irregular movement in interest rates in the global money market.

The bank has established Nostro account arrangement with different central banks in the country. Funds accumulated in these accounts are invested in treasury bills, repos and other government papers in the respective currencies. The bank also makes investment in the form of short-term deposits with different high-rated and reputed commercial banks and purchase of high-rated sovereign/supranational/corporate bonds.

A separate department of Bangladesh Bank performs the operational functions regarding investment, which is guided by investment policy set by the Bangladesh Bank’s investment committee head by a Deputy Governor. The underlying principle of the investment policy is to ensure the optimum return on investment with minimum market risk.

Capital Adequacy for Banks and Financial Institutions

In both these sectors, Basel II Accord has been introduced to strengthen the capital base of banks and financial institutions. On January 1st, 2010, the full implementation of Basel II Accord began for banks. Now, scheduled banks in Bangladesh are required to maintain Tk. 4 billion or 10% of Total Risk Weighted Assets as capital, whichever is higher.

For financial institutions, full implantation of Basel II began in January 1st, 2012. Now, financial institutions in Bangladesh are needed to maintain Tk. 1 billion or 10% of Total Risk Weighted Assets as capital, whichever is higher.

Interest Rate Policy

Under the financial sector reform program, banks are free to charge/fix their deposit and lending rates other than export credit. At present, except pre-shipment export there is no interest rate cap lending for banks yet banks can differentiate interest rate up to 3% considering comparative risk elements involved among borrowers in same lending category.

Deposit Insurance

The deposit insurance scheme (DIS) acts as a safety net for depositors. It was introduced in Bangladesh in August, 1984. The DIS was created to help to increase market discipline, reduce moral hazard in the financial sector and provide safety nets at the minimum cost to the public in case of a bank failure.

Apart from DIS, a deposit insurance trust fund (DITF) has been created for providing some protection to small depositors in case of a bank failure, but the amount must not exceed Taka 0.01 million. The Trustee Board for the DITF is the Board of Directors of the Bangladesh Bank.

Insurance Authority

The Insurance Development and Regulatory Authority (IDRA) replaced its predecessor, Chief Controller of Insurance on January 26, 2011. It was instituted as the regulator of insurance industry and is empowered by Insurance Development and Regulatory Act of 2010. IDRA operates under the Ministry of Finance and a four member executive body led by the Chairman. S/he is responsible for the general supervision and direction of business.

IDRAs mission is to protect the interest of policy holders and other stakeholders under insurance policy. It also supervises and regulates the insurance industry and ensures the orderly and systematic growth of the insurance industry.

Regulator of Capital Market Intermediaries

Securities and Exchange Commission (SEC) was established on June 8, 1993. It is a five member commission headed by a Chairman. S/he has the responsibility to administer securities legislation. The Commission is attached to the Ministry of Finance.

The aim of SEC is to protect the interests of security investors, to develop and maintain fair, efficient and transparent securities market. It also ensures proper issuance of securities and compliance with securities laws. Some of the functions of the SEC are regulation of the Stock Exchange or other securities market, registration and regulation of stock-brokers, sub-brokers, share transfer agents, merchant bankers and managers of issues, trustee of trust deeds, underwriters, investment advisors and other intermediaries in the securities market.

Along with that, the SEC also prohibits fraudulent and unfair business practices in the securities market. It promotes investor’s education and provides training for intermediaries of the securities market. It also prohibits insider trading in securities. Regulation of the substantial acquisition of shares and take-over of companies is another of the functions of the SEC along with the undertaking of investigation and inspection, inquiries and audit of any issuer or dealer of securities, the Stock Exchange and intermediaries and any self-regulatory organization in the securities market.

Regulator of Micro Finance Institutions

This institution came into being to bring NGO-MFIs (Non-government Microfinance Institutions) under a regulatory framework. Under the Microcredit Regulatory Authority Act, 2006, the government established Microcredit Regulatory Authority (MRA) with a view to ensure transparency and accountability of microcredit activities of the NGO-MFIs in Bangladesh. This authority is empowered and responsible for implementing this act and to bring the microcredit sector of Bangladesh under a full-fledged regulatory framework.

The mission of MRA is also to foster sustainable growth of this sector. To achieve this mission, the MRA has set itself the task to attain the follow goals:

• Implement and formulate the policies of good governance and transparent financial system of MFIs.
• Provide training to NGO-MFIs and linking them with the broader financial market to facilitate sustainable resources and efficient management.
• Conduct in-depth research on critical microfinance issues and provide policy inputs to the government consistent with the national strategy for poverty eradication.
• Assist the government to build an inclusive financial market for the economic development of Bangladesh.
• Identify the priorities of the micro-finance sector for policy guidance and dissemination of information to attain the MRAs social responsibility.

According to this particular act, the MRA is responsible for three primary functions namely:

• Supervision of MFIs to ensure they continue to comply with the licensing requirements.
• Licensing of MFIs with explicit legal powers.
• Enforcement of sanctions in the event of any MFI failing to meet the licensing and ongoing supervisory requirements.

Overview of Financial System of Bangladesh

Bangladesh’s financial system is comprised of three sectors. These sectors have been categorized in accordance with their degree of regulation.

• Formal Sector
  The formal sector has under it all the regulated institutions such as banks, non-bank financial institutions, insurance companies, capital market intermediaries such as brokerage houses, merchant houses etc, and micro financial institutions.
• Semi-Formal Sector
  The semi-formal sector includes institutions that are regulated, but do not fall under the jurisdiction of central bank, insurance authority, Securities and Exchange Commission or any other enacted financial regulator. This sector is mainly represented by Specialized Financial Institutions like House Building Finance Corporation (HBFC), Palli Karma Sahayak Foundation (PKSF), Samabay Bank, Grameen Bank etc, Non-Government Organizations (NGOs) and discrete government programs.
• Informal Sector
  The informal sector includes private intermediaries that are unregulated.

Bangladesh Bank’s Open Data Initiative

Bangladesh Bank to make its data accessible to the general public has made its publication ‘Monthly Economic Trends’ accessible to the public. Anybody can download for free from the website of the Bangladesh Bank.

The publication includes detailed data. Some of it dates back to almost twenty years. It includes information on balance of payments, money supply, various consumer price indices, national accounts, stock price indices, interest rates, exchange rates, remittances, commodity prices and tax revenue. The publication is updated monthly.

For the details of banking sector, you can visit the website of the Bangladesh Bank and download the Excel tables in the latest edition of the quarterly Scheduled Bank Statistics publication. You can also download Financial Stability Report that presents summary statistics and analysis of the banking sector.

Now data on the weighted average rate of interest on deposits and loans for each bank is available. You can also get the detailed interest rate data by type of deposit and loan product. Bangladesh Bank will bring out more data in easily downloadable format and develop new user-friendly applications under the ‘Bangladesh Bank Open Data Initiative’ to promote more use of the data for more effective policymaking.

Institutional Development

Bangladesh Bank has achieved much regarding the institutional development through the Central Bank Strengthening Project. Some of them are:

• Establishment of Enterprise Data Warehouse (under process) that will bring the entire banking and FI industry under a single network through which data can be shared, reported and supervised.
• Implementation of Enterprise Resource Planning (ERP) has been a big step in automation of operational structure of the Bangladesh Bank.
• Bangladesh Bank has a strong online presence. Its website has the most informative and resourceful website of the country regarding economic and financial information.
• Bangladesh Bank has hosted a number of international seminars on different economic and financial issues over the last several years.
• Internal networking system with required online communication facilities have been developed and in operation for the offices of Bangladesh Bank.

Regulatory Development

The banking and FI industry has, in the last few years, experienced diversified
regulatory development. Some of the developments include:

• Guidelines on Environment and Climate Change Risk Management for banks and FIs have been circulated. Policy guidelines on Green Banking have also been issued.
• There is full implementation of Basel-II (International capital adequacy standard) accord has been in effect in both banking and FI industry.
• Number of policy initiatives for Financial Inclusion has been undertaken.
• Banks have been instructed to create separate subsidiary for capital market operations and capital market operations of banks are now minutely monitored.
• Guidelines on Stress Testing for banks and FIs have been issued which is aimed to assess the resilience of banks and FIs under different adverse situations.
• Banks are asked to build up separate Risk Management Unit for comprehensive and intensive risk management.
• Supervision has been intensified to increase the participation of banks in Corporate Social Responsibility (CSR).
• For the effective and timely action of Bangladesh Bank, foreign exchange reserve of Bangladesh did not face any adversity during global financial turmoil.
• To meet international standard on Anti Money Laundering (AML)/Combating Financing of Terrorism (CFT) issues, guidelines for Money Changers, Insurance Companies and Postal Remittance have already been circulated.

Automation and Technological Development

Because of the pro-active and forward-looking approach of the Bangladesh Bank, the banking sector has experienced remarkable progress in respect of automation
in functioning in the last several years. Number of automation initiatives has been implanted in the banking sector, some of which include:

• Creating a disciplined environment for borrowing the automated Credit Information Bureau (CIB) service provides credit related information for prospective and existing borrowers. With this improved and efficient system, risk management will be more effective. Banks and financial institutions may furnish credit information to CIB database 24/7 around the year. You can access credit reports from CIB online.
• L/C Monitoring system has been introduced for preservation and using all the necessary information regarding L/C by the banks from the Bangladesh Bank website. The system allows the authorized users of banks to upload and download their L/C information.
• All scheduled banks are subject to submit Weekly Statement of Position as at the close of business on every Thursday to the Department of Off-site Supervision under the terms of articles 36(3) of Bangladesh Bank Order. This statement can now be submitted online from the Bangladesh Bank website.
• The e-returns service has been introduced. It is an Online Portal Service for Scheduled Banks to submit Electronic Returns using pre-defined template for the purpose of Macro Economy Analysis through related Bangladesh Bank departments.
• The Online Export Monitoring System is used for monitoring export in Bangladesh. Through this services, banks and AD branches of banks issue and report export reports.
• Bangladesh Automated Clearing House (BACH) began to work by replacing the ancient manual clearing system which allows the inter-bank checks etc. to be settled instantly.
• Electronic Fund Transfer (EFT) has been introduced. It facilitates the banks to make bulk payments instantly without much use of paperwork and manpower. This is an instant and efficient way to transfer funds.
• Initiation of Mobile Banking has led to much advancement in the banking sector. Through it, franchises of banks through mobile operators can provide banking services to even the remotest corners of the country.
• More and more commercial banks are now using their own core of banking solutions that has contributed in making banking faster and more efficient. Usage of plastic money has led to an increase in daily transactions. Full or partial online banking is now being practiced by almost every bank.
• Inauguration of Internet trading in Bangladesh is one of the most significant developments for the capital market in the last years. Micro Finance Institutions submit their reports to the regulator through the Online Report Submission Tools for MFIs.

Bangladesh Bank has been making revolutionary improvements in the economy of Bangladesh over the years and will continue to do so.