AGRANI BANK

NEWSLETTER
July-September 2012 Vol-XXXIII Quarter-3 IN OTHER PAGES:

EDITORIAL
The Agrani family, are captivated on the occasion of releasing the Third edition this year. The Third quarter of the year echoing the same spirit witnessed a breakthrough in all key performance areas. The achievement stood higher than it was in the corresponding period of the last year. The operating profit as on 30 September 2012 stood at Tk. 787 crore against Tk. 731 crore in the same period of the last year, the increase being 8 per cent. The total deposit of the bank stood at Tk. 28551 crore compared with Tk. 23032 crore in the corresponding period of the last year, the rate of growth being 24 per cent. Foreign remittance in totality reached to a satisfactory level as compared to the same period of the last year. An observable improvement in the sphere of loans and advances was visibly found. The total amount of loans and advances was BDT. 20,997.71 crore as on 30 September 2012 against BDT. 20277.31 crore in the same period of the last year. We are to set it up in our mind that we always work hard to keep up the reputation of our banking service. We are confident that with our combined efforts under the accurate guidance of our top management, we will set up a standard that will lead us to the summit of glory in the arena of banking of the country.

Agrani News

National News

International News

Special Feature

Agrani Bank Limited

INFORMATION TECHNOLOGY & MIS DIVISION (Ex. PRMD) HEAD OFFICE, DHAKA Website: www.agranibank.org

Agrani News
Re-appointment of the Chairman of Agrani Bank Limited Dr. Khondoker Bazlul Hoque has recently been re-appointed as Chairman of Agrani Bank Limited for two years term. In his profession, Mr. Hoque is a Professor and Ex-Chairman of the Department of International Business of Dhaka University. He was also the President of Dhaka University Teachers' Association and Bangladesh University Teachers' Association Federation. Mr. Hoque obtained his post graduation degree in Management from Dhaka University in 1967 and PhD in Economics from MINE, USSR in 1982. He was a Post Doctoral Fellow of IDE, Japan in 1993 and Senior Fulbright Fellow of Indiana University, United States Of America in 1994. He also held positions of Member of Bangladesh Public Service Commission (19972002), Dean, Faculty of Commerce, Dhaka University (1989-1991), Chairman, Department of management, Dhaka University (1986-1989), Provost of Jahurul Haq Hall and International Hall of Dhaka University, Member of the Syndicate, Dhaka University for three terms and Member of Senate of Dhaka University for 4 times. He is related with teaching profession for more than 40 years in Dhaka University. Agrani Bank New DMDs Limited Gets Father of 2 daughters, Mr. Islam is the Diplomaed Associates of Institute of Bankers Bangladesh, the life member of Dhaka University Alumni Association, Accounting Alumni Association and associated with various social organizations. b) Muhammad Awal Khan has recently been promoted as the Deputy Managing Director (DMD) and joined Agrani Bank limited. Earlier he served as General Manager of Sonali Bank Ltd, Bangladesh Krishi Bank (BKB) and Rajshahi Krishi Unnoyoan Bank (RKUB). Mr. Awal khan started his banking career with Bangladesh Krishi Bank as a Probationary Officer in 1982. He obtained his Masters degree in Finance from the University of Dhaka in 1979. He took part in many training courses and seminars relating to banking and management in home and abroad. He hails many other countries to attend professional seminers, workshops , is the Director of Agrani Bank's subsidiaries in Singapore and Malaysia.

a) Mohammad Shams-Ul Islam has recently been promoted as Deputy Managing Director (DMD) and posted to Agrani Bank Limited. Prior to the promotion , he was the General Manager of the Bank. After obtaining Masters degree in Accounting with Honours from Dhaka University he joined Agrani Bank Limited as a Senior Officer (Financial Analyst) in 1984. He brings with him 28 years of long and diversified banking career at home and abroad. In 2002 Govt appointed him as a Chief Executive Officer of Agrani Exchange house pte.Ltd, Singapore - the flagship Remittance Company of Agrani Bank and he contributed greatly to its inception and growth as well as achieved notable success in remittance activities in the Bank and country as a whole. Mr. Islam who visited United Kingdom,United Arab Emirates, Singapore, Malaysia, Hongkong, Nepal, Kingdom Of Saudi Arabia, Indonesia and

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Agrani News
from a respectable Muslim family of Barishal District. 5th Annual General Meeting of Agrani Bank Limited held 5th Annual General Meeting of Agrani Bank Limited was held at Hotel Ruposhi Bangla, Dhaka on July 26, 2012. Dr. Khondoker Bazlul Hoque, Chairman of the Board of the Directors was Chief Guest. Among others, members of the Board of Directors, Managing Director & Chief Executive Officer Syed Abdul Hamid, Deputy Managing Directors, General Managers and Company Secretary of the bank were also present at the meeting. The meeting approved the Financial Statements for the year 2011, Reports of the Directors and Auditors for the year 2011 and the Bank's activities and the result achieved in 2011. The board also approved bonus share at 1:10 for the year 2011. Dr. Hoque said that the bank continued to grow steadily in all major areas in 2011. Total deposit of the bank increased to Tk. 25221 crore from 20633 crore, total advances increased to Tk. 19409 crore from Tk. 16326 crore and Net Operating Profit increased to Tk. 1474 crore from Tk. 1086 crore in 2010. He also expressed that the bank would achieve the desired target under the prudent guidance of the proven and experienced Board of Directors and leadership of experienced Managing Director and Chief Executive Officer of the bank. Syed Abdul Hamid, Managing Director and Chief Executive Officer of the Bank, expressed his gratitude to the respected Customers, Stakeholders, Regulatory Authority, Members of the Board of Directors and all executives, officers and employees of the bank for their continued cooperation and relentless efforts in achieving success for the bank. Agrani Bank Limited Donates Tk 23.98 lakh to Install Tube well at Chittagong University Agrani Bank Limited authority donated Tk 23.98 lakh to Chittagong University (CU) to install a deep tube well at the campus. On August 10, 2012 bank authority handed over the cheque of the said amount to Chittagong University ViceChancellor Anwarul Azim Arif at the circle secretariat office of the bank at Agrabad. Director of Managing Committee of the bank Shahjada Mahiuddin, ProVice-Chancellor of Chittagong University Professor Dr. Mohammad Alauddin,Chief Engineer of Chittagong University Mohammad Alamgeer Chowdhury, General Manager of the bank AAM Shahjahan, Manager of the Agrani Bank Limited, Chittagong University Branch Mr.Ajay Kumar Chakrabarty were present, among others. "Chittagong University is an ideal place for higher education and research. About 20,000 students are studying in this renowned institution. But officers and employees of the university as well as the students residing in 10 halls have been suffering acutely from pure drinking water," Though the university authority heartily felt for the crisis, it could not solve the crisis due to financial shortage, said Chittagong University Vice Chancellor While receiving the cheque. Chittagong University Vice Chancellor Anwarul Azim Arif conveyed heartiest thanks to Agrani Bank Limited authority for their donation to install a deep tube well.

Agrani Bank Newsletter: July-September 2012 3

National News
BB Rejects Banks' Plea for Time Extension The Bangladesh Bank (BB) recently turned down banks' appeal for extension of timeframe regarding loan classification, provisioning and rescheduling. The central bank's refusal came after a delegation of the Association of Bankers, Bangladesh (ABB), led by its Chairman Nurul Amin, submitted a proposal to BB Governor Dr. Atiur Rahman for extension of the deadline by at least 1.5 years. Vice Chairman of ABB and Managing Director of Pubali Bank Ltd Helal Ahmed Chowdhury, Managing Director of Islami Bank BD Ltd Abdul Mannan, and Managing Director of Eastern Bank Ltd Ali Reza Iftekhar were present, among others. Earlier, the central bank set July 1, 2012 as the deadline for complying with its directive on loan classification, provisioning and rescheduling. On June 19, the BB said in a clarification that its revised instructions on loan classification and provisioning will come into effect from July 01, instead of June 14. However, the ABB, according to the decision taken at its recent meeting, requested the BB to extend the deadline up to January 1, 2014. RMG Sector Progressing Despite Meltdown in European Union Country's ready-made garment sector is progressing gradually despite economic recession in European Union, Commerce Minister Ghulam Mohammed Quader said recently. He said this while addressing as chief guest the inaugural ceremony of three international expos named '13th Textech Bangladesh expo 2012', '12th Dye+Chem expo 2012' and '6th Dhaka International Yarn and Fabric show 2012' at the Bangabandhu International Conference Centre in the city. Bangladesh Garment Manufacturers and Exporters Association (BGMEA) vice president Faruk Hasan and Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) second vice president Mohammad Hatem were present at the inaugural ceremony as special guests. CEMS (Conference and Exhibition Management Services Ltd) has organised these three fairs that will continue till July 6. President and Group Managing Director of CEMS Meherun N. Islam said the local business community will be benefited as the foreign exhibitors will display their modern technology, machinery and raw materials in these expositions. Textile and Apparel Industry of South Asia has the key position in the export sector with Bangladesh leading in apparel exports in the region with a turnover of over US$ 18 billion over 120 countries. Nearly 450 exhibitors from 22 countries, including Bangladesh, USA, China, Germany, Turkey, Taiwan, Japan, Korea, Sweden, UK, India, Poland, Russia, France, Pakistan, Switzerland, Spain, Malaysia, Singapore and Hong Kong will take part in the fairs. Karnaphuli EPZ $244m in FY12 Fetches

Karnaphuli EPZ earned $244 million from export in the last financial year, up by 39 per cent against the target. The government set the target at $175.00 million for the year 2011-12. The export performance is 139 per cent above that of the last fiscal in the country's fast growing export processing zone, said officials of the KEPZ authority.

Agrani Bank Newsletter: July-September 2012 4

National News
The demand for electricity will go up to 15mw in a few months as new factories await production, he said adding that both the foreigner and local investors have been insisting on undisturbed power supply and negotiating regularly with the KEPZ management in this regard, but they are yet to get it. Sources said the factories are now taking electricity from the Power Development Board and the nearby United Power Generation, a private company. The production units get supply of four megawatts of electricity from the private generation company when the PDB supply is stopped after 5pm. Currently, 38 industries including 28 owned exclusively by foreign entrepreneurs, two in joint venture of the local and foreign investors and eight owned by the locals are running. The number of industries in the zone will be 54 by the middle of 2013, as construction of 16 industries will be completed by that time, sources said. "Six new factories are expected to enter production by October or November 2012. They have completed construction of buildings. Some of them are importing machinery while others are waiting to import raw material to go for commercial production in next few months," said GM of KEPZ Mr Khorshid Alam. Investors from home and abroad are showing interest to set up industries in the KEPZ and have applied for plots in the zone but the authority regretted that the spaces will no longer be available as there is no expansion plan because of the availability of land in the adjacent area, the general manager said. The government established the KEPZ on an area of 204 acres of land in the erstwhile Chittagong Steel Mills near Chittagong maritime port. The EPZ has 254 plots in three sectors, having 28 exclusively foreign companies operating in Sector-A, two in operation in Sector-B under joint venture and eight run by the local manufacturers in Sector-C. About 25,000 workers have been employed in the factories. BB Wants Banks to Invest PF in Govt. Securities The Bangladesh Bank is going to take two policy measures regarding banks provident fund and obtaining more primary dealers (PD) to meet the projected borrowing of the government through its treasury bills and bonds and thus ease the liquidity crisis of the existing primary dealer banks. Firstly, the BB is working out steps to attract the banking sector to invest their provident fund in government securities. Secondly, it is trying to insist the non-PD banks and other nonbanking financial institutions to obtain the PD license to invest in government securities. Currently 12 commercial banks out of 48 are holding government securities beyond their needs. BB is attracting other commercial banks, especially who are in better financial position, to obtain PD license to invest their excess liquidity in government securities. At least eight to ten non-PD banks have ability to invest in government securities as they are holding a significant amount of deposits from the public. Even their financial position is comparatively stronger than some of the existing PD banks. When existing PD banks are holding deposit from the public of Tk 60 billion to Tk 100 billion each, some non-PD banks are holding more deposits. Now BB is trying to insist those non-PD banks to obtain PD license to invest their liquidity in government securities. However, BB is currently working out with the respective banks financial activities and other means to justify their ability to become PDs, he noted, adding, though it cannot directly forced upon them.

Agrani Bank Newsletter: July-September 2012 5

National News
BB is also planning to attract banks' provident fund (PF) to be invested in government securities. It has almost finalized the necessary rules in consultation with the Finance Ministry in this connection. Country's 48 scheduled banks are holding about Tk 95 billion in their PF accounts, known as trust money, mostly deposited to the banks as Fixed Deposit Receipts (FDR). If this trust money is invested in the government securities, the existing primary dealer banks would be able to mobilize more funds. BB may instruct the banks to invest at least 75 per cent of their PF in government securities. The relevant department is working out the necessary rules and regulations, the official said. The government in its budget for 2012-13 has projected net borrowing of Tk 230 billion from the commercial banks as against the original plan of Tk 190 billion previous year which was finally shot up to Tk 290 billion. The government has projected borrowing Tk 184 billion by selling long term bonds and Tk 46 billion through issuing short term treasury bills. The net incremental borrowing can increase to at least Tk 100 billion to Tk 330 billion from the actual projection of Tk 230 billion at the end of the current fiscal year, senior banker of a PD bank said. "So it will be timely and highly welcomed by the PD banks if BB really takes such measures to increase the number of PDs and necessary measures to invest PF money in government securities," added the banker. Govt. Sets Exports Target at $28b The government has fixed the export target at $28.0 billion for the 2012-13 fiscal representing an 11 per cent growth over the fiscal year just passed by. The export target was fixed at a meeting presided over by the Commerce Minister at his office July 5 where apparel exporters, who account for about 80 per cent of the earning, endorsed the government projection. "The government will provide all out assistance to the exporters to achieve the target," assured Commerce Minister GM Quader and stressed the need for increasing export earning to reduce the trade gap. The country is expected to achieve 6.50 per cent export growth in outgoing year (201112) ended in June with a total export earning of $24.41 billion, which is less than the target of $26.50 billion earlier set for the year. An impressive export growth of 41.47 per cent was achieved in 2010-11 fiscal. It grew by 4 per cent in 2009-10 fiscal when other SAARC countries India, Pakistan, Bhutan and Sri Lanka witnessed a negative growth due to the global economic downturn. He was optimistic about the achievement of the export target set for the 2012-13 fiscal year. Earnings from knit, woven garments including home textile, plastic, footwear, leather and leather goods, agro-products, light engineering products and shipbuilding sectors increased in 2011-12 fiscal compared to 2010-11 fiscal, an official attending the meeting said. "We hope the overall growth will sustain For the current fiscal, we have set 11 per cent growth target banking on the performance by the ready-made garments sector. I don't think the target will be difficult to achieve," added the official. For the current fiscal year, all 21 major export products, barring those related to petroleum, have been projected to grow, including the top item knitwear at 11 per cent, woven garments 11.50 per cent, jute and jute

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National News
products 9.62 per cent, leather products 46.48 per cent, plastic products 33.13 per cent, ships, boats, and floating structures 65.55per cent and agro-products 12.41 per cent. According to EPB, export of footwear in the ongoing fiscal year will cross $410 million and engineering products $400 million for the first time in the country's history. Govt. Plans to Involve Chamber Bodies to Monitor Markets The government has planned to involve different chamber bodies to monitor the retail markets in the capital to check abrupt price hike of essential commodities during the upcoming holy month of Ramadan. "We (MoC) are going to send letters to the FBCCI (Federation of Bangladesh Chambers of Commerce and Industry), DCCI (Dhaka Chamber of Commerce and Industry) and other chambers and trade bodies within the next couple of days and ask them to form their respective teams to monitor the city's retail markets," a high MoC official told. Earlier, the MoC at a meeting with the businessmen had unanimously taken some decisions that include not allowing retailers to make profit beyond 10 per cent of their selling prices while for the importers and wholesalers it would be only one per cent. He mentioned that Sylhet and Khulna chambers have already formed such teams at their own initiatives to monitor the markets so that prices of commodities do not go up without any valid reason. He said there are no reasons for any artificial price shoot-up of essential commodities during Ramadan since the demand, supply and stock situations of soybean, gram, sugar, onion and garlic are satisfactory. Dhaka seeks more investment from KL Bangladesh has sought more Malaysian investment in the country's prospective sectors to accrue mutual benefits for the two brotherly Muslim countries. Commerce Minister GM Quader called upon the Malaysian investors to undertake new ventures in Bangladesh's fast growing manufacturing, services and infrastructure sectors. He was speaking at the inaugural session of Showcase Bangladesh'12 at Merdeka Square in Kuala Lumpur. BMCCI in collaboration with Bangladesh High Commission, Malaysia South-South Association and Malaysia External Trade Development Corporation has arranged the three-day trade show. International Trade and Industry Minister of Malaysia Datuk Mustapa Mohamed spoke as the chief guest while Environment and Forests Minister Dr Hasan Mahmud attended the session as special guest with BangladeshMalaysia Chamber of Commerce and industry (BMCCI) President Syed Nurul Islam in the chair. The Commerce Minister said Malaysia is one of the largest investors in Bangladesh. Some 84 Malaysian companies have already invested in Bangladesh and there is still enough scope for further investment. Mr Quader said the Malaysian market is rather free. However, there are some non-tariff barriers in the form of import licensing/permit and standardisation requirements for agricultural and food products. "That's why our exporters are facing difficulties to tap the full potentials. We hope these barriers can be eliminated through negotiations." The Commerce Minister said Bangladesh is keen to strengthen political, economic and commercial ties with Malaysia so that people of both countries can be benefited.

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International News
Euro Jumps after Eurozone Crisis Summit The euro shot up more than two cents against the dollar after a summit of eurozone leaders in Brussels agreed on stronger actions to reverse the spiraling crisis. At 2100 GMT the euro traded at $1.2654, up from $1.2442. The deal squeezed out of tough talks between the eurozone's biggest powers early was the catalyst for the jump. They agreed to use emergency funds to support ailing banks directly and to ease pressure on governments' debt burdens through bond purchases; and to inject 120 billion euros ($150 billion) of stimulus money into the suffering euro area economy. "The low expectations in place the past few days surrounding the eurozone summit were tossed aside with ease, as new measures proposed prompted a massive short-covering rally in the euro," said Christopher Vecchio. US bond yields jumped as investors moved into riskier currencies; Spain and Italy bond yields dropped sharply. "The summit is a clear success. It goes very clearly in the right direction because at last it puts in place efficient tools in the long term," Natixis bank bond strategist Rene Defossez said. US Consumer Drops Sharply Sentiment Indian government plans to invest around Rs 130 billion over a period of eight years to promote electric and hybrid vehicles in the country and the Department of Heavy Industries is expected to seek Cabinet approval for the same within the next three months. According to sources, the Department of Heavy Industries has also decided to include a clause in the draft National Mission for Hybrid and Electric Vehicles (NMHEV) suggesting PSU banks to offer loans to customers for purchasing electric vehicles (EVs). "The government will put in around Rs 130 billion till 2020. This is mainly to incentivise the sector to attract private players," a senior official from the Department of Heavy Industries told. Countries like the UK, France and Germany give such types of incentives to promote hybrid and EVs, he added. Ministry of Heavy Industries and Public Enterprises is drafting the NMHEV in consultation with various stakeholders of the automobile industry. The first meeting took place on May 11, 2011, and about 25 sittings have taken place so far, deliberating various issues. It is understood that under the

US consumer confidence declined to the lowest level this year after hitting a 4.5-year high last month, amid a gloomy outlook for the U.S. economy, a leading industry report said recently. The index of U.S. consumer confidence dipped to 73.2 in June from 79.3 last month, which was the highest level since October 2007, according to the final reading of the Thomson Reuters/ University of Michigan's index of consumer sentiment. The decline in June was the first in the past ten months. The index averaged 64.2 during the last recession and 89 in the five years leading up to the recession that began in December 2007 and ended in June 2009. The index of current conditions, reflecting Amer-icans' perceptions of their financial situation and whether they consider it a good time to buy big-ticket items like cars, eased to 81.5 from 87.2 in the previous month. Indian Govt. to Invest Rs. 130 billion for Electric, Hybrid Vehicles

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International News
NMHEV, it would be made mandatory for all upcoming housing complexes across the country to have charging points for electric vehicles. "It is proposed that no drawing will be passed by the Ministry of Urban Development if there is no charging socket planned at the parking space," a source said. Besides, NMHEV will also advise the Automotive Component Manufacturers Association of India to develop and produce components for alternate fuel-driven vehicles to reduce shortages of parts. Sources further said the government also will create EV zones in certain "highly polluted" cities as pilot projects to promote environment friendly mode of transportations. S Korea Won Highest Since Early May on Stimulus Hopes The South Korean won rose to its highest since May 8 as the share market gained on investor hopes of additional stimulus measures by leading economies after data showing manufacturing output has slowed globally. The won got off to a weak start on Tuesday, as poor global manufacturing data sparked risk appetite and a public enterprise purchased an estimated $200 million, traders said. to 104.75 after trading within a narrow range on recently. The yields on the benchmark five-year treasury bonds and three-year treasury bonds both fell 1 basis point each. Swiss Banks' Foreign Clients Even More Unhappy in 2011 Swiss bank clients who live outside the country lodged more complaints in 2011 than before, according to a report released recently, with higher bank charges the main bugbear. According to the banking ombudsman, 38 per cent of its complaints came from abroadlittle change from 2010 (37 per cent) -- but significantly higher than in 2009.

However, market participants later chased up the won to its highest level in eight weeks as investors cut dollar long positions before onshore trade finished and offshore traders investing in South Korean stocks rushed to sell dollars ahead of a major US holiday. As a result, the won strengthened against the dollar on Tuesday and moved past the 200-day average of 1,143.2 and the 100-day average at 1,141.9. Prospects for further won strengthening were also highlighted by an announcement that Hyundai Heavy Industries Co Ltd has received a 1.34 trillion won ($1.17 billion) order to build 10 large container ships from a Europe-based shipper. "Overall the market reflected hopes of more stimulus policies and along with the news of the large order, the ambience is helping the won gain," said a foreign bank dealer. The benchmark Korea Composite Stock Price Index was up 0.87 per cent at 1,867.82 points, a two-week closing high with foreign investors buying 19.6 billion won worth of South Korean shares. September futures on three-year treasury bonds rose 0.03 points

The total number of complaints was down five per cent from 2010, to 1,889. "Before the financial crisis, we received around 130 new cases per month, now it's up to 160," said ombudsman Hanspeter Haeni. In 2011, the ombudsman received 735 such claims, of which 457 accounts were uncovered and the contents of 38 accounts transferred. Some 5.4 million francs (4.5 million euros) were returned to individuals in total, along with

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International News
the contents of six safety deposit boxes. Nearly 29 per cent of the successful claims came from Germany, followed by France (15.8 per cent) and South America (10.5 per cent). IMF Urges US to Remove 'Fiscal Cliff' Uncertainty The International Monetary Fund (IMF) urged the United States to quickly remove the uncertainty over the path of fiscal policy, which is set to tighten abruptly at the start of next year without congressional action. IMF Managing Director Christine Lagarde warned that just the threat of the "fiscal cliff" could weaken US economic growth later this year and she called for action to address it sooner rather than later. The US economy is facing $4 trillion worth of expiring tax cuts and automatic government spending reductions, and most analysts do not expect Congress to act to soften the blow until after the congressional and presidential elections in November. In addition to the looming budget tightening, the United States is expected to hit the $16.4 trillion statutory limit on its debt sometime between the election and the end of the year. If Congress fails to raise it, it would lead to a US default. The Fund forecast a modest 2 per cent growth in the United States this year and shaved its projection for 2013 to 2.25 per cent from 2.4 per cent the IMF forecast in April. But it warned that the already modest forecast for next year could prove much too optimistic if Congress fails to relax the fiscal tightening of about 4 per cent of gross domestic product contained in current law. If Congress does not act, the economy could contract early next year and annual growth could come in well below 1 per cent. "We believe that fiscal consolidation is necessary but not just any fiscal consolidation. It has to be sensible and certainly not excessive," Lagarde told a news conference. "Continued policy action is needed to boost the recovery," Lagarde said. "We believe that the US authorities do not have a lot of space available - they have limited space actually - to act but they should use it to support the recovery." The IMF said US monetary policy was appropriately "very accommodative" and emphasized that the Federal Reserve had room for further easing should conditions worsen. economic

Gold Rises on Economic Stimulus Expectations Gold futures on the COMEX division of the New York Mercantile Exchange rebounded Tuesday settle at a 2-week high, as traders hoped for more economic stimulus around the world. The most active gold contract for August rose 24.1 dollars, or 1.51 per cent, to settle at 1,621.8 dollars per ounce. Market analysts said many investors are of the idea that the European Central Bank (ECB) will lower interest rates at its meeting, and that central banks of other countries could likewise decide to stimulate their economies through quantitative easing measures. Extra-loose monetary policy is a positive for gold, as the precious metal takes strength on fears of inflation. Traders sought to position themselves ahead of the ECB meeting. Silver for September delivery sharply rose 78.1 cents, or 2.75 per cent, to close at 28.256 dollars per ounce. Platinum for October delivery hiked 33.1 dollars, or 2.27 per cent, to close at 1,491.4 dollars per ounce.

Agrani Bank Newsletter: July-September 2012 10

Special Feature
Banking world: Major challenges to operating models
-BK Mukhopadhyay The new rating results have raised a furor over the banking world. Even India's State Bank of India, ICICI, has not been spared, not to speak of Sri Lanka's and the world's top 15 biggies. Investors have been reassessing the banking industry's longterm growth prospects and re-rating the sector. On this score the situation that reveals cannot be said to be all right indeed: ever rising cost of doing business - complying to new regulation requiring banks to hold more capital and liquidity to ensure that the industry better withstands future shocks, and at the same time countering the menace of scarcity of capital and liquidity, plus dealing with the dominant factor the changing consumer behaviour. In a word, challenges galore. The global economic situation remains far from being satisfactory and as such it is very difficult to presume that the downslide would not recur along with the fear that the developing block would be facing harder days to keep heads above water. If we glance back it can be located that it was 2010 when global banking revenues touched a record $3.8 trillion, and after-tax profits jumped from $400 billion in 2009 to $712 billion - above their 2008 level, if not the 2007 peak. Side by side, this picture did not necessarily reflect a bright future for banks in Europe and the United States in as much as 90 per cent of the profit improvement was attributable to a reduction in provisions for loan losses. Rather it was from emerging markets wherefrom the better picture emerged. The major factors declining cross-border capital flows, high bank credit-default-swap spreads, as well as persistently low market valuations - pointed to declining investor confidence in the industry's future long before the latest alarms over sovereign debt during the latter part of 2011. The real picture is: despite a strong global profit performance in 2010 and the first half of 2011, the return on equity (ROE) of banks in Europe and the United States still not recovered to the point where it adequately could cover their cost of equity - the gap rather set to widen further in the wake of new regulatory requirements. It is clear that without radical action (shrinking balance sheets, cutting costs, and bolstering revenues), banks will be unable to attract sufficient new capital from the investment community and to play their critical role in underpinning economic recovery and growth. In fact, the global financial crisis and its aftermath of economic and regulatory change present major challenges to the traditional operating models of banks in developed countries and are undermining the sector's ability to deliver a sustainable level of returns to shareholders. A new McKinsey report The state of global banking: in search of a sustainable model - shows that despite a strong global profit performance in 2010 and the first half of 2011, the return on equity (ROE) of banks in Europe and the United States still not recovered to the point where it covers their cost of equity. Practically, the gap is set to widen in the wake of new regulatory requirements. In case the recessionary trend develops in the medium to long term different negative impacts on the different sector of the economy would be there. Of course, the real impacts will depend on a range of factors (the extent of the economic downturn globally and the resulting decrease in commodity demand and prices). Other major determinants are the impacts of the crisis on private capital flows. Specifically, to evaluate the impact on the developing economy, four basic areas on this score come to the fore: (i) the direct impacts of the crisis on the economy's finance and banking system; (ii) the potential impacts on private capital flows and ODA levels; (iii) the potential impacts on commodity demand and prices and (iv) the potential impacts on macroeconomic indicators, growth and the Millennium Development Goals (MDGs).

Agrani Bank Newsletter: July-September 2012 11

The set of policy responses can, therefore, be considered with regard to what is needed immediately and in the medium to long term to minimize the probable loss of welfare owing to such a possible hit. Optimal policies therefore should be perceived in terms of what is possible in the short run as a response to any recurrence to global financial turbulence, and what should be the long-term objective in order to avert reoccurrence of recent past experiences while minimising the impact in terms of welfare losses for the people. So the best way is to look forward in a positive manner to capture new opportunities. Banks have overcome previous crises by finding innovative ways to increase the top line. Although opportunities may seem to be limited, huge scope is there to improve pricing, to adapt products to the needs of customers, and to find new pockets of growth. Even before the industry digests the additional capital requirements from Basel III and other surcharges as considered by global and national regulators, banking in developed countries would be facing a significant returns gap and naturally corrective measures remain a must for them as well. Mckinsay's assessment indicates the probable happening: emerging markets will contribute nearly half of all banking revenues around the world by 2020, compared with just one-third today, and will represent 60 per cent of all revenue growth in banking over the next decade. To achieve an * Sources * Objectives

ROE of 12 per cent by 2015, European and North American banks will have to add more than $350 billion of net profits in the intervening period double the current level. The upshot: banks in both Europe and North America must find ways to work with less capital and to use what they have more efficiently (shifting a substantial part of their lending to the capital markets so that banks do less direct lending and help revive the corporate-bond market - in case of Europe such bonds account for only 20 per cent of the credit needs of companies, as compared against 60 to 70 per cent in the United States). So, all depend on the specific region-wise situation vis--vis market trends, among others. It is clear there are no short cut routes available in hand and taming down the menace depends on taking up a realistic strategy indeed. In fact, banks can eliminate as much as half of the cost of their branches by moving sales and service online.It is clear that without radical action to shrink balance sheets, cut costs, and increase revenues, banks will be unable to attract sufficient new capital from the investment community and to play their critical role in underpinning economic recovery and growth. Dr B K Mukhopadhyay, a Management Economist, is attached to the Department of Business Administration, Gauhati University, Guwahati, India.

* Published by
CHIEF PATRON EXECUTIVE EDITOR EDITOR

: National dailies, periodicals, journals, magazines, books, etc. : THE AGRANI BANK NEWSLETTER attempts to compile important economic activities, news and views of Agrani Bank Limited supplemented with those of the country and abroad in abridged forms. : Information Technology & MIS Division, Agrani Bank Limited, Head Office, Motijheel, Dhaka.
: : : SYED ABDUL HAMID, PhD, FCA BIMALENDRA SAHA ASHIQUR RAHMAN

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