SUBMISSION PAPER

SUBMITTED TO______________________
Farzana Lalarukh
Associate Professor

SERIAL
NO
1
2

GROUP MEMBERS

ID NO

Sadia Rahman
Farhana Khatoon

17-089
17-059

3
4

Fahmida Islam Ananna

Tanjum Tamanna

17-125
17-087

G M Younus Bhuiyan

17-175
Department Of Finance
University of Dhaka

SUBMITTED BY_______________________

Submission Date: 24-08-2015

LETTER OF TRANSMITTAL
August 24, 2015
Farzana Lalarukh
Course Instructor
Department of Finance
University Of Dhaka

Dear Madam,
I am extremely gratified & enthusiastic to present a report on the Banking Industry of
Bangladesh. This report was assigned to me with a view to keep informed about the current
scenario of banking industry of Bangladesh. Moreover, the purpose of this term paper was to
extract our inner ability & enrich our knowledge in this case.
The information of this paper is directly collected from the sources we got, the annual report &
our course textbook & should not go beyond the norm.
We hope you will find the report in appropriate manner. Looking forward to know your
feedback.
Thanking you
Sadia Rahman

17-089,
on behalf of the group

Contents
Executive Summary.................................................................................................... 4
Chapter: 1 Introduction.............................................................................................. 5
Chapter: 2 Overview of Banking Industry of Bangladesh............................................6
Chapter: 3 Size Structure & Composition of the Industry.........................................12
Chapter: 4 Balance Sheet & Recent Trends..............................................................18
Chapter: 5 Regulations............................................................................................. 26
Chapter: 6 Performance Analysis of the Banking Sector...........................................30
Conclusion:............................................................................................................... 43
References................................................................................................................ 44

Executive Summary
In the entire financial system banking industry is the heart of the economy. An efficient operation
of banking sector enables the smooth financial resources intermediation of an economy.
Economic growth is contributed greatly by the efficiency of banking sector in resources
generation and its proper allocation.
The report starts with a short overview of the banking industry of Bangladesh. There are four
components of depository institutions. This report is based on that four components. Size ,
Structure & Composition of banking industry is described then. It has been found out here the
services banks provided, their structure and size based on asset. The name of top ten banks based
on growth rate also mention there. Next comes the balance sheet of banks. The asset & liability
structure of those banks. Here it has been found out that banks major assets is loans & advances
(59%). Top 10 banks hold almost half (46%) of the asset of total asset of the industry, so do the
deposits (48%). And banks another sources of income i.e. off balance sheet items are described
here.
Regulators of the banking sector in Bangladesh are included then. They always monitor the
performance of the banks to ensure efficient financial system. In Bangladesh this sector started
operating since independence of the country. Therefore, the performance of banking sector is
always been a source of interest for researchers to judge the economic condition of a country.
The sector has been facing several problems in terms of low profitability after 2010. In 2011 and
2012 the situation continued worsening and projection reveals that it might further deteriorate in
future. The NPL rate is increasing at an alarming rate. Again, ROA (.6%), ROE (8.4%) are low
compared to banks of other countries of the world. Though this sector is in action since the birth
of the country, this sector has a long way to go.

At last of the performance analysis some important ratios are given. The report ended with brief
conclusion over the analysis along with some suggestions.

Chapter: 1 Introduction
1.1 Origin of the Report
This report was assigned as a significant part of MBA program of Department Of Finance which
is under Faculty of Business Studies. It was assigned for the course F-501 Commercial Bank
Management of Financial Institutions by the course instructor Farzana Lalarukh, Department of
Finance, University of Dhaka.
1.2 Objectives of the Report
The specific objectives of the study are:

To understand the important components of banks.

To identify the various types of activities that a bank involved in.
To know how the Balance Sheet of a bank looks like and its trend.
To know how banks performance is measured.

1.3 Methodology
The task of this report was commenced by finding out the length of the pattern of it. It is also a
formal report as proper formality is maintained As secondary source the websites as well as
several blogs about the companies and its other features were used. The annual reports were
thoroughly used. The balance sheets and Income statements were widely used for this term
paper. After collecting all the data, an outline was created with the facts which have been
gathered. Then gathered all the highlighted facts & errors to rectify the report. Eventually final
draft was formed with all the substantial components.

1.4 Limitations

The report was prepared on information collected from annual reports, only few websites,

which is a great limitation. The sources of information were scanty too.

Information was not collected from various places, which is a barrier to judge the

rightness & wrongness of the gathered data.

Some recommendations were made on sole interpretations, so there may be some biases.

Chapter: 2 Overview of Banking Industry of Bangladesh

Banking Industry of Bangladesh:
Financial System is the set of well organized institutional set up which helps to transfer excess
funds from surplus unit to deficit unit. The financial system in Bangladesh includes Bangladesh
Bank (the Central Bank), scheduled banks, and non-bank financial institutions likeleasing etc,
Microfinance institutions (MFIs), insurance companies, co-operative banks, credit rating
agencies and stock exchange. Banking sector occupies the lion portion share of financial system
in Bangladesh. Bangladesh bank is authorized for regulating and supervising financial
institutions in Bangladesh.
Like any other countries, banking sector plays a vital role to the national economy in
Bangladesh. It contributes to many arms of the economy like agriculture, industry, power,
transport, trade services and so on. The scenario of banking sector in terms of disbursement,
recovery and rends of growth of credit to different sectors of the economy is very crucial for the
development of the banking sector in particular and the countrys economic development in
general.Despite in recent years, many non-bank financial institution has been established, still
the financial system of Bangladesh is mainly banking sector based. Banking sector consists of
Bangladesh Bank as the central bank, state-owned commercial banks, specialized
bank/development financial institutions, private commercial banks; Islami Shariah based
PCBs, conventional PCBs, and foreign commercial banks. At present total number of
scheduled bank is 56.
Now, banks in Bangladesh are primarily of two types:

Scheduled Banks:The banks which get license to operate under Bank Company Act,
1991 (Amended upto 2013) are termed as Scheduled Banks.

Non-Scheduled Banks: The banks which are established for special and definite
objective and operate under the acts that are enacted for meeting up those objectives, are
termed as Non-Scheduled Banks. These banks cannot perform all functions of scheduled
banks.

State Owned
Commercial Bank

Private commercial
Bank

Bangladesh Bank as
central bank

Foreign Bank

Specialized Bank

There are 56 scheduled banks in Bangladesh who operate under full control and supervision of
Bangladesh Bank which is empowered to do so through Bangladesh Bank Order, 1972 and Bank
Company Act, 1991.

Background:

After the impendence in 1971 the banking sector of Bangladesh started its journey with a new
dream and new commitment towards equity and social justice along with growth and
development. The newly independent government immediately designated the Dhaka branch of
the State Bank of Pakistan as the central bank and renamed it as Bangladesh Bank. The
Bangladesh government initially nationalized the entire domestic banking system and proceeded
to reorganize and rename the various banks. Foreign-owned banks were permitted to continue
doing business in Bangladesh. The new banking system succeeded in establishing reasonably
efficient procedures for managing credit and foreign exchange.
After the independence, banking industry in Bangladesh started its journey with 6 nationalized
commercialized banks, 2 State owned specialized banks and 3 Foreign Banks. In the 1980's,
banking industry achieved significant expansion with the entrance of private banks.

Present scenario:
At present there are 56 scheduled banks in Bangladesh who operate under full control and
supervision of Bangladesh Bank which is empowered to do so through Bangladesh Bank Order,
1972 and Bank Company Act, 1991. Scheduled Banks are classified into following types:
State Owned Commercial Banks (SOCBs): State owned banks are functioning as
nationalist and these kinds of banks are known as Public Banks in Bangladesh. There are
6 SOCBs which are fully or majorly owned by the Government of Bangladesh. they are
1.
2.
3.
4.

Sonali Bank Limited

Janata Bank Limited
Agrani Bank Limited
Rupali Bank Limited

5. BASIC Bank Limited

6. BDBL (Bangladesh Development Bank Limited)

Specialized Banks (SDBs): Specialized banks were established for specific objectives
like agricultural or industrial development. These banks are also fully or majorly owned

by the Government of Bangladesh. There are 2 specialized banks are now operating
which were established for specific objectives like agricultural or industrial development.
These banks are also fully or majorly owned by the Government of Bangladesh. they are1. Bangladesh Krishi Bank Limited
2. Rajsahi Krishi Unnoyon Bank (RKUB)

Private Commercial Banks (PCBs): Private Banks are the highest growth sector due to
the dismal performances of government banks. They tend to offer better service and
products. There are 39 local private commercial banks which are majorly owned by the
private entities. PCBs can be categorized into two groups:
o Conventional PCBs: 31 conventional PCBs are now operating in the industry in
Bangladesh. They perform the banking functions in conventional fashion i.e
interest based operations.
1. AB Bank Limited
2. Bangladesh Commerce Bank Limited
3. Bank Asia Limited
4. BRAC Bank Limited
5. Dhaka Bank Limited
6. Dutch Bangla Bank Limited
7. Eastern Bank Limited
8. IFIC Bank Limited
9. Jamuna Bank Limited

10. Meghna Bank Limited

11. Mercantile Bank Limited
12. Midland Bank Limited
13. Modhumoti Bank Limited
14. Mutual Trust Bank Limited
15. National Bank Limited
16. NCC Bank Limited
17. NRB Bank Limited
18. NRB Commercial Bank Limited
19. NRB Global Bank Limited
20. One Bank Limited
21. Prime Bank Limited
22. Pubali Bank Limited
23. South Bangla Agriculture and Commerce Bank Limited
24. Southeast Bank Limited
25. Standard Bank Limited
26. The City Bank Limited
27. The Farmers Bank Limited
28. The Premier Bank Limited

29. Trust Bank Limited

30. United Commercial Bank Limited
31. Uttara Bank Limited
o IslamiShariah based PCBs: There are 8 IslamiShariah based PCBs in Bangladesh
and they execute banking activities according to IslamiShariah based principles
i.e. Profit-Loss Sharing (PLS) mode. name of Islami Shariah based PCBs1. Islami Bank Bangladesh Limited
2. Al-Arafah Islami Bank Limited
3. Export Import Bank of Bangladesh Limited
4. Social Islami Bank Limited
5. Shahjalal islami Bank Limited
6. First Security Islami Bank Limited
7. Union Bank Limited
8. ICB Islamic Bank Limited

Foreign Commercial Banks (FCBs): There are some Foreign Commercial Banks are
currently operating in Bangladesh. 9 famous FCBs are now operating as the branches of
the banks which are incorporated in abroad. These banks include1. Bank Al-Falah
2. Citibank NA
3. Commercial Bank of Ceylon
4. Habib Bank Limited

5. HSBC (The Hong Kong and Shanghai Banking Corporation Ltd.)

6. National Bank of Pakistan
7. Standard Chartered Bank
8. State Bank of India
9. Woori Bank
Non-Scheduled Banks: The banks which are established for special and definite objective and
operate under the acts that are enacted for meeting up those objectives, are termed as NonScheduled Banks. These banks cannot perform all functions of scheduled banks.
Ansar VDP Unnayan Bank
Karmashangosthan Bank
ProbashiKollyan Bank and
Jubilee Bank are the 4 Non-Scheduled Banks in Bangladesh.
The role banks play in the economy is very much important. Without banks fund mobilization
would be very difficult. Banks are important because they do task of mobilizing fund from
surplus unit to deficit unit. At present total deposit kept by banks is much higher than in last year.
In June 2015, to total demand deposit kept in banks is TK. 723838 million which was TK.
643443 million in June, 2014. Time deposit is TK. 6267999 million in June, 2015.

Chapter: 3 Size Structure & Composition of the Industry

Commercial Banks
Commercial banking may be retail or wholesale on the basis of amount of transaction and nature
of clients. When banking services are provided to individuals and amount of transaction are
smaller then it is called retail banking. On the other hand, when banking services are provided
corporate clients and amount of transactions are bigger , then it is called wholesale banking.

Size, Structure and Composition of the Industry

In 2005-06 fiscal year total deposit of banks was tk.1550585 million and total advance was tk
1343342million with total branches of 6412. In February 2009, the total deposits were tk.
2551.07 billion and total advances were 2177.96 billion with 48 banks. And now the total
number of banks are 63.The number of Banks are increasing day by day and govt impose the
rules of spreading their services to the rural people to ensure the development

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There are 56 scheduled banks in Bangladesh who operate under full control and supervision of
Bangladesh Bank which is empowered to do so through Bangladesh Bank Order, 1972 and Bank
Company Act, 1991. Scheduled Banks are classified into following types:

State Owned Commercial Banks (SOCBs): There are 6 SOCBs which are fully or
majorly owned by the Government of Bangladesh.

Specialized Banks (SDBs): 2 specialized banks are now operating which were
established for specific objectives like agricultural or industrial development. These
banks are also fully or majorly owned by the Government of Bangladesh.

Private Commercial Banks (PCBs): There are 39 private commercial banks including 9
Islami Shariah based bank which are majorly owned by the private entities. PCBs can be
categorized into two groups:

Foreign Commercial Banks (FCBs): 9 FCBs are operating in Bangladesh as the branches
of the banks which are incorporated in abroad.

There are now 4 non-scheduled banks in Bangladesh which are:

Ansar VDP Unnayan Bank,

Karmashangosthan Bank,

Probashi Kollyan Bank,

Jubilee Bank

The number of branches of bank has increased and customer have an increase in the number of
branch location available to them. Here govt has an intervention. Previously commercial bank
had to open 1 bank branch in rural area for every 4 branches in urban area. But at present every
bank is required to open 1 branch in rural area for every branch in urban area.

Functions of Commercial Banks

Primary functions: Commercial banks perform various functions:

Commercial banks accept various types of deposits from public especially from its
clients, including saving account deposits, recurring account deposits, and fixed deposits.
These deposits are payable after a certain time period

Commercial banks provide loans and advances of various forms, including an overdraft
facility, cash credit, bill discounting, money at call etc. They also give demand and
demand and term loans to all types of clients against proper security.

Credit creation is the most significant function of commercial banks. While sanctioning a
loan to a customer, they do not provide cash to the borrower. Instead, they open a deposit
account from which the borrower can withdraw. In other words, while sanctioning a loan,
they automatically create deposits, known as a credit creation from commercial banks.

Secondary functions
Along with primary functions, commercial banks perform several secondary functions. The
secondary functions of commercial banks can be divided into agency functions and utility
functions.
Agency functions include:

To collect and clear cheques, dividends and interest warrant.

To make payments of rent, insurance premium, etc.

To deal in foreign exchange transactions.

To purchase and sell securities.

To act as trustee, attorney, correspondent and executor.

To accept tax proceeds and tax returns.

Utility functions include:

To provide safety locker facility to customers.

To provide money transfer facility.

To issue travelers cheque.

To act as referees.

To accept various bills for payment: phone bills, gas bills, water bills, etc.

To provide merchant banking facility.

To provide various cards: credit cards, debit cards, smart cards, etc.

Top Ten banks in terms of growth

Post-independence time, the growth of banks in Bangladesh took a leap. With the entry of overseas and
local private banks, today the banking service in Bangladesh has become a hallmark. Here are the top 10
banks of Bangladesh:

HSBC Bank
With its client-friendly financial services like, cash management, payment, treasury, trade services,
custody and clearing, and consumer and commercial banking etc, it stands in the list of the top banks of
Bangladesh.
Sonali Bank
Providing a long range of financial services, it is one of top choices of the people of Bangladesh. At
present, it has about 1201 branches; 854 and 345 branches are located in rural and urban areas
respectively.
Islami Bank Bangladesh Limited

In the year 1999, it was awarded the Best Bank of the Country by London based prestigious magazine
named Global Finance. The same magazine again awarded IBBL the same award in the year 2000.
Rendering excellent banking solutions and services to the people of Bangladesh, it gained popularity.
Dutch Bangla Bank Limited
Since its inception, this bank has focused on financing the manufacturing industries. It is also the first
bank in Bangladesh that enjoys the status of being fully automated. With its largest network of ATMs all
over Bangladesh, it also renders ATM services to the ATM card holders of all the other banks.
State Bank of India
It is one of the fortune five hundred companies, and it is a commercial bank with Government of India as
its major shareholder. It provides high standard banking services in Bangladesh.
Habib Bank Limited
Businessclients benefit from its long range of services like commercial banking, investment banking,
corporate banking, Islamic banking, cash management, global treasury and asset banking etc. At present it
has five branches in Bangladesh
Janata Bank Limited
Janata Bank Limited has 844 branches in Bangladesh, and 4 branches in United Arab Emirates. As the
second largest commercial bank of Bangladesh, it operates all over Bangladesh. It also consists of an Italy
based subsidiary company known as Janata Exchange Company SRL.
Standard Chartered Bank

Standard Chartered Bank is the largest international bank in Bangladesh. It has employed more
than 1,300 employees, and operates through 26 branches. It also has seven financial kiosks and
57 ATM booths.
Prime Bank Limited

Established in the year 1995, Prime Bank Limited is a commercial bank and is managed privately. It is
one among the few banks in Bangladesh that follows and operates as per the international standard of
finance and banking.

Structure of the Banking Sector

Most of the commercial banks in Bangladesh are private owned company. They run their
activities by following the circular of Bangladesh Bank. There exists too much competition in
banking industry. So every entity have to engage in complete array of commercial banking
activities both regionally and nationally. None of the banks are the outcome of merger or
acquisition activities except BDBL which is the combination of Rajshahi Krishi Unnayan Bank
and Bangladesh Krishi Bank.
BB has achieved a historic milestone in the trade and business arena, departing from
conventional banking with the introduction of e-commerce recently; a giant stride towards digital
Bangladesh. Banks have been allowed to make online money transactions, payment of utility
bills through internet, transfer of funds (account to account), payments for trading goods and
services, and facilitate online credit card payments in local currency.
Indeed, electronic payments will be considered as cash transactions, which will be regulated
under the Anti-Money laundering Act as well as other relevant rules and regulations. It is
expected that a national payment gateway, connecting all banks for inter-bank transactions (ebanking), will be established soon. Electronic fund transfer will also be possible in near future.
Necessary preparations have already been taken in this direction.
Installation of Bangladesh Automated Clearing House (BACH) is another remarkable event in
the history of the financial sector in Bangladesh. It will simplify the remittance channel and
payment system and, therefore, bring dynamism in business activities.
The system was started in early November 2009 on experimental basis, participated by some
well-prepared banks, and will be inaugurated formally soon. Applying sophisticated methods, the
system needs only images and corresponding information of the submitted cheque leaves instead
of a physical one, and will send them to the Bangladesh Automated Cheque Processing System
(BACPS) using a secured communication link.

New cheques/clearing instruments (standardized) will contain Magnetic Ink Character

Recognition (MICR) line that encompasses information regarding the amount, transaction code;
clients account details, routing number (numeric code assigned to bank branches for easy
identification of origin and destination of the instrument), cheque leafs serial number and so on.
The system will support both intra-regional and inter-regional clearings based on a centralized
processing centre in Dhaka and designated clearing regions, and will conform to the international
best practices and cost-effective solutions for cheque processing.

Chapter: 4 Balance Sheet & Recent Trends

Balance Sheet:
A balance sheet (statement of condition, statement of financial position) of a bank is a
financial report that shows the value of a company's assets, liabilities, and owner's equity at a
specific period of time, usually at the end of an accounting period, such as a quarter or a year.
An asset is anything that can be sold for value. A liability is an obligation that must eventually
be paid, and, hence, it is a claim on assets. The owner's equity in a bank is often referred to
as bank capital, which is what is left when all assets have been sold and all liabilities have been
paid. The relationship of the assets, liabilities, and owner's equity of a bank is shown by the
following equation:
Bank Assets = Bank Liabilities + Bank Capital
i.e.

A = L + OE

A bank uses liabilities to buy assets, which earns its income. By using liabilities, such as deposits
or borrowings, to finance assets, such as loans to individuals or businesses, or to buy interest
earning securities, the owners of the bank can leverage their bank capital to earn much more than

would otherwise be possible using only the bank's capital. Following items are included in a
banks balance sheet:
PROPERTY AND ASSETS

Amount

Cash
Cash in hand (Including Foreign Currencies)
Balance with Bangladesh Bank & its agents (including foreign currencies)
Balance with other Banks and Financial Institutions
In Bangladesh
Outside Bangladesh
Money at Call and Short Notice
Investments
Government
Others
Loans and Advances
Loans, Cash Credit, Overdraft etc.
Bills Purchased and Discounted
Fixed Assets Including Premises, Furniture and Fixtures
Other Assets
Non Banking Assets
TOTAL ASSETS

LIABILITIES AND CAPITAL

Liabilities
Borrowings from other Banks, Financial Institutions
Deposits and Other Accounts

Current Accounts and Other Accounts

Bills Payable
Savings Bank Deposits
Fixed Deposits
Deposits Under Schemes
Other Liabilities
Total Liabilities
Capital/Shareholders' Equity
Paid-up Capital

Deposits and other accounts

(Islami Shariah based banks)
Al wadeeah current and

other deposit accounts

Bills payable
Mudaraba savings deposits
Mudaraba term deposits
Other Mudaraba deposits

Statutory Reserve
Other Reserve
Surplus in Profit & Loss Account
Non Controlling Interest
Total Shareholders' Equity
Total Liabilities & Shareholders' Equity

Off Balance Sheet items

Contingent liabilities
Acceptance and Endorsement
Letter of guarantee
Letter of Credit
Bills of Collection
Other commitments
Total off balance sheet items

Asset Structure of the Banking Sector

The asset structure of banking sector evolved steadily despite an uncertain macroeconomic
scenario in 2014. Banks focused more on safer liquid investments in government securities rather
than relying on growth in private loans and advances. Despite an uncertain macroeconomic
scenario, the banking sector balance sheet size grew by 14.3 percent compared with endDecember 2013 and reached BDT 9143 billion at end of December 2014. This rate of growth
was slightly higher compared with the growth rate in the previous year of 13.8 percent. The
growth of the newly established banks, capital injections from government to the SCBs and
capital injections in some foreign banks by their parent offices helped to achieve this growth.
Most of the income-earning assets such as loans and advances, investments etc., registered a
positive growth compared with end-December 2013, which might indicate that the business
confidence has increased despite discomfort in the macroeconomic environment. Only bills
purchased and discounted showed a substantial decrease (11.2 percent decline compared with
end-December 2013) which might be due to the cautionary approach taken by the banks after
some financial irregularities identified by BB in earlier years regarding discounting of inland
bills. The share of loans and advances is the largest among asset items, and it remained
unchanged at 59 percent of total assets from 2013. There has been a marginal increase in loans

disbursement which is offset by the reduction of bills discounted and kept the overall share of
loans unchanged. The second highest item of asset share is investment in government and other
securities, which increased by 0.4 percentage points over end December 2013 and reached at 20
percent level of the industry assets. This substantial liquid investment might indicate the
tendency of banks to rely more on safer liquid investments due to the inconclusive
macroeconomic situation that existed throughout 2014. At end-December 2014 compared with
end-December 2013, the share of banks' assets with BB and SB increased by 0.3 percentage
points and with other banks and FIs increased by 0.2 percentage points respectively. Banks'
money at call remained unchanged as percentage of total assets. The cash balance of banks
reduced by 0.3 percentage point and other assets remain almost unchanged as percentages of
total assets.

Cash

7% 2% 6%
Due from BB Due from banls and FIS
4%
2%

Money at Call

Investment

20%

Loans & Advances

Other assets59%

Figure : Banking Sector Asset Structure 2014

Concentration of assets within a few banks has reduced in 2014, which could be a positive
indicator of financial stability. The concentration of assets of the top 5 and top 10 banks, among
all banks, were 32.8 percent (which was 33.6 at end-December 2013) and 46.9 (47.9 at endDecember 2013) percent respectively at end of December 2014. During 2014, concentration of
assets within a few banks has reduced marginally, which seems to be beneficial for financial
stability.

Top 10 banks
53%

47%other banks

Figure : Top 10 Banks based on Asset size 2014

Liability Structure of the Banking Sector:
Deposits account for the major part of the liabilities of the banks. The growth rate of deposits
slowed down a little in 2014, probably due to higher rates offered by government bonds which
increased the opportunity cost of bank deposits. Stable term deposits are the major portion of the
total deposits, which is desirable from a financial stability point of view. Deposit concentration
among the banks was reduced in 2014, which is also an encouraging sign toward ensuring
financial stability.
Deposits are the largest source of external funds in the banking sector. The share of total deposits
was 85.0 percent of the total liabilities as of end-December 2014. As of end-December 2014,
deposits increased by 13.4 percent (16.08 percent in 2013) and borrowings from other banks and
FIs increased by 41.3 percent (contrasted with a decrease of 29.87 percent in 2013 from 2012),
while other liabilities increased by 16.7 percent compared with end-December 2013. The
slowdown in deposit growth rate may indicate that liquidity pressure from new lending is less in
the banking system, leading to a reluctance of banks in collecting new deposits. The higher rates
of government savings certificates might be another reason for the modest deposit growth. The
share of term deposits was 56.4 percent of total deposits, whereas the shares of savings deposits,
current deposits, and other deposits were 17.6 percent, 18.6 percent, and 7.4 percent respectively

of total deposits at end-December 2014. The relative proportions of deposits remained similar as
in 2013. The deposit structure shows a greater reliance on term deposits, regarded as more stable,
which is desirable from financial stability perspective.

Chart Title

Term Deposits

8%
Current Deposits
Savings Deposits
18%

other Deposits

56%
19%

Figure : Banking Sector Deposit Structure by types of Accounts 2014

The concentration ratio of deposits of the top 5 and top 10 banks within total deposits are
34.1(34.2 in 2013) percent and 48.3 (48.5 in 2013) percent respectively at end-December 2014.
The concentration of deposits remained almost the same, despite the inclusion of 9 new banks in
the banking system, which is expected to enhance the deposit base. Among the top 10 banks, 4
are state-owned commercial banks and 6 are private commercial banks. Among the top 5 banks,
4 are state-owned commercial banks and the remaining one bank is a private commercial bank.
No foreign banks and specialized development banks are included in the top 5 or top 10 banks,
indicating that concentration of deposits in these banks is gradually decreasing and high
domestic sentiment prevails with the SCBs and PCBs.

Top 10 banks
52%

48%
Other banks

Figure : Top 10 Banks based on deposits size 2014

Equity:
Commercial Bank Equity capital consists mainly of common and preferred stock, paid up Capital
and retained earnings. In 2014 total capital and shareholders equity was 741.3 billion. Among
them 115 billion is from Islami shariah banks. In 2014 total liabilities and shareholders equity
was 9143 billion. Among this 92% cover liabilities and 8 % equity.

8%
Total Liabilities
Total Shreholder's
equity
92%

Off balance sheet item

The balance sheet does not reflect the total scope of bank activities. Banks conduct many feerelated activities off balance sheet. Off balance sheet (OBS) items become very important in
terms of their value. Banks generate a huge amount of revenue through these items. In 2014
banks of Bangladesh earn 2360 billion from these items.

Off Balance Sheet Items (in billion)

2500
2000
1500
1000

1871

2153

2360

500
0
2012

2013

2014

Off Balance Sheet

Items

Chapter: 5 Regulations
Regulation
Banks of Bangladesh are formed by following the Banking Company act 1991. In Bangladesh,
the regulatory requirements of banks follow international standards. Besides these, the Bank
Company Act provides guidelines for the preparation of reports, including audit reports. On top
of that, state-owned commercial banks and specialized banks, like Krishi Bank (RAKAB),
follow the requirements laid down in the respective Acts through which they were established.
The Registrar of the Joint Stock Company (RJSC) also has certain rules for entities registered
under the Company Act and the Societies Registration Act. Similarly, Bangladesh Security
Exchange Commission (BSEC) has laid down rules for companies to prepare their financial
reports.

Minimum Capital Standards

With a view to strengthening the capital base of banks and making them prepare for the
implementation of Basel-II accord, banks are required to maintain minimum capital to riskweighted assets ratio at 10% of which core capital will not be less than 5% effective from
December 31, 2007. However, minimum capital requirements as required under Article 13 of
Banking Companies Act, 1991 for all banks has been raised to Tk.400 crore of which the paid up
capital shall be minimum Tk.200 crore. Banks having capital shortfall will have to meet the
shortfall by august 11, 2011
.

Risk-weighted Assets
Both balance sheet assets and off- balance sheet exposures are to be weighted according to their
relative risk. Presently, there are 4 (four) categories of risk weights 0, 20,50 and 100 percent.
For the purpose of assessing capital adequacy, weights for particular items are given in Annexure
II.

Off -balance sheet transactions to be converted into balance sheet equivalents for the purpose of
assessing capital adequacy before assigning a risk weight are shown in section 10(a) of
Annexure-II. Four categories of credit equivalents of 0, 20,50&100 percent will apply. Details
are shown in Annexure III.

 Regulations on Maintenance of liquid assets

Every banking company shall maintain assets in form of cash, gold or unencumbered
approved securities valued at a price not exceeding the current market price, an amount
which shall not at the close of business on any day be less than the percentage of its time and
demand liabilities the Bangladesh Bank determines from time to time within Bangladesh in
current account with the Bangladesh Bank or any of its agents or both and amounts
maintained with the Bangladesh Bank as balancing deposits shall be deemed to be cash.
Calculation is based on time and demand liabilities in Bangladesh at the close of each Thursday
during the month, and if any Thursday is a public holiday under the Negotiable Instruments Act,
1881 (XXVI of 1881), at the close of the proceeding working day.
Other Restrictions
1) No person other than the Governor of the Bangladesh Bank issue a direction under section 46
or

47.

(2) Whoever has been affected by a direction from the Governor of the Bangladesh Bank under
section 46 or 47 may appeal to the Board of Directors of the Bangladesh Bank
(3) It shall not be possible to raise any question before any Court, Tribunal or any other authority
with regard to any measure taken, direction issued or decision made under this section or section
46 or 47, nor shall it be possible to raise any question before any Court, Tribunal or any other
authority against such measure, direction or decision.

Regulatory Bodies of Financial Sector

Bangladesh Bank
Bangladesh Bank is the prominent regulatory body to supervise the activities of listed banking
companies in Bangladesh. Bangladesh Bank acts as the Central Bank of Bangladesh which was
established on December 16, 1971 through the enactment of Bangladesh Bank Order 1972Presidents Order No. 127 of 1972 (Amended in 2003). BB has 45 departments and 10 branch
offices. They can do the following

1)Power to publish information.- The Bangladesh Bank may, if it considers it in the public
interest so to do, publish in consolidated form or otherwise any information relating to loans or
advances seized under this Act and outstanding for more than thirty days.
2) Power of the Bangladesh Bank to give directions.- (1) Where the Bangladesh Bank is
satisfied thata) in the public interest, or
b) to provide for the improvement of the monetary policy or banking policy, or
c) to prevent the affairs of any banking company being conducted in a manner detrimental to the
interests of the depositors or in a manner prejudicial to the interests of the banking company; or
d) to secure the proper management of any banking company,
3) Power of the Bangladesh Bank to remove a director etc. of a banking company.- (1)
Where the Bangladesh Bank is satisfied that it is necessary to remove a chairman or director or
principal executive officer, by whatever name he be called, of a banking company in order to
prevent its affairs being conducted in a manner prejudicial to the interests of the banking
company or its depositors or to secure in the public interest the proper management of the
banking company, it may, after committing its reasons to writing, issue direction that such
chairman, director or principal executive officer be removed from his office.
4) Power to call for certain information etc. .- When Bangladesh Bank thinks that any banking
company or any other person is violating in the course of carrying through a banking business t it
may require that company or person, or any person engaged in or connected with the business of
banking, to submit all information, documents or records within their knowledge, possession,
responsibility or charge, which are related to the abovementioned business. BB also can inspect
or examine any of the books, account-books, documents or records.
5) Power to make public announcements.- When Bangladesh Bank thinks it reasonable to
believe that any banking company

is violating

the provision, it may make a public

announcement to this effect. Any announcement of the Bangladesh Bank shall be published in a
daily newspaper .and for this purpose, any announcement made shall be conclusive evidence
with regard to any matter referred to therein. Provided that, before making such announcement,

that company or person shall be given opportunity to present arguments against the
announcement proposed
Government of Bangladesh& Ministry of Finance
Though regulatory power goes to BB, Govt of Bangladesh can permit or withdraw the order on
banks which are the desired for the benefit of the society. They execute their order through the
Bangladesh Bank. It can be said that BB is the chief regulator of commercial banks and Govt is
the parent of BB. And thats why Bangladesh Bank is the Bank of Government

Chapter: 6 Performance Analysis of the Banking Sector

Performance Analysis
The concept of financial performance and research into its measurement is well advanced within
finance and management fields. Recently a well-judged technique named CAMEL rating is
widely used for evaluating performance of financial institutions, especially to banks. In
Bangladesh bank as a Central bank, which is regulatory body has been calculating this rating till
now. In this section of our term paper we will show the performance analysis of the banking
sector of Bangladesh. All the banks in Bangladeshi banking sector are divided in following
groups:
State-Owned Commercial Banks ( SCBs)
Development Financial Institutions (DFIs)
Private Commercial Banks (PCBs)
Nine Foreign Commercial Banks (FCBs)
We will show a comparative performance analysis of these groups.

Capital Adequacy:
Capital adequacy focuses on the total position of banks' capital and the protection of depositors
and other creditors from the potential shocks of losses that a bank might incur. It helps absorbing
all possible financial risks like credit risk, market risk, operational risk, residual risk, core risks,
credit concentration risk, interest rate risk, liquidity risk, reputation risk, settlement risk, strategic
risk, environmental & climate change risk etc. Under Basel-II, banks in Bangladesh are
instructed to maintain the Minimum Capital Requirement (MCR) at 10.0 percent of the Risk
Weighted Assets (RWA) or Taka 4.0 billion as capital, whichever is higher. Under the
Supervisory Review Process (SRP), banks are directed to maintain a level of "adequate" capital
which is higher than the minimum required capital and sufficient to cover for all possible risks in
their business.
Capital to Risk Weighted Asset Ratio by Type of Banks

Bank

2006

2007

2008

2009

2010

2011

2012

2013

2014

Types
SCBs
DFIs
PCBs
FCBs
Total

1.1
-6.7
9.8
22.7
6.7

7.9
24.0
-7.3
11.4
12.6

-5.5
10.1
10.1
8.1
20.2

10.6
9.0
15.6
-7.8
11.5

22.7
0.4
9.3
11.4
8.7

9.6
12.1
11.7
20.6
-13.7

6.9
28.1
-4.5
10.5
12.1

-5.3
11.6
11.5
10.8
20.6

11.4
8.9
21.0
-9.7
10.7

Capital to risk weighted assets

ratio by type of banks
35
30
25
20
15
Percent

10
5
0
-5

2006

2007

2008

2009

2010

2011

2012

2013

2014

-10
-15

This higher level of capital for the banks is usually determined and finalized through SRP-SREP
(Supervisory Review Evaluation Process, the central bank's assessment) dialogue. The amount of
capital was Taka 205.8 billion as on 31 December 2008 and increased to Taka 651.9 billion at the
end of December 2013, showing capital growth of 216.8 percent. Table shows that on 31
December 2013, in aggregate, the SCBs, DFIs, PCBs and FCBs maintained CAR of 10.8, -9.7,
12.6, and 20.2 percent respectively. But individually, 2 SCBs, 2 PCBs, 1 FCB and 3 DFIs did not
maintain the minimum required CAR. The CAR of the banking industry as a whole was 11.5
percent at end of December 2013 as against 10.5 percent at the end of 2012. Implementation of
new revised policy on loan rescheduling (BRPD Circular no. 15/2013) was the main reason of
increase in CAR in 2013. On the other hand, increase of classified loans resulted in rise of deficit

of capital of 2 SCBs (Sonali, Rupali), 3 DFIs (BKB, BASIC, RAKUB), 2 PCBs (BCBL, ICB
Islamic) and 1 FCB (NBP). The CAR of the industry was 10.7 percent at end of June 2014.

Asset Quality:
Loans and advances are the major components in the asset composition of all commercial banks.
The high concentration of loans and advances increases the vulnerability of assets to credit risk.
The most important indicator intended to identify the asset quality in the loan portfolio is the
ratio of gross non-performing loans (NPLs) to total loans and net NPLs to net total loans. At the
end of December 2013, PCBs had the lowest and DFIs had the highest ratio of gross NPLs to
total loans. PCBs' gross NPLs to total loans ratio was 4.5 percent, whereas that of SCBs, FCBs
and DFIs were 19.8, 5.5 and 26.8 percent respectively at the end of December 2013. The gross
NPL ratios to total loans for the SCBs, PCBs, FCBs and DFIs were recorded as 23.2, 5.7, 6.2 and
33.1 percent respectively at end June 2014. The ratio of NPL to total loans of all the banks had
shown an overall declining trend from its peak (34.9 percent) in 2000 up to 2011 (6.1 percent).
But the ratio increased in 2012 (10.0 percent), decreased again in 2013 (8.9 percent), then
increased (10.8 percent) at end June 2014. It can be seen from the table that the decline in NPLs
to total loans ratio in recent years till 2011 can be attributed partly to some progress in recovery
of long outstanding loans and partly to write-off of loans classified as 'bad' or 'loss'.
NPL Ratios by Type of Banks
Bank

2006

2007

2008

2009

2010

2011

2012

2013

2014

Types
SCBs
DFIs
PCBs
FCBs
Total

22.9
5.0
10.8
24.2
3.0

33.7
1.4
21.4
3.2
6.1

5.5
13.2
25.9
3.0
23.9

0.8
25.4
3.9
7.3
26.8

13.2
25.5
2.3
11.3
4.6

29.9
4.4
9.2
24.6
3.5

28.6
1.9
15.7
2.9
10.0

19.8
26.8
4.5
5.5
8.9

23.2
33.1
5.7
6.2
10.8

It went up again in 2012 & 2014 (end June) due to the reasons of issuance of the circular
regarding new classification and rescheduling of loans and a few notable scams in the banking
industry. The SCBs and DFIs continue to have high level of NPLs mainly due to substantial

loans provided by them on considerations other than commercial criteria. Furthermore, these
banks were reluctant to write-off the historically accumulated bad loans because of poor quality
of underlying collaterals. Recovery of NPLs, however, has showed some signs of improvement,
mainly because of the steps taken with regard to internal restructuring of these banks to
strengthen their loan recovery mechanism and write-off measures initiated in recent years.
Ratio of Net NPL to Total Loans by Type of Banks
Bank

2006

2007

2008

2009

2010

2011

2012

2013

2014

Types
SCBs
DFIs
PCBs
FCBs
Total

14.5
23.6
1.8
-2.6
7.1

12.9
19.0
1.4
-1.9
5.1

5.9
17.0
0.9
-2.0
2.8

1.9
18.3
0.5
-2.3
1.7

1.9
16.0
0.0
-1.7
1.3

-0.3
17.0
0.2
-1.8
0.7

12.8
20.4
0.9
-0.9
4.4

1.7
19.7
0.6
-0.4
2.0

7.4
26.4
1.2
-0.2
3.9

Ratio of net NPL to total

loans by type of banks
30
25
20
Percent

15
10
5
0
-5

2006

2007
SCBs

2008
DFIs

2009
PCBs

2010
FCBs

2011

2012

2013

2014

Total

The table and the chart show that in 2013, the ratio of net NPLs (net of provisions and interest
suspense) to net total loans (net of provisions and interest suspense) was 2.0 percent for the
banking sector and 19.7 percent for DFIs. It is revealed in the table that DFIs' nonperforming

portfolios were still high after adjustment of actual provision and interest suspense, whereas
SCBs, FCBs and PCBs had excess provision against their NPLs. The net NPLs to net total loan
ratios were 1.7, 0.6, and -0.4 percent for the SCBs, PCBs and FCBs respectively at the end of
December 2013. The ratios were 7.4, 26.4, 1.2 and -0.2 percent for SCBs, DFIs, PCBs and FCBs
at the end June 2014.
Amount of NPLs
Bank

2006

2007

2008

2009

2010

2011

2012

2013

2014

SCBs

115.0

137.9

127.6

117.5

107.6

91.7

215.2

166.1

197.2

DFIs

41.5

37.2

37.3

42.1

49.7

56.5

73.3

83.6

110.5

PCBs

43.7

49.2

57.0

61.7

64.3

72.0

130.4

143.1

191.5

FCBs

0.8

1.9

2.9

3.5

5.5

6.3

8.5

13.0

14.2

Total

201.0

226.2

224.8

224.8

227.1

226.4

427.3

405.8

513.4

Types

Comparative position of
NPLs by type of banks
250
200
150
billion tk

100
50
0
2006

2007

2008

2009

2010

2011

2012

2013

2014

The table shows the amount of NPLs of the 4 type of banks since 2006 to 2014 (end June). The
amount of NPLs of the SCBs increased from Taka 115.0 billion in 2006 to Taka 166.1 billion in
2013. The PCBs recorded a total increase of Taka 99.4 billion in their NPL accounts, which
stood at Taka 143.1 billion in 2013 as against Taka 43.7 billion in 2006. The amount of NPLs of
the DFIs increased to Taka 83.6 billion in 2013 from Taka 41.5 billion in 2006. The amount of
NPLs of the FCBs increased from Taka 0.8 billion in 2006 to Taka 13.0 billion in 2013. The
amount of NPLs of SCBs, DFIs, PCBs and FCBs stood at Taka 197.2, 110.5, 191.5 and 14.2
billion respectively at the end of June 2014.

Management Soundness:
Sound management is the most important and inescapable pre-requisite for the strength and
concrete growth of any financial institution. It is difficult to draw any conclusion regarding
management soundness based on quantitative indicators, as characteristics of a good
management are rather qualitative in nature. Nevertheless, the total expenditure to total income,
operating expenses to total expenses, earnings and operating expenses per employee, and interest
rate spread are generally used to portray management soundness. Technical competence &
leadership of mid and senior level management, compliance to plan and respond to changing
circumstances, etc., are also taken into consideration in evaluating the quality of management.
Expenditure-income ratio by Types of Banks
Bank

2006

2007

2008

2009

2010

2011

2012

2013

2014

Types
SCBs
DFIs
PCBs
FCBs
Total

100.0
103.5
90.2
71.1
91.4

100.0
107.7
88.8
72.9
90.4

89.6
103.7
88.4
75.8
87.9

75.6
112.1
72.6
59.0
72.6

80.7
87.8
67.6
64.7
70.8

62.7
88.6
71.7
47.3
68.6

73.2
91.2
76.0
49.6
74.0

84.1
94.8
77.9
50.4
77.8

83.3
112.0
75.8
46.5
77.8

Expenditure-income ratio by
type of banks
120
100
SCBs
DFIs

80

PCBs
FCBs

percent

60

Total

40
20
0
2006

2007

2008

2009

2010

2011

2012

2013

2014

As evident from the table, in 2013, the expenditure-income (EI) ratio of the DFIs was the highest
among the displayed bank clusters. The EI ratio of the SCBs was 84.1 in 2013, the second
highest, which could mainly be attributable to high administrative and operating expenses. The
EI ratio of SCBs increased from 73.2 percent in 2012 to 84.1 percent in 2013. The EI ratio of
SCBs, PCBs, FCBs declined to 83.3, 75.8, 46.5 percent respectively and rose to 112.0 percent for
DFIs at end June 2014.

Earnings and Profitability:

There are various indicators of earnings and profitability but the most representative and widely
used one is Return on Assets (ROA), which is supplemented by Return on Equity (ROE) and Net
Interest Margin (NIM). Earnings as measured by Return on Assets (ROA) and Return on Equity
(ROE) differ greatly within the industry.ROA and ROE by type of banks are given below:

Return on Assets (ROA):

Bank

2006

2007

2008

2009

2010

2011

2012

2013

2014

Types
SCBs
DFIs
PCBs
FCBs
Total

0.0
-0.2
1.1
2.2
0.8

0.0
-0.3
1.3
3.1
0.9

0.7
-0.6
1.4
2.9
1.2

1.0
0.4
1.6
3.2
1.4

1.1
0.2
2.1
2.9
1.8

1.3
0.1
1.6
3.2
1.5

-0.6
0.1
0.9
3.3
0.6

0.6
-0.4
1.0
3.0
0.9

-0.1
-0.9
0.8
3.5
0.6

Return on Assets
4

3
SCBs

DFIs
percent

PCBs

FCBs
Total

2006

2007

2008

2009

2010

2011

2012

2013

2014

-1

-2
year

Return on Equity (ROE):

:

Bank
Types

2006

2007

2008

2009

2010

2011

2012

2013

2014

SCBs
DFIs
PCBs
FCBs
Total

0.0
-2.0
15.2
21.5
14.1

0.0
-3.4
16.7
20.4
13.8

22.5
-6.9
16.4
17.8
15.6

26.2
-171.7
21.0
22.4
21.7

18.4
-3.2
20.9
17.0
21.0

19.7
-0.9
15.7
16.6
17.0

-11.9
-1.1
10.2
17.3
8.2

10.9
5.8
9.8
16.9
11.0

-2.4
-9.5
8.4
20.1
8.4

Return on Equity
30
25
20
15

SCBs

10
percent

DFIs
PCBs

5
0

FCBs
2006

2007

2008

2009

2010

2011

2012

2013

2014

Total

-5
-10
-15
-20
year

Analysis of these indicators reveals that the ROA of the SCBs was less than the industry average.
The ROA of SCBs was gradually increasing up to 2011, but it dropped down to negative (0.6
percent) in 2012 due to a huge net loss in the year. In 2013, it increased and became positive. The
DFIs' situation is not getting better due to persistent operating losses incurred by BKB and
RAKUB. The ROA of DFIs' deteriorated more scoring negative (0.4 percent) in 2013. PCBs'
ROA showed a consistently strong position up to 2010, but it was in a decreasing trend during
2011 and 2012 due to decrease of net profit.

In 2013, it didn't drop from the previous year. Though FCBs' ROA had been consistently strong
during the last couple of years, it decreased slightly in 2013 and again increased in June 2014.
SCBs' ROE shows a sign of positive indication in 2013 through an increased rate of 10.9 percent
whereas it dropped to 11.9 percent (negative) in 2012 due to an increased amount of provisioning
required against an increased amount of NPLs. In case of DFIs, the ROE was positive in 2013
which was negative for the last couple of years. The ROE of PCBs was robust up to 2010. It was
on decreasing trend for previous couple of years; it was 9.8 percent in 2013 against 15.7 percent
in 2011. It declined to 8.4 percent at end June 2014. The ROE of FCBs shows steady fluctuation
throughout some of the previous years. The ROE of FCBs in 2010 stood at 17.0 percent, which
fell to 16.9 percent in 2013 and rose to 20.1 percent at end June 2014.
Aggregate net interest income (NII) of the industry had consistently increased from Taka 44.3
billion in 2006 to Taka 153.8 billion in 2012. But in 2013, aggregate NII of the industry fell
down to Taka 132.3 billion reflected mainly in the negative NII of Taka 5.4 billion by the SCBs.
The NII of the PCBs showed gradual increasing trend from 2006 to 2013 whereas NII of DFIs
and FCBs were fluctuating in stable condition. The decline in net interest income during the year
is attributed to the shifting of investment funds from loans and advances to investments in liquid
assets. The liquidity ratios by type of banks are given below:
Excess Liquidity:
Bank

2006

2007

2008

2009

2010

2011

2012

2013

2014

Types
SCBs
DFIs
PCBs
FCBs
Total

2.1
3.8
5.6
16.4
5.1

6.9
5.6
6.4
11.2
6.9

14.9
4.9
4.7
13.3
8.4

17.6
7.1
5.3
21.8
9.0

8.2
2.3
4.6
13.2
6.0

12.3
1.3
6.6
15.3
8.4

10.2
1.0
9.5
18.7
9.9

25.3
4.2
11.3
27.4
15.4

28.2
1.2
12.8
34.9
17.3

Since 2006, SCBs have been able to increase their net interest income (NII) by reducing their
cost of funds up to 2011. In 2012, the NII of SCBs dropped and alarming situation occurred in

2013 due to higher interest expenses which grew faster than interest earnings. The NII of the
PCBs had been significantly high during the span of time from 2006 to 2013. Overall industry
NII showed a consistently upward trend from 2006 to 2012 though it went reverse in 2013 due to
the lackluster performance of SCBs. The trend of NII indicates that the interest spreads of PCBs
and FCBs were higher than that of SCBs and DFIs. The Nll of different categories of bank
declined at the end of June 2014.

CAMEL Rating:
CAMEL rating is a supervisory tool to identify banks which require increased supervision. The
previous CAMELS rating guideline has been reviewed by the department of Off-site Supervision
with a view to adapting international best practices, upgrading with modern banking activities
and assessing the banks' soundness more accurately. The updated CAMELS Rating guideline has
been followed since December 2013. The revised CAMELS rating guideline has brought not
only major changes in ratios or indicators but also modifications in the qualitative evaluation
questionnaire. Basel-III principles related to capital adequacy have been considered, and some
other related issues have been included while reviewing the guideline. Along with emphasizing
best quality capital, investments in the capital market, the amount of off-balance sheet items in
comparison to the capital of the banks, large loan exposures to capital, etc., are considered to
calculate capital adequacy. HHI (Herfindahl-Hirschman Index) has been incorporated in the
updated CAMELS rating guideline to analyze loan portfolio concentration, as a complement to
percentages of classified loans and provisioning in the evaluation of asset quality. The disbursed
loan amount to risk-associated different sectors has been included as well. Under this rating
system, banking companies are assigned two sets of ratings- (i) performance ratings, based on six
individual ratings that address six components of CAMELS (Capital, Assets, Management,
Earnings, Liquidity and Sensitivity to Market Risk) and (ii) an overall composite rating, based on
a comprehensive assessment of the overall condition of the banking company. Both the ratings
are expressed by using a numerical scale of "1" to "5" in ascending order of supervisory concern,
"1" representing the best rating, while "5" indicating the worst. Any bank rated 4 or 5, i.e.,
'Marginal' or 'Unsatisfactory' under the composite CAMELS rating is generally identified as a
problem bank, the activities of which are closely monitored by the BB.

BB introduced the Early Warning System (EWS) of supervision from March 2005 to address the
difficulties faced by the banks in any of the areas of CAMELS. Any bank found to have
difficulty in any areas of operation, is brought under the Early Warning category and monitored
very closely to help improve its performance. Presently, no banks are monitored under EWS. In
December 2013, CAMELS rating accomplished under the revised guidelines, no banks have
been rated 1 or Strong; the rating of 28 banks were 2 or satisfactory; rating of 12 banks were 3 or
fair; 6 banks were rated 4 or marginal and 1 bank received 5 or unsatisfactory rating.

Conclusion:
Reduction in growth of credit is affecting the trends of investment of the country. Specially, as
the savings-investment gap might increase in the upcoming fiscal years, the channelling of
private investment becomes critical. Problem of banking sector is widespread and is not related
to banking system only. The regulatory entity should be independent but accountable. Prudential
regulation should be limited to deposit taking institutions and should be clearly separated from
non prudential regulation.
The problem of lower profitability of bank is that it might reduce the tax and thus make a trace
on fiscal system where bank is the number one source of tax under large tax unit of NBR.
Moreover the revenue target may face hurdle from another side where lower growth of credit
may affect investment and growth and thus tax collection. Although liberalization policy has
been pursued for years the result is still far from expected ones. Interest rate is still so high which
is not favourable to business entities. In addition the target of financial inclusion has not been
facilitated by this avowed policy.
Therefore channelling sufficient loan to productive sectors and investors should be a major aim
of the reform activities. Additionally non performing loans need to be focused exclusively in an
efficient and creative way. A medium to long term financial sector strategy should be developed
that lays out further reforms based on previous reform experiences.
The sector has been facing several problems in terms of low profitability after 2010. In 2011 and
2012 the situation continued worsening and projection reveals that it might further deteriorate in
future. Furthermore several loan scams occurred in this sector but no proper action is taken. So
steps should be taken to make the banking sector stable. Otherwise the country might miss the
target of revenue collection because a large amount of tax comes from this source. Though this
sector is in action since the birth of the country, this sector has a long way to go. Though new
online banking and mobile banking has opened new window of opportunity, further services
should be introduced.

References

www.bangladeshbank.com
Financial Management by Anthony Saunders
Annual Report