Prime Bank Limited achieved "The Daily Star-DHL Bangladesh Business Award-2011" in the category of Best Financial Institution. Md. Ehsan Khasru, Managing Director of Prime Bank Limited received the award from Finance Minister Abul Maal Abdul Muhith at a city hotel Friday.

The Financial Express/ Bangladesh/ 20th May 2012

Atiur Rahman

The annual board meeting of the Asian Clearing House (ACU) is a unique platform for exchange of experiences and ideas on the opportunities and challenges in deepening ACU intraregional trade and investment relationships that keep arising from unfolding developments in the regional and global scene.

An overview of recent economic trends in Bangladesh shows that the country's economy is getting ahead with firm footing on stable growth path, with real GDP (gross domestic product) growth averaging above six per cent annually over the last decade. Poverty has been on steady decline by about two percentage points a year, coming down to 31 per cent of the population by 2010. But of course along the way the economy faces occasional external and internal jolts impacting in various degrees on growth, inflation and exchange rate stability. Lagged effects from the global financial crisis and energy supply shortages played part in causing a short spell in mild growth slowdown, with real GDP growth coming down from 6.2 per cent of FY08 to 5.7 and 6.1 per cent respectively in FYs 09 and 10. However, economic activities rebounded sharply in FY11 as energy scarcities eased and export demand picked up, with 6.7 per cent real GDP growth, nearly 42 per cent growth both in exports and imports, and 28.4 per cent expansion in domestic credit. The credit growth surge stoked up creep of CPI inflation, pushing it beyond comfort zone into double digits since October 2011. Bangladesh Bank's (BB's) monetary policies adopted a restraining stance in FY12 for orderly, smooth touchdown to trend levels from the FY11 credit and external trade surge, aimed at limiting domestic credit growth to 19 per cent and bringing inflation down to single-digit level by June 2012. Towards attaining these objectives, besides raising policy interest rates (BB's repo, reverse repo interest rates) by 100 basis points and restraining reserve money growth, interest rates caps on some types of lending imposed during the global financial crisis were done away with, freeing up lending and deposit interest rates.

These steps slowed down domestic credit growth and helped stabilise the exchange rate of Taka in a new equilibrium (Taka 81.83 per USD in March 2012 against Taka 72.78 per USD in March 2011), trimming off excess demand. Import growth came down to 14.53 per cent during July-Feb, of FY12 from 41.8 per cent in the same period of FY11, export growth stood at 10.4 per cent during July-March FY12 against 40.3 per cent in the same period of FY11. Remittance inflows from workers abroad increased 10.3 per cent during July-March in FY12, helping sustain the BoP (Balance of Payment) current account balance in positive. Decline in CPI (Consumer Price Index) inflation has been slower to show up than the decline in monetary growth, mainly due to repeated rounds of hikes in administered user prices of energy needed to ease fiscal subsidy burdens. Nevertheless, point to point CPI inflation at 10.10 per cent in March 2012 was the lowest since the beginning of FY12.

To avert negative impact of the tightened monetary stance on GDP growth, BB is maintaining a deliberate pro-growth directional bias in credit policies. An ongoing comprehensive financial inclusion drive is working towards ensuring adequate credit flows to supply side activities including farm and non-farm productive pursuits of micro and small enterprises, while discouraging credit growth for conspicuous consumption and unproductive, speculative uses. Refinance support lines available from BB to banks against their lending to agriculture and SMEs are being funded by the government and external development partners. Flexibility of the market based exchange rate of Taka is helping preserve external sector competitiveness; exporters affected by demand weakness in advanced economies are making successful forays into newer markets in fast growing emerging economies. With growth supportive macroeconomic policies and a congenial, welcoming openness to foreign direct investments, Bangladesh economy looks well poised for attaining the expected near seven per cent real GDP growth in FY12 and single-digit inflation by June 2012, on track towards still faster growth over the medium term.

Bangladesh's trade with ACU member countries remained buoyant in calendar year 2011, even as overall ACU intra-union trade settlement transactions were on decline. According to ACU Secretariat Newsletters data, Credit (export receipt) and debit (import payment) transactions of Bangladesh with other ACU members increased 99.6 and 23.1 per cent respectively in 2011 compared to 2010, although total ACU intra-union imports and exports registered a 29.5 per cent decline. January-February 2012 transaction volumes were also on declining trend, both for Bangladesh and ACU-wide totals. These declining transaction trends may be transient, mainly reflecting the current demand slack in Western advanced economies. Of greater relevance for stable longer term regional growth is the share of ACU intraregional trade as percentage of total external trade of the region. This still remains slow changing and quite small, particularly for the larger ACU member countries, despite our regular lip service to strengthening of intra-union trade and investment cooperation in successive board meetings like this. Increasingly, the global community is looking up to our region as a key growth driver in the global economy; and we need to prepare our Union to play that role with optimal use of its potentials. Ideas on steps towards greater trade and investment cooperation mooted in past several Board meetings have been routinely passed on to technical committees that have tended to come up with suggestions largely in favour of continuing with status quo.

There should be resolute efforts towards some real progress in deepening ACU-wide co-operation and integration on at least some directions that others have already started adopting. This may inter alia include broadening and upscaling of our ACU swap arrangement on lines similar to the bilateral swap arrangements between central banks in the ASEAN+3 Chiang Mai initiative; and reintroduction of settlement of intra-Union trade transactions in member country currencies. India is reportedly adopting this approach in her trade with other BRICS (Brazil, Russia, India, China and South Africa) countries; we can look into their exchange rate risk hedging arrangements to help drawing up hedging arrangements suitable for intra-Union trade settlements in ACU currencies. All ACU member central banks are also financial sector regulators; it should not therefore be too difficult for us in this forum to act concertedly towards expanding presence and engagement of banks and financial institutions of ACU member countries in each other's territories, deepening trade and investment cooperation.

(The 41st board meeting of the Asian Clearing Union (ACU) was held at Kathmandu, Nepal on May 17, 2012. Dr Atiur Rahman, Governor of Bangladesh Bank, made 'Bangladesh country presentation' at the meeting. This article is adapted from the presentation.)

The Financial Express/ Bangladesh/ 20th May 2012

Bangladesh Bank (BB) has increased the interest rate for green banking aiming to encourage the commercial banks to strengthen disbursement of the loan under its refinance scheme, officials said.

Under the new provisions, the interest rate on bio-gas and cattle farming has been fixed at 11 per cent from the previous 9.0 per cent.

"The decision on raising the interest rate will help to bring a positive impact on disbursement of the environment-friendly loan," General Manager of the Agriculture Credit and Financial Inclusion Department of BB Nirmal Chandra Bhakta told the FE Saturday.

The central bank has, so far, disbursed around Tk 600 million loans under the refinance scheme from the total fund worth Tk 2.0 billion.

BB launched the Tk 2.0 billion scheme on August 3, 2009 to facilitate renewable energy and environment-friendly projects.

A single commercial bank can borrow up to Tk 500 million from the central bank's revolving fund.

BB is advising the banks to take more loans from the revolving fund and finance the green and environment-friendly projects like bio-gas plants.

The BB has directed chief executive officers (CEOs) and managing directors (MDs) of all scheduled banks and non-banking financial institutions (NBFIs) to implement the new interest rate immediately through its circular Thursday last.

The disbursement of loan under the scheme slowed down as per the previous interest rate arrangement due to apathy from the commercial banks.

"The decision of interest rate increase will hamper not only loan disbursement but the sector as well," a stakeholder said.

The banks will now disburse the loans at 11 per cent interest instead of 9.0 per cent if they do it directly to clients, said the circular.

The circular said the increase of interest rate is mainly to promote bio-fuel production and the expansion of the sector by setting up bio-gas plants in rural areas. The bio-gas plants will be set up by taking a comprehensive cattle farming initiative.

The circular also said that the commercial banks would not be able to charge in addition to the interest rate from the clients in the name of any service charge.

The government wants to meet up 5.0 per cent of total power demand from the green energy by 2015 and 10 per cent by 2020.

Under the scheme, banks and financial institutions can get loans at 5.0 per cent interest from the central bank.

The Financial Express/ Bangladesh/ 20th May 2012

The World Bank (WB) has suggested for inclusion of a new guideline by the Bangladesh Bank (BB) on government bailout funds under the proposed Bank Company Act (BCA)-2012, to help cope with any emergency situation in the economy, a top official in the BB said.

The multilateral lending agency has also underlined the need for incorporating a set of minimum criteria for licensing new banks and about selection and duties and responsibilities of bank directors and their accountability under the BCA (amendment), 2012.

The WB has also urged the BB to incorporate proper measures under the BCA pertaining to cross-border insolvency of any Bangladesh-origin bank company.

Besides, the WB has recommended for resolving a good number of banking issues and incorporating those under the BCA (amendment), 2012, sources said.

It has suggested that the central bank should take measures to help minimize legal conflict between willful defaulters and defaulting debtors, outline the structure of the banks and non-banking financial institutions to avoid regulatory arbitrage, ensure resource allocation for supervision, expand the role and linkage of the banking system with the capital market -- from margin lending to financing of shares, and specify rules on cross holdings and optimum structure for growth of financial system under the BCA (amendment), 2012.

Furthermore, the bank has called for BB's having adequate measures under the BCA, 2012 to protect consumer and for incorporation of cross border insolvency principles and necessary changes in foreign branch operations.

The observations of the WB, along with its specific proposals, were recently submitted to the Bangladesh Bank (BB), sources said.

Earlier, the BB prepared the draft of the amended act and submitted it to the Ministry of Finance (MoF) for completion of all the necessary formalities.

Experts said, the term bailout refers to the practice of injecting liquidity to a business when it is bankrupt or close to the point of bankruptcy. There are multiple ways through which this could be acted upon, they added.

The money could be given as a loan to the company which needs the same to repay for maintaining its solvency. Alternatively, the bank can buy the distressed assets of the company and give it in cash in return.

The US in recent years and the European Union (EU) lately announced billions of US dollars and euros respectively for bailout programmes to salvage their large private companies from any collapse.

Top bankers in the BB said, bailout is not a relevant issue for Bangladesh, unlike countries like the US and those of EU. The bailout package can be devised if it becomes inevitable under any complex economic situation, they observed.

"It is not necessary that the BCA, 2012 will incorporate provisions and procedures on bailout mechanism. Rather, as far as our knowledge goes, no country in the globe has similar provisions in their respective BCA," a Deputy Governor of BB told the FE on Saturday.

"Any emergency in an economy, if it really emerges, should be dealt with under an emergency regulation," he added.

He said the criteria for new banks, tests on fitness and eligibility for bank directors, their duties and accountability -- are very much elaborate and in existence in the country -- in the form of separate regulations.

He said it is not a prudent idea that everything about how to run banking companies has to be incorporated in the BCA.

"We have separate guidelines on almost each and every issue, raised by the WB and the International Monetary Fund (IMF)," an Executive Director of BB said.

Earlier, the IMF expressed its reservations over a number of provisions, including those relating to acquisition of problem banks and the tenure of bank directors that were incorporated in the proposed amendments to the Bank Company Act (BCA).

The IMF also raised questions on the proposed regulation about maintenance of capital adequacy and suggested that the authorities concerned should specify appropriate and relevant criteria for directors and officials of banks and also for establishing new banks.

Officials in the MoF said a high-powered committee, headed by former secretary, Mr Abdul Mubin, was formed about two months back to scrutinise the proposed amendments.

Upon the completion of this examination, the amendment would be placed before the cabinet and then before the parliament for its enactment.

The Financial Express/ Bangladesh/ 20th May 2012

Finance Minister AMA Muhith on Saturday identified corruption and lack of proper enforcement of law as the main to ensuring good governance in Bangladesh.

He said reducing corruption is possible through ensuring involvement of people in every spheres of the governance and ensuring accountability and transparency of the government.

The minister was addressing a roundtable meeting on good governance in Dhaka as chief guest.

The Cabinet Division of the government and the Asian Development Bank (ADB) jointly organised the daylong roundtable, which was attended by representatives from India, the Philippines and Korea along with the senior officials from different ministries of the government.

Cabinet Secretary Mohammad Mosharraf Hossain Bhuiyan presided over the meeting, also addressed by Resident Representative of ADB M Teresa Kho.

Muhith pointed out that reducing corruption was possible in every level of the governance through ensuring wider use of the information technology.

Corruption exists in almost every sector in Bangladesh, he said. He termed the police department as the most corrupt body where he said corruption exists in its system, field level and in other areas.

Similarly there is allegation of corruption in land administration, judiciary, tax administration, health and many other sectors, he added.

In Bangladesh about 75 percent cases are related to land disputes and proper land survey system and digitisation of land related data could reduce such legal battles remarkably, he added.

In the function, Teresa Kho said Bangladesh suffers from infrastructural constraints which is the main hurdle to good governance. ADB wants to extend technical support in this regard, she added.

She also suggested bringing a change into the mindset of people who are serving people. She also emphasised on the reconstitution of administration to this effect.

Cabinet Secretary Mosharraf Hossain pointed out what the government has done in last three years to ensure good governance.

The government has formed an independent Anti Corruption Commission, ensured separation of Judiciary from the executive, passed the rights to information act, formed Information Commission and National Human Rights Commission, strengthened Election Commission and also working to enact Consumers’ Rights Protection Act to establish good governance, he added.

Chairman of ACC, Golam Rahman, Chief Information Commissioner, Mohammad Jamir, among others, were also present on the occasion.

The Daily Sun/ Bangladesh/ 20th May 2012