Dr Atiur Rahman

As 2012 progresses, I expect to see many changes and improvements in the manner in which we conduct banking supervision in Bangladesh. We will constantly be more and more focused on risk, and less on routine tasks. As most of the supervisors are involved in the on-site inspection process, they will be particularly interested in the changes we have planned in on-site supervision.

As most of us probably know, the on-site inspections take too long, from the time the inspectors arrive in the bank until the time that the report of inspection is written, approved, and sent to the bank's board of directors. As a result, the findings and conclusions given to the bank, and used by us in requiring corrective action, may be based on out-of-date information.

We are seeking to reduce that time significantly through changes in the manner in which staffs are allocated and deployed, and the elimination of routine tasks that do not directly address current and emerging risks. In that way, we can demand that problems be addressed through corrective action at an earlier stage, before they threaten the solvency or liquidity of the bank.

We will also make more thorough the evaluation of corporate governance, internal audit, and risk management. Bank management will be held to higher standards of performance. It is not the responsibility of Bangladesh Bank to manage each and every bank. It is the responsibility of the board of directors and executive management. They must adopt and implement appropriate policies and procedures to govern the bank and identify, measure, monitor and control all risks.

The most important of these risks are credit risk, market risk (including interest-rate risk and foreign exchange risk), operational risk (including the risks of internal and external fraud), and liquidity risk. And it is the responsibility of the bank's own internal audit function to evaluate how the internal controls are working. In turn, we must evaluate how well internal audit handles that task.

We also expect to improve our legal and regulatory framework this year. We will adjust our policies on loan classification and provisioning to more closely reflect international practices. Provisions should reflect all expected losses in the loan portfolio, arising from an inability or unwillingness of the borrower to repay. This initiative directly affects your work, because in reviewing the loan portfolios at the branches you are reviewing the banks' classification of their own loans.

If these classifications are not accurate, provisioning will not be accurate. With more accurate provisioning, the capital of each bank will be more accurately measured. And capital is the single most important indicator of a bank's condition, so we have to know more precisely how much capital the bank has, and how much capital the bank needs.

We will also upgrade our measuring and monitoring of banks' liquidity. Liquidity risk management is the responsibility of every bank, and we will be evaluating more closely on-site whether they are doing all that is necessary. We are in the process of introducing new measures of liquidity -- the liquidity coverage ratio and net stable funds ratio -- and are gathering data from the banks now and analysing those data. As soon as we know that banks are comfortable in submitting accurate data for these indicators, we will make them regulatory requirements.

During the period of post-financial crisis, it becomes necessary for us to perform extended responsibilities in the areas of both systemic oversight and on-site supervision of the central bank to protect the financial sector from any threat or crisis. To conduct intensive supervision is also essential to mitigate the risks involved in those new activities and areas which we have identified for achieving inclusive growth.

To this end, we want to upgrade the standard and quality of our supervision to a level where people's confidence and trust on us will be established. In order to redress grievances and complaints relating to banks and finance received from the customers, we have already opened “customers' interest protection centre” at our head office and branch offices.

We all have to play our role to promote banking excellence and to protect the interests of the depositors i.e. our family, friends and our neighbours. We have to inspect more closely the sanctioning process of the credit disbursement, utilisation and recovery of the credit by the bank branches.

And we have to check whether the bank branches are classifying their loans and advances and making provision against them properly, whether loan against trust receipt (LTR) are being disbursed/created wisely and cautiously, whether liquidity risk of the bank is increased due to turning of this loan into term loan which takes longer time to be repaid than originally scheduled.

It is our responsibility to ensure the implementation of the policies, directions and guidelines of the central bank at branch level. I hope that the supervisors will pay much attention to all these issues.

Finally, I would like to say a few words on the current macro-economic situation in our country. Many of us are aware that at present our foreign exchange market is stable mainly as a result of reduced outflows of import payments. On the other hand, export growth is also encouraging. With the growth of remittances above 12 percent, we are projecting record level of remittance inflows by the end of the current fiscal year.

In contrast, we hope that inflation will also return at a declining rate very soon in consequence of tactful implementation of monetary policy. If we can maintain present coordination between the fiscal policy and the monetary policy, we are hopeful of bringing down inflation at a comfortable 'single digit' by the end of the current fiscal year.

In fact, we have already witnessed a falling trend in overall inflation in the month of February 2012. In order to sustain this macro-economic stability, the role of banking supervisors will have to be indeed very crucial and I hope all our oversight 'examiners' will live up to this expectation.

The Daily Star/Bangladesh/ 22th March 2012

The government has increased underwriting commission for the primary dealers (PDs) by 1.0 paisa (Tk 0.01) aiming to make the PD system attractive, officials said Tuesday.

Under the new provisions, the PDs will get 3.5 paisa as commission for Treasury bills (T-bills) up from the existing level of 2.5 paisa, while the PDs will receive 8.5 paisa for treasury bonds up from 7.5 paisa.

Three best PDs of each quarter, however, will get 4.5 paisa for T-bills from the existing level of 3.0 paisa. In the case of T-bonds, they will receive 9.5 paisa as underwriting commission from 8.0 paisa.

The increased underwriting commission will come into effect from April 1 this year, they added.

"The government has increased the commission in line with the cash and debt management committee (CDMC)'s recommendation," a senior official at the Bangladesh Bank (BB) told the FE.

He also said the central bank would inform the PDs about the revised underwriting commission shortly.

"It's an incentive for the PDs. It will also help make the PD system attractive," another BB official said, adding that the central bank plans to provide more incentives to the PDs.

The government as well as the central bank has taken the latest move against the backdrop of lack of zeal on the part of some PD banks due mainly to the absence of a secondary securities market.

Currently, 12 PD banks are now holding government securities worth around Tk 180 billion in excess of their statutory liquidity ratio (SLR) requirement with the central bank.

"It will not able to bring a positive impact for the PD system because of higher negative spread between financing cost of the government securities and income from the same," a senior member of the Primary Dealers Bangladesh Limited (PDBL) told the FE.

He also said the PDs are now running their business with 2.0-3.0 per cent negative spread of the government approved securities.

"We're now facing a mismatch in their asset-liability seriously because of financing in the government's long-term securities with short-term source of funds," the PDBL member said.

The government is now borrowing from the banking system with the auction amount of the bonds and of T-bills at the ratio of 92.5:7.5.

The PDBL earlier submitted a letter to the finance ministry requesting its Secretary to restructure the auction amount of the bonds and of T-bills at the ratio of 50:50 instead of the existing 92.5:7.5.

"The business growth plans, particularly long-term financing, of PDs, are being hampered seriously due to the mismatch of their funds," he noted.

Currently, three T-bills are being transacted through auctions to adjust the government borrowing from the banking system.

The T-bills have 91-day, 182-day and 364-day maturity periods.

On the other hand, four government bonds -- 5-year, 10-year, 15-year and 20-year, are being traded in the market.

The central bank earlier selected 15 PDs -- 12 banks and three non-banking financial institutions (NBFIs) -- to deal with the government-approved securities in the secondary market.

Financial Express/Bangladesh/ 21th March 2012

A spike in the cost of food staples like rice and wheat could push tens of millions more people into extreme poverty in South Asia but food subsidies targeted at the poorest in the region would help them cope with still-high prices, says a report by the Asian Development Bank (ADB).

South Asia’s high population growth rates and the high number of people already living on or close to the extreme poverty line of $1.25 a day mean it is one of the most vulnerable regions in the world to food price shocks, said the report released on Monday in Manila.

The study—Food Price Escalation in South Asia: A Serious and Growing Concern—says that spending on food already accounts for half the total budget of low-income households.

The study said a 10 per cent rise in prices could push almost 30 million more Indians and nearly four million more Bangladeshis into extreme poverty. Pakistan is also at risk, with the same price leap causing an additional 3.5 million more people to drop to or below the $1.25-a-day income mark.

“Subsidizing the cost of a basic meal for the poorest and most vulnerable in places like India means the help goes to those who need it the most without putting an excessive burden on government finances,” said Hiranya Mukhopadhyay, an economist in ADB’s South Asia Department and an author of the report.

Nepal and Sri Lanka would be less affected, although a further surge in wheat prices would be especially painful for Sri Lanka, which is completely dependent on imports of the staple and has already seen prices hit historical highs in recent years.

It said after peaks in 2008 and 2011, prices of key food commodities have eased somewhat, although the rate of decline has been slower in South Asia than the international average.

In addition, the region suffers from higher overall food inflation rates than the rest of developing Asia, with food making up a bigger share of items measured by the consumer price index.

Short-term weather shocks and costlier oil account for some of the past price upside but the study says rapid population growth, changing food consumption patterns linked to higher incomes, and stagnating agricultural output are more critical factors driving rising food demand and inflation.

The study suggested that in the long term, governments must step up support for agricultural research to spark another “green revolution” to lift output and help develop crops more resistant to weather extremes.
More investment in infrastructure, such as irrigation systems and farm-to-market roads to improve distribution and reduce post harvest losses is also essential.

Strengthening home-grown initiatives such as the food bank established in 2008 by the South Asian Association for Regional Cooperation may also help to smooth out price volatility and improve food security in the South Asian region during times of shortage, the report says.

The Independent/Bangladesh/ 21th March 2012

The country’s foreign aid inflow still remained low during the first eight months of the current fiscal, compared to the same period in the previous year.

Foreign aid disbursement marked a fall by US$16.61 million to $1,196.59 million during July 2011 to February 2012 period of the FY2011-12, compared to $1,213.20 million during the same period in 2010-11 FY.

The foreign aid commitment for July-February period of the current fiscal was $4,021.54 million including $2,992.88 million as loans and $1,028.66 million as grants.

Of the disbursed $1,196.59 million foreign assistance in the fiscal, $826.60 million came as loans while the rest of $370 million as grants, according to official data.

In the last fiscal, the government received a total of $1,213.20 million in foreign assistance, of which $684.97 million came as credit while $528.23 million as grants.

During the eight-month period, the government made a repayment of $650.75 million to the development partners, of which $506.42 million was principal amount, and the rest $144.33 million interests.

During the same period of last fiscal, the government made a repayment of $583.49 million, of which $ 458.58 million was principal amount and $124.91 million interests.

Of the disbursed loan, the ADB disbursed the highest $336.21 million followed by World Bank $306.39 million, Japan $90.98 million, IFAD $10.92 million, Kuwait $33.51 million and South Korea $33.27 million.

Of the disbursed grants, DFID provide $113.93 million, World Bank $59.58 million, EU $35.75 million, UNDP $39.65 million, UNICEF $30.43 million and Germany $31 million.

The country witnessed a sharp fall in foreign aid disbursement during last fiscal over the previous 2009-10 fiscal as donors did not disburse in line with their commitments.

The foreign aid disbursement during the last fiscal totaled $1,777.33 million, $450.44 million less than $2,227.77 million recorded in fiscal 2009-10.

The aid commitment for the last fiscal, both as loans and grants, was $5,929.27 million. Of the amount, the loan component was $5,335.08 million, mostly because of the donors’ commitments for the Padma Multipurpose Bridge project.

The grant commitments from the donors during the last were $594.19 million.

However, the total aid disbursement during last fiscal was $ 1,777.33 million, including $726.62 million as grants and $1,050.71 million as credit.

The Daily Sun/Bangladesh/ 21th March 2012

Syed Manzur Elahi, Chairman of Mutual Trust Bank, speaks at a workshop at a city hotel recently.

Mutual Trust Bank Limited has organized a workshop on “Corporate Governance for Sustain- able Banks” at a city hotel recently.

Syed Manzur Elahi, Chairman of Mutual Trust Bank Limited presided over the function, said a press release.

Among others, Zuber Soomro, former head of CitiBank NA, Pakistan, K Mahmood Sattar, CEO of City Bank, Barrister Sheela Rahman, and Pradip Kar, former Head of Securities Exchange Board of India and directors and chairmen of leading private sector banks were present on the occasion.

Shireen S Mainuddin, Managing Director of ASAAN, moderated the workshop.

The Daily Sun/Bangladesh/ 21th March 2012