Scribd Logo
Upload

Welcome to Scribd!

  • BIBM Bulletin Vol 16 Nos 1 and 2

    Uploaded by

    SELAHIKHAN
    20 views20 pages
    j

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    j

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    20 views20 pages

    BIBM Bulletin Vol 16 Nos 1 and 2

    Uploaded by

    SELAHIKHAN
    j

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    of 20
    CORLL aN Beer) Mord -02 Balanced Scorecard ree etn poo Ser ar HET geek aL) Cie nd Redresses eee -07 ce Cee Cae ous (ieee Ey or |. 16, Nos. 1 & 2 March & June, 2013 (eullsaaHie eid 3.3m SULLeccs EDITORIAL Reflections on Current Foreign Currency Reserve above has generated a spate of The country's current foreign currency reserve amounting to $17 billion and discussion particularly on satisfactory level of foreign currency reserve required for a country Bangladesh, strategies for maintaining stable exchange rate and upholding current trend of exports. The foreign currency reserves held by Bangladesh Bank comprises holdings of foreign exchange and gold, reserve position with the IMF and holding of Special Drawing Rights (SDR) with the IMF. The current “amount of reserve is enough to cover import bills for five and a half monks, It is all the more when someone thinks that a cushion of three months" import bills is satisfactory enough. Additionally, in the backdrop of political instability at home: adverse economic situation in India, Indonesia and Turkey ; debt crisis of Euro-zone economies; downgrading of sovereign ratingoof-a number of economies; the record foreign currency reserve ofthe eounry Is considered as one of the significant achievements for the country The causes of this staggeting stock of foreign currency’ reserve are undoubiealy considered as postive developments for the economy Food imports fell on the back of good production at home. Remittance, FDI ‘and foreign aid rose substantially inthe last fiscal year. Every year the country has to pend a big chunk of foreign currency for fuel imports which also dropped. A significant cut in rade deficit resulting from a ‘moderate increase in exports and slow growth of imports also pushed up the amount of reserve of the Country, However, deceleration of imports of capital machinery and industrial raw materials contributing ‘partaly to this accumulated amount of reserve 1s a cause of concern forthe economy: 1 question arises whether holding a huge amount of reserve is good for the economy. Earnings from these ‘eserves are one of the significant sources of income for a central bank. Moreover, tis hale and hearty ‘amount df reserve enhances sovereign rating ofthe county, lowers real exchange rate volailiy, reduces the probability of financial distress and ensures importers adequate access 10 repay overseas creditors. Moreover riding on this vast reserve, current stability of Bangladeshi Taka might make import cheaper Particularly, Bangladesh is-a large importer of raw materials and intermediate inputs from India. The stability of Bangladeshi Taka ane! current depreciation of the Indian Rupee will make import a lot cheaper ‘resulting in reduction ofthe cost of producing Bangladesh's export. But if Taka appreciaes more owing to Strong reserve, export growth and espatrites'remitances of the whole ecohomy may be adversely affected. International Monetary Fund (1ME) has warned ail developing eountriés against exeessive accumulation of reserve. d section of think tanks also expresses concern about this, However, in discussing about excess reserve, country-specific condition is required abe taken into account In this eontext, we need to recall the rratic| movement of exchange rates in Bangladesh starting from October 201) and continuing up to December 2012. In FYI2, Taka-Dollar Exchange rate moved with the range of 734 to 84.5 and it depreciated by 100 per cent during the period mainly because of higher import demand. The verall growth in imports hax been observed tn that period due to mainly acceleration in domestic investment activities (ivhich in turn caused Inge foreign exchange demand for import of capital goods) and import of food item. These have widened the wade gap and caused depreciation of Taka against USD. We shouid therefore ‘always keep precautions for any turnaround in import growth. Additionally, we need to consider the Syrian issue. In case of ageravated situation, the price of oil may inerease further It is important to note that Indian Rupee 1s now weakening although India has substantial amount of foreign currency reserves equivalent to six 10 seven months country's borrowing needs. However, itis good to note that our capital ‘accounts are not convertible, poralio investment is low, current account mainiains surplus and reliance on Short term capital i les Bangladesh Bank may mull to keep up this reserve instead of leting substantial portion of it invest in large infrastructure. projects. However, it may contemplate to invest iis foreign exchange reserve more strategically through diversifving the external asset portfolio. Apart from investing in treasury bills ofthe US Government and in sovereign bonds of selective countries, i may think of investing in treasury bills of other emerging countries, highly reputed corporate bonds and highly reputed commercial banks. Of course trade-off benween risk and return inthis context is necessary which BB is doing with care. BB may se a portion ofthis reserve, not by compromising with macroeconomic interest ofthe country in future, fo acquire resources and technology needed for the real economy. Creating funds for venture capital financing to develop new avenues of industries may ensure productive use of this fund. Most importantly, bringing back the flow of import of capital machinery and industrial raw materials is necessary for accelerating economic growth. However proper investment climate is required to be offered to bring about this situation. A collective initiative is expected for creating an enabling environment for investment. Adviser : Dr. Toufic Ahmad Choudhury + De. Prashanta Kumar Banerjee Executive Members : Md, Neha Ahmed, Atul Chandra Pandit, Tuhmina Rahman, Tofayel Ahmed e PEIRCE SEuEs 313M BULLE FEATURE Professionalism in Banking S. A. Chowdhury * Professionalism is a simple word to sound but carries many fold meanings which also covers wide areas particularly in performing duties and responsibilities by an employee. It can be evaluated by judging various aspects and the qualities of work done by a person in a recognized job situation, When it is said that one Mr. Rahman is a ‘professional’. If he is a teacher, we may imagine that Mr. Rahman has a ‘good academic background and knows his job very well. He is eager to know the on-going developments in the related fields. He is physically fit and mentally sound. He bears unique personality. He has enthusiasm, endeavor, sincerity and ardent efforts in proving excellence in respect of doing his assigned job. He is truly punctual, has profound knowledge on time importance and ability in judging the situation. He speaks what is true but never tries to misconceive anything which is not reality. He possesses amicable disposition and simplicity in mannerism. He studies for the enrichment of the domain of knowledge and he dedicates his thoughts and experience towards imparting lesson to his students. He prudently replies the quarries and assists his students for development. He is remembered for his noble qualities, adherence to ethics and distinet professional competence From the discussion above we may attempt to define professionalism as under: "The art, endeavor and skill of a person for performing better adhering to the professional principles, ‘organizational values, norms and ethical standards to accomplish a task or to achieve a goal." Professionalism is the recognized capacity and quality of a person for accomplishment of a task or for managing, business of any nature. A professional enhances the image of the organization and helps the business to expand and succeed. In fact, a professional acquires the core knowledge and distinctive skills, develops managerial ability and leadership capability to become a trusted person in the organization for extending value added services. Professionalism in banking is very important because a banker collects money from the people in different accounts, allows withdrawal on presentation of valid cheque, draft, order or otherwise and lends/invests funds for eaming profit for sustenance. Banking is a service orientated industry where in a banker efficiently works as an intermediary between the lenders and the borrowers. He works in trust both as debtor and creditor. An educated youth of a university faces examination for recruitment in banking service. Primarily, he/ she has to compete a number of competitors of various disciplines. Only the selected/ qualified candidates are called for appearing at the viva-voce examination where in the selection committee chooses a few according to requirements of the bank. The selected are recruited and, they are given appointment in the banking company initially as Probationary Officer/ Management Trainee Officer. Those who join have to sign a bond/ undertaking and various other papers. After posting, these recruited officers are called for undergoing a short ‘Induction/ Orientation Course’ in banking. In this training, the participants are informed about the bank's aims, objectives, operations, etc. and they are intended to morally boost up to start the career with vigor and enthusiasm. Ethical bindings are also included what they should do and what they should abhor. After the lapse of a few months or even an year, the recruited officers are again called for undergoing "Foundation Training Course’ on all the banking functions and regulatory bindings. After foundation training is over they are finally posted in different divisions or branches and how do they perform are carefully observed. With a view to sharpening their knowledge, to make them more efficient and skilled they are subsequently nominated by the management to participate in seminars, workshops, short and long training programs organized by BIBM and other training institutions of the country. They are given on the job and off the job trainings to turn human sources into human resources. They learn and gather experiences in different situations on various banking issues. Since they work on behalf of the banking company they are called ‘bankers. But to become a ‘professional banker’ he/ she has to believe, conceive and exert efforts in job areas which gradually contribute in turning him/ her to a professional banker. In order to become sound professionals, bankers will have to acquire essential banking knowledge, tested skills of one or more core areas and managerial competence so that they may become capable practioners, to cater to the needs of a highly demanding service oriented banking industry. Some Important Requisites of Professionalism ‘© A professional must have core skill and proven abil in functional areas. ‘© Discharges responsibilities with proper care keeping in mind the norms, expectations and practices of the organization, © Have team responsibilities. © Attends customer sincerely, promptly and politely. © Gains the trust of customers and the colleagues, iy spirit in discharging assigned March & June, 2013 ECS) SEE) 23M BuLLEe in 98 © A professional must be groomed and well dressed u © Attends office in time and leaves office when day's work is completed. © Co-operates with others as if always working in a team for the achievement of key performance indicators and goals. © Performs exactly what is expected of him, ‘© Considers the interest of the organization above all and everything is done in good faith and without negligence. @ Performance demands an attitude of optimism and robustness, ‘© Speaks very confidently and encouragingly about his! hher bank! institution to the customers and the colleagues. ‘© Undertakes responsibility without emotion and dissatisfaction and tries to finish it timely with patience. ‘© Maintains keen interest in other works. ‘© Does not make unnecessary comments upon superior’s decision and follows the code of conducts property. © Talks promptly, suitably, courteously having. the pleasure and satisfaction that he/ she is contributing to the best of his! her ability for the prosperity of the organization. ‘@ Does not blame others for own fault ‘® Does not move or talk or communicate in any manner which irritates others, particularly the customers. @ Movement or body language expresses @ positive approach. Have qualities like trustworthiness, alacrity of mind and knowledge about the organization. Have the ability of identifying problems & resolves those with impetus attention. © Enriches professional knowledge for performing properly and adheres to banking laws, norms and prudent practices, ‘© Never says "no" to any query and can cope with a situation effectively. ¢ Adheres to ethical standards in all working aspects. @ Proactive rather than reactive in approach, work arrangement, attitude and compliance. Gives preference to organizational growth rather than personal gains Demonstration of Professionalism When a person becomes professional _ he/she demonstrates the true competence and distinct ability in performing a job or resolving a problem, However, professionalism at any level of employment can be judged by asking oneself if one can answer correctly to some critical demands like the following statements: ‘© have the required capacity and skill to do a work or ‘manage effectively any job assigned to me. ‘¢ always update my professional knowledge and core competence. @ [always do the job to the best of my ability with perfection. @ I take pride in the "job I do". © Lam better off because of the way I do my job; I make a difference. @ I report for work on time and stay for my entire shi or workday. © [ utilize the work hour properly and honestly eam my pay. © I treat my customers! clients and fellow colleagues promptly with respect and dignity. ‘© Temploy good manners in my interactions with others. ‘© I keep my mind on the job at hand and plan for growth. @ Irespect my work and try to develop skills that are needed to give higher performance. © [take care of my tools and supplies, whatever their costs are @ I perform any work with required dynamism impartially and prudently. I am a trustworthy person and has eared the reputation of being a dependable person’ © I set an example of proper performance for my staff ‘and team mates, © I regularly acknowledge and reward excellence amongst my team members or subordinates. © I give meaningful feedback when I see a problem is developing, @ enforce organizational guidelines and work standards evenly across my staff. I -can satisfy people or accomplish a task with high quality of performance, @ I provide a "measuring yardstick” of what I expect from my staff. © Tensure appropriate logistic support to enable my staff to perform their work. @ I take initiative and drive as expected by the ‘management. © always recognize the contributions of others and try to inculcate the sense of belongingness, ‘© I-can manage stress, hold pressure and always adhere to ethical norms ‘© can be considered as one of the 'valued employees’ of the organization, Banking is a noble profession and this industry is growing in size and dimension. There is a dearth of efficient manpower both in terms of quantity and quality. In the backdrop of globalized economic recession and domestic market volatility, banking has become a challenging profession. People with professional zeal and confidence are needed to bridge the knowledge gap and to succeed. Professionalism is all the more essential to improve operational capacity of the banking industry for sustainable growth, * The author is the former Managing Director, Sonali Bank Limited and A. K. Gangopadhaya Chair Professor, Bangladesh Institute of Bank Management (BIBM), Dhaka. Views expressed in this feature are the author's own, March & June, 2013 FEATURE Balanced Scorecard Approach: Measuring Banks' Performance Ashraf Al Mamun * Performance measurement (PM) plays a significant role in organizations’ decision making. It can give feedback on the effectiveness of whatever change process is adopted and their implementation, It also plays an important role in organizations’ planning and control system (Chan 2004). Traditional PM relies only on financial measures. This reliance has come under criticism in recent years. Critics suggest that financial Measures are not consistent with today's business environment, lack predictive power, reinforce functional Silos, may sacrifice long-term thinking, and are not relevant to many levels of the organization (Smith 2006). Asa result of the inadequacies in traditional PM system, non-financials are becoming increasingly important now-a-days. A fully integrated information system ‘embracing both financial and non-financial indicators is required to measure the performance of an organization, These have led many organizations to put greater emphasis on non-financial measures such as customer satisfaction, employee learning and innovation. The developments in PMs have been strongly influenced by the increasing level of competition and the changing business environment. What we need is a method of, balancing the accuracy and integrity of financial measures with the drivers of future financial performance of the organization. Balanced Scorecard (BSC) is currently the most popular performance management system framework worldwide. It provides a framework in which both financial and non-financial success measures are linked by the firm's strategy. It Jooks at performance from four perspectives as follows (Kaplan and Norton 1992). @ Financial: encourages the identification of a few relevant high-level financial measures. In particular, designers were encouraged to choose measures that helped inform the answer to the question "How do we look to shareholders?" © Customer: encourages the identification of measures that answer the question "How do customers see us?” © Internal Business Processes: encourages the identification of measures that answer the question "What must we excel at?" © Learning and Growth: encourages the identification of measures that answer the question "How can we continue to improve, create value and innovate?” BSC minimizes information overload by limiting the number of measures used, so it forces managers to focus on the most crucial measures. Norton (2000) stated that companies not using a BSC framework report more than 80% of their performance measures are financial, whereas, companies successfully implementing BSC report approximately 20% of their performance measures as financial According to Kaplan and Norton (1996) BSC can translate a company’s vision and strategy into a coherent and linked set of performance measures; these measures should include both outcome measures and the performance drivers (the measures that are unique for a particular business unit) of those outcomes. The scorecard should incorporate complex sets of eause-and- effect relationships among the critical variables. By this, way the organization will have a better idea of how to achieve its potential competitive advantage. Companies! intangible assets may represent more than 75% of their market value, and they are not captured by traditional financial and accounting systems. Therefore, according to Kaplan and Norton (2003), in order for companies to create value for their shareholders and customers they must use strategy maps (Figure-1). Strategy maps are developed in a way which links intangible and tangible assets with objectives in cause-and-effect relationships. March & June, 2013 FEATURE (siam 1) SULLEGn (5) Figurel: BSC St {Grow product salosrovorue increase customer conidence buying products Durect trough upoter dotvor interns ot convenience, peed and value strategy Map KR Z Increase custome etstacton ‘trough suprer devor of ay to (ay banking sonicos Internal Perspectve Technology a Perspective Peg nd Infomation ‘Service =s= Source: Makhijani and Creelman (2008) based BSC literature review reveals that it contains numerous articles on the use of BSC as measurement systems in various organizations. These articles have mainly been developed in the context of manufacturing sector. Little attention was given to financial service sector (especially banks). However, the development and use of BSC as measurement systems in the service sector, and especially banks, differ from those in the manufacturing sector. Makhijani and Creetman (2008) pointed out that Scotiabank is one of a host of financial services organizations from across the globe that have adopted the Balanced Scorecard. Other companies who have introduced BSC include Bank Niaga, BMW Financial Services, Bank of Ireland, Bank of Tokyo-Mitsubishi, Bank Universal (now merged into Permata Bank), on Kaplan and Norton (2003) Barclays, Astra Insurance, Adira Finance, the Royal Bank of Scotland, and KeyCorp Banking sector occupies a significant position in the global economy. The sector has been subject to many external and intemal forces in many countries. Moreover, banks are operating in a competitive market. Bangladeshi banks many competitive challenges, many companies, organizations, and charities offering some financial services which banks provide, Competitive pressures on banking sector will remain intense. New players will try to dominate the most profitable business, while existing ones will try to repackage existing product and services to impose higher prices (Hitchins et al, 2001). Application of Balanced Scorecard can be best understood from the following table: face March & June, 2013 o 3 3M 3ULI in FEATURE ‘Table: Balanced Scorecard Example - Bank's Perspective FINANCE CUSTOMER Loan Portfolio Growth ‘¢ Introduce Customer Service Standards ‘© Deposit Growth @ Marketing & Customer Unit ‘© Control Expense within Budget © Create User-friendly Facilities ‘¢ Increase Interest Income ‘¢ Improve Communication to Stakeholders ‘¢ Increase Non Interest Income ¢ New & Improved Products Reduce Delinquency ¢ Community Involvement Program | PROCESS. PEOPLE | © Redesign Org Structure © Departmental Cross Training | © Review Procedures Manuals ‘© Compensation Review (Merit) | Review Loan Approval Limits ‘© Training Plan (Aligned with Strategic Focus) Review Process of Information Dissemination | @ Refine Performance Management System & Implementation ‘¢ Introduce Wellness Program Risk Identification & Prioritization - Audit Implement BSC System Source: Keith (Undated) BSC implementation requires presence of effective change management process in an organization so that any resistance from the employees can perceived prior to setting the overall objective of the organization. Caution should be taken by the managers while selecting the performance measures as it should be consistent with the goals. Again it should be taken into consideration that BSC should not have too many measures, which may create confusion among the stakeholders, Barkley (2000) pointed out that choosing of wrong indicators ot weighing the four elements of BSC improperly may cause organization's performance to deteriorate in the reviewer's mind. As the challenges facing banks will intensify in the coming years and the competition will proliferate further and expect further risks, therefore, banks need an armory of tools to beat the competition and survive in this turbulent world. The Balanced Scorecard will be an essential part of that armory. References Barkley, Stephen, M. (2000), "Are You in Balance?” Outlook, Vol. 67, Issue 4, Winter, p. 34. Chan, Y. (2004), "Performance Measurement and Adoption of Balanced Scorecards: A Survey of, Municipal Governments in the USA and Canada", International Journal of Public Sector Management, VoL 17), pp. 204-221. Hitchins, J., M. Hogg and D. Mallet (2001), "Banking A Regulatory Accounting and Auditing Guide", London ABG, 4th Edition, Kaplan, R. S. and D. P. Norton (2003), STRATEGY MAPS: Converting Intangible Assets into Tangible Outcomes, Boston, MA : Harvard Business School Press. Kaplan, R. S. and D. P. Norton (1996), "Linking the Balanced Scorecard to Strategy", California ‘Management Review, Vol. 39(1), pp. 53-79. Kaplan, R. S. and D. P. Norton (1992), "The Balanced Scorecard Measures That Drive Performance", Harvard Business Review on Measuring Corporate Performance, Boston : Harvard Business School Press. Keith, Inniss (Undated), Fellow of the Institute of Canadian Bankers. Makhijani, Naresh and James Creelman (2008), "Balanced Scorecard for Financial Services", The Ori Thought Leadership Series, Vol. 1, Issue 4. Norton, D. (2000), Beware: The Unbalanced Scorecard, Balanced Scorecard Report, The Institute of Management Accountants, Montvale, NJ, March. Smith, M. (2006), Performance Measurement and Management, London : SAGE Publications. * The author is Associate Professor, Bangladesh Institute ‘of Bank Management (BIBM), Dhaka. Views expressed in this feature are the author's own. March & June, 2013 BRISCE Str 3i3M BULLE Liquidity Problems of NBFls in Bangladesh - Causes and Redresses Tahmina Rahman * Non-Bank Financial Institutions (NBFIs) provide important financial supports to the economy alongside with bank financial institutions. They also increase competition in financial market by proliferating new financial services which are unbundle and tailored to meet the needs of specific clients. NBFIs cover a vital part of the financial system of Bangladesh. As of 31 December 2011, a total of 161 branches of NBFIs! are operating in the country (Bangladesh Bank, Financial Stability Report 2011), Liquidity can be defined as the ability of a financial institution to meet all legitimate demands for funds (Yeager and Seitz 1989). There are two forms of liquidity that are important to analyze the financial stability of NBFis-market liquidity and funding liquidity. Market liquidity refers to the ability to sell or unwind positions quickly without affecting price. The other form of liquidity is funding liquidity which refers to the ability of ‘an investor to raise cash to meet its financial obligations and it is specific to individuals or institutions. King and Maier (2009) also opined that, funding illiquidity is a real risk to the continued existence of NBFls particularly hedge funds as if they fail to meet margin calls, they can be declared bankrupt. This can occur even if the fund has positive equity. On the other hand, it requires to link profitability of NBFls with their liquidity holding simultaneously on regular basis as they are negatively related though linked positively to the business extensions. In terms of liquidity performance, NBFls need to ‘maintain regulatory requirements and to facilitate this requirement they use and maintain some non-regulatory parameters like, current ratio. In Bangladesh, NBFIs under Bangladesh Bank regulatory requirement need to maintain both Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) as 2.5% and 5%, respectively, With a view to knowing the liquidity position of NBFls, calculated results and relevant ratios are placed in Table 1 and 2. In Calendar Year (CY) 2011, the NBFls? established during 1991-1995 and 1996-2000 maintained less percentage of CRRs and it was reduced by 24.64% and 11.71%, respectively in CY 2011 as compared to CY 2010 while the NBFls established before 1990 and after 2000 maintained nearly the same percentage of CRRS in both 2011 and 2010 (Table-1). ‘Table 1: Liquidity Performance: Regulatory - Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) Indicators RR SLR | Duri During Duri Durin; nour] natore | "age | MERO™ | mer | wotore | REE | UGE | ner Year wd 1995 2000 eae ae 1995 2000 | 2000 2007 NA NA N/A NA NA NIA NA 2008 2.56 2.71 9.30 473 161 23.69 36.40 (2009) 2.61 3.22 3.12 3.03 9.86 24,92 12.95, 2010 | 2.54 3.45 3.50 5.20 9.19 134 32.65 2011 2.57 2.60 3.09 5.20 1127 10.82 28.85 % Change | 118 | 24.64 | 11.71 | 0.00 26.63 | 458 | 43.06 | -11.63 (2010 to 2011) 7 Source: BIBM, Review of Non-Bank Financial Sector 2012 On the other hand, the SLRs of all NBFls except those of NBFls establis compared to 2010. The Compound Annual Growth Rates (CAGRS) of 1991-1995 and during 1996-2000 are negative; meaning rate maintained for CRR of thes ied before 1990 decreased in 2011 as RRs of the NBFls established during e groups of NBFls is steadily decreasing though the rates are always more than the regulatory requirements. OF 31 NBFls, 3 are government-owned, 18 are private owned local companies and the remaining 10 are established under joint ‘venture with foreign participation (Bangladesh Bank, Financial Stability Report 2011). 2 NBFls are grouped based on thei establishment year. March & June, 2013 8 Ge (GHP SEIS] 313M BULLEUun ‘Table 2: Liquidity Performance: Non-regulatory ~ Current Ratio (CR) ERX) Before| During | During | After 1990 [1991-1995 |1996- 2000] 2000 13 | 212 [169 | 131 ait_| 1.78 usa | 1.22 2009 | 1.16 | 0.60 | 088 | 202 2010 | 146 | 1.36 uo | 2.47 2011 46s | 254 | 112 | 147 % Chany (01010 2011) 218.49| 86.76 2.75 | -40.49 caGR [3270] 3.73 | -798 | 231 Source: BIBM, Review of Non-Bank Financial Sector 2012 Current Ratio (CR) is another parameter of measuring liquidity position under non-regulatory requirement. CR of all NBFls are more than 1.00 indicating good capacity to meet their current obligations with their current assets. The CRs of all NBFls except after 2000 group have increased in CY 2011 as compared to CY 2010. The CAGR of CRs for the NBFIs during 2007-2011 is negative for the NBFIs which were established during 1996-2000. A negative growth rate in CR indicating this, group of NBFls is persistently decreasing their CRs However, CAGRs of CRs of the NBFls which were established before 1990, during 1991-1995 and after 2000 are positive indicating that these groups of NBFIs are continuously increasing their CRs. Apart from above, due to some regulatory and operational concems NBFls are suffering from liquidity problem. Sources of funds are the key issue stimulating this problem. The cost of fund for the country's NBFls has noticeably gone up due to high interest rates for funds in the form of borrowings from banks and other sources. Presently, the non-banks cannot take deposits for less than six months or open current and savings accounts, according to Bangladesh Bank rules. The non- banks' sources of funds reduced in size in 2011 and 2012 when banks themselves were in a shortage of funds. Many NBFls had to borrow at more than 18 percent from banks to run their business. Accordingly, higher costs of funds have eroded their interest margin leading to a fall in profit in 2012. Now the NBFls depend mostly on their funds collected from depositors. Recently they have set a target to reduce dependence on bank funds to only 20 percent within this year, from around 50 percent now (http:/swww.thedailystarnet), NBFIs have demanded the BB to take measures to solve their liquidity crisis by FEATURE allowing collection of deposit of three-month tenure from clients against the existing six-month tenure. ‘The NBFls have diversified their products from time to time to meet the demand of the corporate and small and medium enterprises. One of the important products of NBFls is leasing. But their leasing exposure has significantly reduced since 2004 when the government imposed tax on depreciation allowance. To minimize this liquidity pressure, NBFIs also urged the Bangladesh Bank (BB) to take measure to withdraw five per cent tax on interest suspense of defaulted loan. On the other hand, due to huge investment in a stagnant conditioned ailing capital market, a number of NBFls is now facing difficulties. NBFls claim the BB to exempt them from keeping provision till March 2014 against the loss of investment in capital market. BB was also requested to withdraw tax on zero coupon bonds for next two to three years for NBFls in a bid to strengthen the secondary bond market. The NBFls are largely dependent on borrowings from banks and the call money market to meet their liquidity requirements. A NBFI can borrow only 15 per cent of their current assets from the call money market which is insufficient, Primary Dealer (PD) banks and NBFls have bindings to invest in the government bonds but they cannot sell it to the individual persons or other institutions due to the absence of the secondary market, In this ease, PDs only can sell the treasury bonds to the non-PD banks, NBFIs, and life insurance companies. To come out of this illiquid position the general insurance companies might be included as PDs and having an active secondary market establishment with attractive interest rate offering, Recently, BB has issued a guideline on products and services of Non-Banking Financial Institutions (NBFIs) to protect clients’ interest through ensuring availability of information, proper understanding and regular feedback. The NBFls are now dealing with various types of products and services. In this connection, NBFIs can extent their effort by offering new products like: short term deposit, commercial paper, sukuk bond, etc. to resolve the current liquidity problem. It is mentionable that, sukuk represents undivided shares in the ownership of tangible assets relating to particular projects or special investment activity and a sukuk investor has a common, share in the ownership of the assets linked to the investment although this does not represent a debt owed to the issuer of the boned. March & June, 2013 FEATURE TEL) 313M BULLeEGn NBFls’ spread has never reached 3 percent, which is ‘more than $ percent for banks. Banks also take several fees from their clients and if the NBFls have to comply with the recently issued guideline, they have no options but to rise their lending rates to complete with banks for the same clients. Recently huge excess liquidity in the banks has created a scope for NBFls to get funds at low costs and many banks are persuading the NBFls to take funds from them. NBFls help enhance a balanced competition within the financial services industry through the process of unbundling, targeting, and specializing in their services. By grooming up the NBFls ‘with proper supports in terms of both regulatory and operational view points, it may be expected that NBFIs will solve their liquidity problem and strengthen the 11 system of Bangladesh with their dynamic and value-adding financial activities. overall financi It is noted that the central bank is also working on creating a fund for NBFls to help them overcome their liquidity shortage. In this perspective, BB has recently formed a 15-member committee for working on creating the Credit, Bridge and Standby Facility (CBSF) fund. NBFls also made a proposal to the BB for the CBSF fund and if the fund can be arranged, it would help them overcome the ongoing fund crisis. References Bangladesh Bank (2011), Financial Stability Report 2011 BIBM (2012), Review of Non-Bank Financial Sector, 2012, Dhaka: Bangladesh Institute of Bank Mana: (BIBM). King, M. R. and P. Maier (2009), "Hedge Funds and Financial Stability: Regulating Prime Brokers will Mitigate Systemic Risk", Journal of Financial Stability Vol. 5. Yeager, FC and NE Seitz. (1989), "Financial Institution Management: Text and Cases", 3° Edition, New Jersey: Prentice Hall Inc., Englewood Cliffs http://www. businessnews-bd.com. http://www. thedailystar.net http://www. thefinancialexpres sment ss-bd.com * ‘The author is Lecturer, Bangladesh Institute of Bank Management (BIBM), Dhaka. Views expressed in this feature are the author's own, POSCETHER | COME | | FOR GREEN BANKING March & June, 2013 Eo SHEN 33M BULLeEUun BIBM NEWS Tr: ing Courses and Workshops Bangladesh Institute of Bank Management (BIBM) organized 29 training courses, 1 outreach training ‘courses, 24 training workshops, 6 review workshops and 22 special training courses for different bank officials as part of its academic activities during January to June 2013. A total of 2797 participants attended the above ‘mentioned programs, Review Workshops Bangladesh Institute of Bank Management (BIBM) organized a series of Review Workshop during April - July 2013. These are on Trade Services Operations in Banks, Internal Control and Compliance of Banks, Credit Operations of Banks, IT Operations of Banks, Human Resource Management in Banks and Treasury Operations of Banks. The objectives of these workshops are to discuss the different functional areas and activities performed by different departments of, banks in 2012. In each case a Keynote Paper was presented by the team leader of the review team. A ‘number of experts in the relevant area were invited as designated discussants to provide their professional opinion. Professor Dr. Toufic Ahmad Choudhury, Director General of BIBM gave his speech as session chairman in

    You might also like