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Bangladesh Bank:

Bangladesh Bank is the Central bank of Bangladesh and is a member of the Asian Clearing
Union. The bank is active in developing green banking [1] and financial inclusion policy and is an
important member of the Alliance for Financial Inclusion.[2] Bangladesh Financial Intelligence
Unit (BFIU), a department of Bangladesh Bank, has got the membership of Egmont Group. This
is the first central bank in the world to introduce a dedicated hotline (16236) for the general
people to complain any banking related problem. Moreover this organization is the first central
bank in the world to issue a "Green Banking Policy". To acknowledge this contribution, current
Governor of this organization, Dr. Atiur Rahman was given the Green Governor title in the
2012 United Nations Climate Change Conference, held at the Qatar National Convention Centre
in Doha . After the liberation war, and the eventual independence of Bangladesh, the
Government of Bangladesh reorganized the Dhaka branch of the State Bank of Pakistan as the
central bank of the country, and named it Bangladesh Bank. This reorganization was done
pursuant to Bangladesh Bank Order, 1972, and the Bangladesh Bank came into existence with
retrospective effect from 16 December 1971.

Role of Bangladesh Bank:

The Role of Bangladesh


Bank

General
role

Role as govt.
bank

Role as a
bankers of
others bank

Development

Others

General Role:

Issue of Banknotes
Money is a key of economy. The central bank controls the issue of banknotes and coins. Most payment these days
does not involve cash but cheque standing order, direct debit, credit cards and so on. Nevertheless, cash is
important as banks cash. Holdings are a constraint on creation of credit, as we have seen.

Acting as Banker to Other Banks


The Central bank will act as banker to the other banks in the country. As well as holding accounts
with international bodies like IMF World bank. It is a common habit for the central bank to insist that the
other banks hold non-interest bearing reserves with in proportion to their deposit.

Acting As Banker to Government


Normally a central bank acts as the governments banker. It receives revenues
For Taxes and other income and pay out money for t
he governments expenditure.
Usually, it will not lend to the government but will help the government to borrow money by the
sales of its bill and bonds.

Raising Money for the Government


The government Treasury bill and bond markets are covered by the central bank. While sometimes the treasury or
ministry of finance handle.

Controlling the Nations Currency Reserves


Another main function of Bangladesh Bank is to control the nations currency reserves. Again by
controlling the exchanging rate, it protects the value of national currency in international market.
So in a short, Bangladesh Bank always attempts to maintain the value of national currency steady.

Acting as Lender of Last Resort


When all kinds of enlisted bank or govt. cannot collect loans in times of their economical crisis from
anywhere, then Bangladesh Bank is only the bank which helps as the lender of last resort.

Credit Control
To solve the problem of inflation and deflation, Bangladesh Bank takes the task of
Credit control as the guardian of countrys money market and bank management.
For controlling credit central bank uses the method of opening market policy, credit budgeting
policy.
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Role as govt. bank

Received and Transfer Of Money


As the bank of Bangladesh government, Bangladesh Bank collects money from different sectors and deposit
these is various accounts without interest not only deposit these money but also transfer these fund from
one place to another and one sector to another according to the instruction of Bangladesh government

Money Market Control


Bangladesh Bank acts as the guardian of countrys money market as the director and controller
of money market. It also controls the money currency, controls credit, stability in money supply
and exchange rate of foreign currency etc. It establishes a countrys well organized and develops
money market.

Foreign Exchange Control


The countrys export and import as well as international trade success rate largely depend on the
good conduct and control of foreign exchange. So foreign exchange system is also controlled by
Bangladesh.

Determination of Foreign Exchange Rate


By purchasing commodities from other country one country paid its value through foreign
currency. The value of all foreign currency is not same, so right determination of foreign
exchange rate is needed by performing this task central bank made easy the foreign trade.

Maintaining Foreign Exchange Reserve


High level of crisis and abundance of foreign exchange are harmful for economy. So this reason
Bangladesh Bank maintains sufficient foreign exchange, so that there is no problem in case of export
and import trade.

Keeping the Gold Standard


The precondition of countrys economic stability is to control countries gold standard. If the
money market is stranded on the basis of gold standard, the main task of central bank is to keep gold standard.

Maintain of Governments Fund


As Bangladesh Bank is the bank of Bangladesh government. So it protects all sorts
of governments fund as a bank of government, Bangladesh Bank keeps to itself the whole
amount of governments income and expenditures from this fund according to government needs.

Keeping the Government Account


Besides receiving and transferring government fund, Bangladesh Bank maintains the account of
various governments division, ministry and organizations i.e. Bangladesh Bank keeps the account of
all monetary and economical transactions.

Foreign Financial Transaction


On behalf of the Bangladesh government Bangladesh Bank accomplish all sorts of foreign
financial transaction. It purchases and sells foreign currency and collects foreign currency on
behalf of the Bangladesh government in a word Bangladesh Bank perform all sorts of financial
transaction with abroad on behalf the Bangladesh government.

Loan Issue and Supervision


This bank issue loan in case of crisis of government in different terms and also helps in case of
collecting loan from different sectors.

Maintenance of Relationship with Foreign Bank


To make and maintains a good relationship with other foreign country. This is also a function of
Bangladesh Bank. Bangladesh Bank does this task on behalf of the Bangladesh government.
Without this, Bangladesh Bank also maintain good relationship with others regional and
international organization, such as World Bank, IMF, A.D.B, I.D.B etc.

Counsellor and Representative of Government


This bank suggests and advices government in various behinds of economical issues such asimport and export polices, investment polices etc. Bangladesh Bank acts as the financial adviser
of Bangladesh government. Not only as adviser but also Bangladesh Bank acts as the agent of
Bangladesh government. It performs various kinds of contracts and transactions with foreign and
abroad.

Implementation of Financial Policy of Government


It doesnt merely give advice to government. It also helps in implementing of different types of
financial policy without the help of Bangladesh Bank it is much more complicated for the
Bangladesh government to implement financial policies and economic developments.

Revenue Collection
As the bank of govt. Bangladesh Bank helps to collect revenue by collecting different types of tax, duty.

Maintenance of Information
Bangladesh Bank does the task of collecting and reserving all sorts of informations which are
much helpful in case of various governmental planning.

Co-coordinator
Bangladesh Bank plays the role of co-coordinator by maintaining relationship with others foreign
banks & international economical organizations.

Enlistment of Commercial Bank


Through enlistment commercial banks take various privileges of Bangladesh Bank, There is need of permission of
Bangladesh Bank for establishing conducting &enlisting any other kind of banks

Custodian of the Cash Reserve of the Commercial Banks


Every enlisted bank deposit a certain amount of their cash reserve compulsorily according to low. In
Bangladesh this rate is 8%. As a result, Bangladesh Bank supervises all kinds of commercial banks & helps by
profiling loan & distributing billing times of economical crisis.

Formation & Expansion of Bank


Bangladesh Bank plays a vital role in case of formatting & expanding any kinds of new & old bank in
our country. Actually without the permission of Bangladesh Bank, no new bank can be formatted as
well as no branch of old bank can be opened.

Role as a bankers of others Bank:


Clearing House
Among various functions of central bank, the most one is accomplishing the internal transactions
of all enlisted bank. For this purpose Bangladesh Bank mange a clearinghouse by the coordination of all
member banks. Bangladesh Bank meets up the all sorts of relative/reciprocal transactions with in
the banks.

Audit of Accounts
For building fair banking environment in the country and for controlling all other banks
Bangladesh Bank arranges the accounts of audit for several times for all kinds of enlisted and all other banks.

Maintenance of Deposit
Bangladesh Bank deposits a certain amount of their reserve so that commercial banks cannot use
this fund as their awards.

Act As an Advisor
Bangladesh Bank delivers suggestions or an instruction to commercial banks by providing various
kinds of financial information. Bangladesh Bank helps the commercial banks as well.

Assist To Collect Credit


Bangladesh Bank assists to collect credit through commercial bank. Regarding this, Bangladesh
Bank suggests the government apply law at a time, it also take lawful schemes. It makes a list of
countries bankrupts & assists government to collect credit.

Development:
Creating Job Opportunity
By permitting and adopting developing project for opening new bank and branch, Bangladesh Bank creates
enormous opportunity for employment in Bangladesh.

Role of Central Bank to regulate commercial


banks in Bangladesh:

Why central banks is heavily regulated:


To protect the safety of the publics saving
To regulatory agencies are charged with the responsibility of gathering and evaluating the
information needed to assess the true

financial condition of central bank to protect the

public against loss.


Central bank also closely watched because of their power to create money in the form of
readily spend able deposits by making loans and investment.(Law Division)
Presidents Order No. 127 of 1972
THE BANGLADESH BANK ORDER, 1972
Whereas, it is necessary to establish a central bank in Bangladesh to manage the
Monetary and credit system of Bangladesh with a view to stabilizing d domestic- monetary
value and maintaining a competitive external par value of the Bangladesh Taka towards
fostering growth and development of countrys productive resources in the best national
interest.
Now, therefore, in pursuance of the proclamation of independence of Bangladesh, read
with the Provisional Constitution of Bangladesh Order, 1972, and in exercise of all powers

Banks in one form or another have been subject to the following non exhaustive list of
regulatory provisions:
1) Restrictions on branching and new entry;
2) Restrictions on pricing (interest rate controls and other controls on prices or fees);
3) line-of-business restrictions and regulations on ownership linkages among financial
institutions;
4) Restrictions on the portfolio of assets that banks can hold (such as requirements to hold
certain types of securities or requirements and/or not to hold other securities, including
requirements not to hold the control of non financial companies);
5) Compulsory deposit insurance (or informal deposit insurance, in the form of an expectation
that government will bail out depositors in the event of insolvency);
6) capital-adequacy requirements;
7) Reserve requirements (requirements to hold a certain quantity of the liabilities of the
central bank);
8) Requirements to direct credit to favored sectors or enterprises (in the form of either formal
rules, or informal government pressure);
9) Expectations that, in the event of difficulty, banks will receive assistance in the form of
lender of last resort;
10) Special rules concerning mergers (not always subject to a competition standard) or failing
banks (e.g., liquidation, winding up, insolvency, composition or analogous proceedings in the
banking sector);
11) Other rules affecting cooperation within the banking sector (e.g., with respect to payment
systems).
In recent years regulation in banking has become less pervasive and has shifted from
structural regulation to other more market oriented forms of regulation. As a consequence
competition has come to play a very important role in the allocation of credit and in the
improvement of financial services. The capital requirements framework created in the context
of the Basel committee paved the way to the development of stronger competition in banking.
It is unquestionable that all over the world banks now face greater competition both from new
entrants in the banking sector and from other financial companies.

. Competition authorities have not been much involved in the process of liberalization of
banking. Moreover, in several countries the enforcement of antitrust rules until very recently
has not been applicable to banking because of sectored exceptions.
. In this light, the purpose of this report is:
to assist policy makers and enforcement authorities (in their competition advocacy function)
in their efforts to promote competition oriented regulatory reform in banking;
to assist policy-makers and enforcement authorities (in their competition advocacy function)
in promoting an environment where competition law is fully applicable to banking and where
there is an appropriate institutional setting to that end; and
to assist competition enforcement authorities in the enforcement of competition law in this
sector, with a special emphasis on merger control.
PRELIMINARY
1. (1) This Order may be called the Bangladesh Bank Order, 1972
(2) It extends to the whole of Bangladesh.
(3) It shall come into force at once and shall be deemed to have taken effect on the16th day
of December, 1971.
2. In this Order, unless there is anything repugnant in the subject or context, (a) appointed day means the 16th day of December, 1971;
(b) approved foreign exchange means currencies declared as such by any notification
under Article 18;
(c) Bank means the Bangladesh Bank;
(d) Bank Notes means notes made and issued by the Bank in accordance withArticle23;
(dd) bank rate means the standard rate made public by the Bangladesh Bank under
Article21;
(e) Board means the Board of Directors of the Bank;
(f) Co-operative Bank means any co-operative society or co-operative bank
Including the apex co-operative bank registered under, or any other law for the time being in
force relating to cooperative societies, one of objectives of which is to provide financial
accommodation to its members;
(g) Director means a Director of the Bank;
(h) Governor and Deputy Governor means respectively the Governor and Deputy
Governor of the Bank;
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(i) Government means the Government of the Peoples Republic of Bangladesh;


(j) Scheduled Bank means a bank for the time being included in the list of banks
Maintained under sub-clause (a) of clause (2) of Article 37;
(k) State Bank means the State Bank of Pakistan constituted under the State Bank of
Pakistan Act, 1956; and
(l) Taka coin means one Taka coin and one Taka note and two Taka coin and two
Taka note which are legal tender in Bangladesh
THE RECENT HISTORY OF REGULATORY REFORM IN BANKING
In the early 70s financial systems were characterized by important restrictions on market
forces which included controls on the prices or quantities of business conducted by financial
institutions, restrictions on market access, and, in some cases, controls on the allocation of
finance amongst alternative borrowers. These regulatory restrictions served a number of
social and economic policy objectives of governments. Direct controls were used in many
countries to allocate finance to preferred industries during the post-war period; restrictions on
market access and competition were partly motivated by a concern for financial stability;
protection of small savers with limited financial knowledge was an important objective of
controls on banks; and controls on banks were frequently used as instruments of
macroeconomic management.
since the mid 70s there has been a significant process of regulatory reform in the financial
systems of most countries. This process involved a shift towards more market-oriented forms
of regulation and involved partial or complete liberalization of the following:
Interest rate controls
Until the early 1970s controls on borrowing and lending rates were pervasive in most
countries. These controls typically held both rates below their free-market levels. As a result,
banks rationed credit to privileged borrowers. By 1990 only a handful of countries retained
these controls.
Quantitative investment restrictions on financial institutions
Investment restrictions on banks took a variety of forms, including requirements to hold
government securities, credit allocation rules, required lending to favored institutions and
controls on the total volume of credit expansion. Compulsory holdings of government
securities, as well as having a prudential justification, also acted as a disguised form of

taxation in that it allowed governments to keep security yields artificially low with some
exceptions these controls were largely eliminated by the early 1990s.
Line-of-business restrictions and regulations on ownership linkages among financial
institutions:
Although important line-of-business restrictions still remain in place in many countries, the
role of these restrictions has been significantly eroded or, in some cases, entirely eliminated.
For example, the separation of savings-and-loans and commercial banks has been largely
eliminated in many countries, as has the distinction between long-term and short-term credit
institutions in Italy and the legal separation of various types of credit suppliers in Japan. Bank
branching restrictions were phased out in a number of European countries by the early 1990s.
In the US breaking down the barriers imposed by the (1933) Glass-Steagall Act the GrammLeach-Bliley Financial Service Modernization Act of 1999 permits banks, securities firms,
and insurance companies to affiliate within a new structure the financial holding company
Restrictions on the entry of foreign financial institutions
There has been significant liberalization of cross-border access to foreign banks. In particular,
there are now in place a number of international agreements on trade in banking services,
including GATS, NAFTA and the EC. In particular, in the European Union, the second
banking directive (89/646/EEC) forbade the obligation for banks established in one Member
State to seek authorization from other Member States when they intended to establish a
branch in their territory. In many countries however the entry of foreign banks is still made
more difficult than that of domestic ones.
Controls on international capital movements and foreign exchange transactions
Liberalization of controls on capital movements is now virtually complete in OECD countries
and in many developing countries as well. Some controls remain on long-term capital
movements, particularly with respect to foreign ownership of real estate and foreign direct
investment. There also remain important restrictions on international portfolio diversification
by pension and insurance funds.
The origins of regulatory reform
Regulatory reform was driven by a number of inter-related factors, including:
The diminishing effectiveness of traditional controls due to financial innovation (including
the difficulty of isolating domestic markets) and rapid technological development;

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The development of various types of regulatory avoidance (such as the development of


offshore financial centers and off-balance-sheet methods of financing);
Competition between international financial centers;
Competition with non-banks for many services (consumer credit; small business loans;
mortgages; etc.);
Competition between financial institutions under different regulatory environments; and,
finally,
Multilateral agreements liberalizing cross-border banking activities.
BANKING REGULATION: THE RISK OF BANK RUNS AND OF MORAL
HAZARD IN BANKING AND THEIR EFFECTS ON THE ECONOMY
It is widely accepted that in the absence of market failures, open and competitive markets
yield strong incentives to efficiently meet the demands of consumers and to adapt to changing
demands and technology over time. With very few exceptions, in the absence of a market
failure there is no economic justification for regulation. 16. The most important rationale for
regulation in banking is to address concerns over the safety and stability of financial
institutions, the financial sector as a whole, or the payments system. The description and the
evaluation that follows necessarily reflect the views of competition authorities. With only one
exception, no bank regulator has reviewed this Report, which therefore, does not necessarily
reflect the positions and the opinions of bank regulators.
The risk of bank runs
All banks operate in conditions of fractional liquidity reserve. The great majority of banks
liabilities are very liquid deposits redeemable on demand. The great majority of their assets
are instead much more illiquid loans. This situation leads to the problem that if all depositors
demanded their deposits back at the same time, any bank (even if perfectly solvent) would
face serious problems in meeting its obligations vis vis its depositors. A single bank might
obtain refinancing on the financial market but the problem would severely persist in cases of
low liquidity on the market or if the issue concerned a big portion of the banking sector. 18. It
is well known in the literature that whenever depositors start fearing the insolvency of their
bank, their first most common reaction is to go and withdraw their deposits creating serious
problems to the banks. Such behavior is normally referred to as a bank runI7.
The risk of excessive risk taking (moral hazard) in banking
Banks grant loans normally financed by the deposits they received. This is by itself a
powerful incentive for banks to grant credit in a not sufficiently prudent way and to take in
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too much risk. In fact it is well known in the literature that with debt financing, while the risk
of failure of the financed investment is mostly carried out by the bank depositors, in the case
of success profits accrue mostly to the banks good example of this deviating behavior is the
Asian financial crisis of 1997 that is mentioned further below. In general, however, this
incentive is somehow mitigated by the possibility that the market, both via depositors and
other banks, could monitor the risks assumed by the banks management.
The main purpose of regulation is to avoid the highly negative consequences for the economy
of widespread bank failures. There are two main strands of arguments for banking regulation.
The first focuses on the systemic dangers of bank failures, while the second on the need for
security and stability in the payments system.
Systemic dangers of a bank failure
The main argument for bank regulation focuses on the possibility of systemic or system-wide
consequences of a bank failure. In exemplarity that the failure of one institution could lead to
the failure of others. This argument is summarized by Feldstein as follows: The banking
system as a whole is a public good that benefits the nation over and above the profits that is
earns for the banks shareholders. Systemic risks to the banking system are risks for the
nation as a whole. Although the management and shareholders of individual institutions are,
of course, eager to protect the solvency of their own institutions, they do not adequately take
into account the adverse effects to the nation of systemic failure. Banks left to them will
accept more risk than is optimal from a systemic point of view. That is the basic case for
government regulation of banking activity and the establishment of capital requirementsIt is possible to distinguish two mechanisms by which the failure of one bank could lead to
the failure of other banks or other non-bank firms:
(a) The failure of one bank leading to a decline in the value of the assets sufficient to induce
the failure of another bank (consequent failure) and
(b) The failure of one bank leading to the failure of another fully solvent bank, through some
contagion mechanism (contagion failure)
REFORM OF BANK REGULATION AND MARKET POWER
On the credit side competition between banks has led to lower spreads and greater care in
financing sound projects. Classes and Leavens (2005) write: More competitive banking
systems are better in providing financing to financially dependent firms. There is support for
the view that more competition may reduce hold up problems and lower the cost of financial
intermediation, making financially dependent firms more willing to seek (and more able to
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obtain) external financing Furthermore in most countries, including developing ones, recent
market developments have led to strong rivalry by non bank financial institutions for the
supply of some banking services, for example consumer credit or factoring services to small
and medium size firms. This implies that banks market power is somehow disciplined also by
non banks.
Ensuring that banks are properly informed of the debt exposure of potential
borrowers:
Especially in developing countries, however, competition among banks may be impaired
because information on the credit worthiness of potential borrowers is not readily available.
Without a proper supplier of information on borrowers credit worthiness, each single bank
has an informational advantage over any other bank on the credit worthiness of its customers.
New banks will be very reluctant to lend to customers of other banks, if they are not fully and
readily informed on the total debt exposure of each potential borrower. A competitive
financial market, where banks compete for customers and potential borrowers choose among
alternative banks as suppliers of funds, can only develop if banks are fully informed on the
total exposure of each customer. Otherwise, if information is privately held by each bank, the
market for credit will be segmented and banks will only lend to customers they personally
know.
Relationship banking: Relationship banking is particularly efficient when firms are small
and accounting rules are not very effective. On the other hand a marked based system is
particularly effective when firms are relatively large and accounting statements transparent.
Moreover, limitations on competition in a relationship-based system do not just give the
financier (market) power, but also strengthen his incentive to cooperate with the borrower.
This implies that a relationship-based system tends to smooth firm specific shocks
internationally, while an arms length system is much less able to provide such contingent
insurance. On the other hand relationship-based systems, because of the liquidity of the
financed assets, have an incentive to increase financial risk more than arms length systems.
Market based financing permits more flexibility in explicit contracts, which allows the
system to absorb adverse shocks. Moreover the healthy can be distinguished from the
terminally ill after a shock and can be dealt with differently not everyone has to sink or
swim together as in the relationship system Relationship banking does not imply that
potential borrowers do not have but one choice with respect to the bank that would assist
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them. There can be strong competition among banks also with relationship banking. In fact, in
some countries, where the banking industry is sufficiently competitive and the industrial
sector is sufficiently developed, each local bank may be willing to invest in order to develop a
credit relationship with each local firm.
Arms-length and relationship banking: In many ways the two systems (arms-length and
relationship banking) coexist in the same economy. Regulators should therefore not impose or
favor one system over the other and should introduce regulatory provisions that are as much
as possible neutral with respect to the type of relationship between banks and their creditors..
Regulators should therefore maintain a centralized system of monitoring the full exposure of
different firms with respect to the banking system, and more in general with respect to the
financial sector at large, requiring all financial institutions to communicate to the regulator all
loans granted to a given (consolidated) borrower and their degree of utilization. The increase
in transparency that such a system of centralized monitoring of debt exposure would provide,
may help the development of arms-length financing, and in any case reduce the market
power of each bank with respect to its customers.
STANDARD INSTRUMENTS OF BANK REGULATION
This section of the paper provides a description of the most standard instruments of bank
regulation: deposit insurance, capital adequacy requirements and lender of last resort. These
three policies are linked one with the other. Deposit insurance protects the smallest depositors
from a bank bankruptcy and prevents bank runs. Capital adequacy requirements are necessary
in order to make sure that bank managers follow a responsible credit policy, in the absence of
an effective control on the part of depositors. Lender of last resort policies further reduce the
risk of banks bankruptcies providing banks with Emergency Liquidity Assistance facilities
that are designed to avoid that temporary situations of liquidity lead to the insolvency of the
bank.
Deposit insurance
Deposit insurance is a guarantee that all or part of a depositors debt with a bank will be
honored in the event of bankruptcy. The specific form of insurance schemes can vary in a
number of ways, including the fee structure (flat fee versus variable, risk-related fees); the
degree of coverage (full versus partial coverage, maximum limits); funding provisions
(funded versus unfunded systems); public versus private solutions; compulsory versus
voluntary participation.
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Deposit insurance reduces (and in most cases eliminates entirely) the incentive to run on
the bank in the event of financial difficulty. Therefore it reduces the possibility that a
temporary situation of illiquidity and rumors on the insolvency of the bank actually lead to
the failure of the bank. Furthermore, deposit insurance prevents the chain reaction that can
also be started associated by the run on a single bank, so that it reduces the possibility of
contagion in the banking system.
A drawback of its introduction is however the fact itself that from the point of view of the
depositor, deposit insurance makes all banks equally attractive. It almost completely removes
the incentive on the depositor to determine the risk of a bank and the need for the bank to
compensate the depositor for bearing bank-specific risk by including a bank-specific risk
premium in the interest paid to the depositor. Similarly, the depositor faces little incentive to
diversify her portfolio of assets held in banks.
The effect of deposit insurance on the incentives of the bank depends upon the nature of the
insurance contract (and also on any other complementary regulatory measures). In particular,
the effect of the deposit insurance on the bank will depend on whether or not the insurance
premium paid by the bank depends on the individual banks risk.
In the case where the premium is completely unrelated to the risk of a particular bank (i.e.,
the fixed fee system), there is clearly an incentive for the bank to attempt to increase its
profits by either increasing its revenues (by lending to higher return but riskier projects) or by
reducing its costs (by reducing its reserves). Both actions increase its risk. This is the wellknown moral hazard problem of deposit insurance. Fixed fee deposit insurance creates
incentives for banks to take on more risk in their operations than they would without deposit
insurance. This effect was apparent almost as soon as deposit insurance was adopted in the
1930s, when bank capital ratios dropped from 15% to around 6%
Deposit insurance, especially if extended to all deposits, by reducing the market incentives
for prudent management, may have the perverse incentive of making banks riskier.When this
moral hazard extends across all financial institutions, the macroeconomic consequences can
be very significant. .
The problem of moral hazard and the need for additional regulatory measures can be
reduced if the insurance premium is related to the risk of the insured bank. An efficiently
organized insurer would graduate insurance premier according to the risk of the banks asset
portfolio and the adequacy of its capital holdings. Such a system would minimize the danger
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of adverse incentive effects Under such a system, the individual bank bears the
consequences of a higher risk portfolio or a lower capital-deposit ratio, in the form of a higher
insurance fee.
POLICY ON CAPITAL ADEQUACY OF BANKS
New arrangements for assessing the capital adequacy of banks on the basis of Risk -weighted
Assets replacing the capital-to-liabilities approach were introduced vide BRPD Circular No. 1
dated 08.01.1996 .The revised policy on capital adequacy takes account of different degrees
of credit risk and covers both on-balance sheet and off-balance sheet transactions. The
following broad outlines containing certain amendments made thereto from time to time and a
few new instructions are issued for compliance by banks:
1. Definition of Capital
For the purpose of supervision, capital will be categorized into two tiers: Tier 1 i.e., Core
Capital comprises the highest quality capital elements and Tier 2 i.e., Supplementary Capital
represents other elements which fall short of some of the characteristics of the core capital but
contribute to the overall strength of a bank.
2. Minimum Capital Standards
Each bank will maintain a ratio of capital to risk weighted assets of not less than 9% with at
least 4.5% in core capital and this requirement will have to be achieved by 30 June 2003.
However, minimum capital requirements (paid up capital and reserve) for all banks will be
Tk.100 core as per Bank Company (Amendment) Act, 2003. Banks having capital shortfall
will have to meet at least 50% of the shortfall by 09 March 2004 and the rest by 09 March,
2005.
3. 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. Off -balance sheet transactions to be converted into balance sheet equivalents for the
purpose of assessing capital adequacy before assigning a risk weight as shown in section
10(a) of Annexure-II. Four categories of credit equivalents of 0,20,50 &100 percent will
apply.
4. Implementation
Banks are advised to assess their capital position on half-yearly basis i.e., on 30 June and 31
December each year and report the same to the Off-site Supervision Department of
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Bangladesh Bank within one month from the end of respective half-year. Banks are also
advised to contact Banking Regulation and Policy Department (BRPD) of Bangladesh Bank
in case of any confusion or ambiguity.
Regulatory reform, competition and depositors switching costs
While, in many countries banks benefited from the new opportunities originating from
regulatory reform by offering new and improved financial services to customers, switching
costs for consumers remained quite high, so that competition between banks did not increase
proportionately. There is now substantial evidence that the widening range of services offered
by banks was not associated with a significant increase in the elasticity of each bank residual
demand (as should have been expected because of greater competition). The effect of
liberalization on the market power of banks with respect to customers of banking services
was probably not too strong.
In recent decades, besides the traditional deposit-taking banks have entered quite a number
of new related markets, such as (among others): 1.Credit cards services, paying bills for
depositors 2. Consumer owns 3.Mortgages 4. Life insurance 5.Financial consulting;
6.Management of investment funds;
Asset management By providing all these services under one roof, banks reduce the
transaction costs depositors would have faced had they been obliged to negotiate for receiving
these services with a number of different providers. At the same time, however, by offering
all these services, banks have made it more costly for depositors to switch bank. In fact
should depositors decide to move to a new bank they would need to:
1) Receive new credit cards (with a different number and expiry date) that would need to be
communicated to any service provider, for example the cable TV company, should its bills
being paid by credit card;
2) Inform the new bank about all utilities whose bills checking account debiting the depositor
checking account; was paying;
3) Transfer the depositor all purchased stocks or bonds to the new bank;
4) Maintain the checking account of the old bank just to service the mortgage;
5)Communicate to all correspondents the new banking coordinates. The increase in switching
costs tends to make steeper the residual demand curve each bank faces, so, even though
competition may be increased in each of the markets where the bank expanded, the overall
market power of each bank is increased, at least with respect to existing depositors. Or, to say
17

it differently, in order for a bank to convince depositors of another bank to switch, the
improvements in the quality of services it offers must be much larger than it would be the
case in the absence of switching costs.
Depositors may also face switching costs because of strategic behavior on the part of banks.
For example while opening a checking account may be free, banks may require that a high fee
be paid when closing an account. There are good reasons why a policy of charging for closing
an account would be followed by all banks and would not be competed away: Each bank
benefits by market segmentation and no bank benefits by unilaterally reducing exit costs.
This is why it is unlikely that banks would engage autonomously in switching costs
reducing activities, given that this would imply reducing profits for each bank and also for the
industry as a whole. Pro-competitive rules and regulations may contribute to make switching
easier, so as to ensure that all the benefits originating from greater competition actually reach
consumers.
Regulation could impose on all banks disclosure rules with respect to all the costs involved
in switching, so that consumers are made aware of these costs and competition among banks
may indeed prove to be very useful.
With the advent of the internet, banking is no longer necessarily a local industry, not even
for the smallest depositor, at least in countries with widespread internet literacy. Since
banking technology is the same across the world it is extremely important that regulation does
not limit the extent of the market with unjustified restrictions. This is particularly important in
jurisdictions that use the same currency. For example, the introduction of the Euro in 2002
could have made depositors indifferent as to the nationality of the bank where they would
deposit their savings, leading to a very significant enlargement of consumer choices and of
competition. Notwithstanding the regulatory interventions in such directions, such as with
regulation (EC) 2560/2001 on cross-border payments in the Euro area, the high costs
traditionally associated with dealing with foreign banks have remained. As a consequence, the
residual demand of a bank localized in one country remained substantially equal to what it
was before the Euro, while the removal of the higher costs associated with cross border
transactions would have probably led to a significant increase of the elasticity of its residual
demand.
BANKING AND THE FINANCING OF DEVELOPMENT:

18

Cross country comparisons show the importance of a well developed banking sector for
achieving both long term economic growth and the reduction of poverty. Countries with
better developed banking systems and capital markets have shown higher growth rates.
Finance is always necessary for growth. In particular ongoing business needs finance for
operation and for expansion. The same is true for launching new business enterprises.
Households need to have safe deposits, access to the payment system, to mortgages and
consumer loans. In this respect the experience of many developing countries shows that the
banking sector is generally responding well to the needs of the wealthy households and of the
established firms. More in general, banking seems to develop well with firms and people that
are able to offer collateral or have formal employment so as to provide some guarantee with
respect to future income, less well with people and firms that are unable to offer guarantees.
However, while in developed countries this second group of customers is relatively small, in
developing countries it represents the majority, so that banks tend to provide services only to
the minority of the population. In banking, while the competitive solution with little
regulation is appropriate for these existing banks so as to eliminate distortions, favoritism and
high interest rate spreads. As an example, the Pakistani competition Authority in its
submission to the OECD Global Forum on Competition in February 2005 writes: The
financial sector was deregulated and with the economic liberalization, new banks,
financial institutions, leasing companies, housing finance, investment companies and foreign
banks have come up, which has created a competitive milieu
Regulatory reform and competition are able to expand the reach of banking to the
underprivileged. On the one hand, especially in countries where the majority of potential
borrowers do not have a collateral to offer, conventional banking may lead to a non optimal
equilibrium, where quite a number of low risk project are not financed and high-risk
borrowers end up having to pay higher interest payments. On the other hand technical
progress and flexible regulation have made it possible to provide banking services also to the
poor. For example Dymski (2003) writes: Lemon Bank (a micro credit bank) offers credit
and debit cards and savings accounts to the unbaked. Its minimum amount is tiny, and
checking services are available without annual fees. Lemon Bank, which has 3600 access
points, many in favelas and in drugstores, is about to launch a media campaign aimed at
opening 100,000 new accounts by years end.

19

As for the lending side, in recent years in many developing countries specialized lending
institutions started to use unconventional methods to lend successfully to the poor, starting
what is now known as micro credit. Considerable evidence shows that such unconventional
lenders were able to lend to borrowers that no conventional borrower was willing to attract
and nonetheless performed much better, in terms of financial self sufficiency and repayment
rates, than would conventional banks in comparable loans. The reason of this success, that is
not limited to the Grameen Bank in Bangladesh, is the use of unconventional methods of risk
reduction: forming groups of borrowers that are jointly responsible for each others loans
(joint liability) and intense monitoring of clients, relying heavily on the promise of repeating
the loan.
Credit Rating
In terms of the BRPD Circular Letter No. 05 dated May 29, 2004 it was made mandatory for
the banks to have themselves credit rated to raise capital from capital market through IPO.
The issue has been reviewed further and with a view to safeguard the interest of the
prospective investors, depositors and creditors and also the bank management as a whole for
their overall performances in each relevant areas including core risks of the bank, it has now
been decided to make it mandatory from January 2007 for all banks to have themselves credit
rated by a Credit Rating agency.
Banks are, therefore, advised to take necessary measures from now on so that they can have
their credit ratings in all relevant areas as well as the bank management.
Banks will be required to complete their credit rating by June 30, 2007. The credit rating will
be an ongoing process i.e. credit rating should be updated on a continuous basis from year to
year, within six months from the date of close of each financial year.
The rating report completed in all respects be submitted to Bangladesh Bank and made public
within a period of one month of the notification of rating by the credit rating agency.
Banks will disclose their credit rating prominently in their published annual & half yearly
financial statements.
Prudential Guidelines for Consumer finance and Small Enterprise Financing:
Due to significant increase in credit disbursement in the arena of Consumer Financing and
encouraging credit flow in the Small Enterprise Financing sector in the recent time, two
separate guidelines have been issued to the banks for better management of credit in those
two sectors where-in loans will have to be classified into 8(eight) categories (in light of Credit
20

Risk Grading Manual). Banks have been advised to implement the guidelines by 31
December 2005. Bangladesh Bank will monitor the progress of implementation of these
Regulations/Guidelines through its on-site inspection teams through routine inspection.
Guideline on Information & Communication Technology for Scheduled Bank
Bangladesh Bank has forwarded guidelines to provide the industry with IT guideline of
minimum security standards for scheduled banks with a view to ensuring security in IT
setup as well as in IT operations by taking adequate measures to prevent the information from
unauthorized access, modification, disclosure and destruction so that customers interest is
fully protected. Banks are advised to follow the Guideline in their IT area and implement all
the security standards by May 15, 2006.
Implementation of Credit Risk Grading Manual
With the aim to fully implement a Risk Grading System, an Integrated Credit Risk Grading
Manual has been developed and forwarded to the banks. Banks are advised to implement
Credit Risk Grading (as described in the manual) by March 31, 2006 for all exposures
(irrespective of amount) other than those covered under Consumer and Small Enterprises
financing Prudential Guidelines and also under The Short-Term Agricultural and MicroCredit. Banks are also advised to submit a compliance report by April 15, 2006 to the effect
that the Credit Risk Grading has been put in place. Risk Grading Matrix provided in the
Manual will be the minimum standard of risk rating and banks may adopt and adapt more
sophisticated risk grades in line with the size and complexity of their business. Bangladesh
Bank will monitor the progress of implementation of the manual/guideline through its on-site
inspection teams during routine inspection.

1o years Inflation rate in Bangladesh:

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

4.2%

5.1%

5.2%

6.8%

8.8%

6.5%

6.5%

7.5%

8.5%

7.57%
21

Inflation
10
9

8.8

8.5

8
7.5
7

6.8

6.5

7.5

6.5

6
5
4

Series 1

5.2

5.1
4.2

3
2
1
0
2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Analyzes:

In 2004 inflation rate is 4.1 % .the next year 2005 its increase 1% and getting 5.1% but the next
year 2006 its only increase o.o1% and getting 5.2%.In 2007 inflation rate gets 6.8% and next
22

year 2008 its increase 2% and getting 8.8% but 2009 its decrease 2.3% and getting 6.5%. No
change in 2010, its 6.5 but the next year 2011 its increase 1%and getting 7.5%. 2012 increase by
8.5% and 2013 decrease 1% and same in 2011 7.5%.

Risk free interest Rate:

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

5%

5%

5%

5%

5%

5%

5%

5%

5%

5%

Risk Free Rate


6

4
Series 1
3

0
2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

23

Analyzes
There is no movement in risk free rate because last 10 years risk free rate is same.

Relationship between inflation rate and risk free


rate:

24

Inflation & Risk Free rate


16

14

5
5

12

10

Risk free rate

8.8

8.5

Inflation

8
7.5
6.8

6.5

7.5

6.5

6
5.1
4

5.2

4.2

0
2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

HISTORICAL BACKGROUND OF THE EXIM BANK


EXIM Bank- Export Import Bank of Bangladesh Ltd. was named at first as BEXIM Bank
BEXIM stands for Bengal Export Import of Bangladesh. This new commercial Bank was
opened in August 03, 1999 with some new innovative visions in customer services. The
25

Bank received the certificate of incorporate no.C-37864 (2164)/99 under the


commencement of the business on the same day by the section 150(2) under companies
Act. A part from the head office in Dilkusha C/A, it stared its first local branch in
Motijheel C/A simultaneously in order to provide all kinds of Banking support to the
clients. On December 02, 1999 the second branches both in Dhaka City and other cities.
Now it has twenty-five branches in the country.

OVERVIEW OF THE BANK:


Exim bank is only one export import bank in our country. It was established in 1999. The
Bank starts functioning from 3rd August, 1999 with its name as Bengal Export Import
Bank Limited. On 16th November 1999, it was renamed as Export Import Bank of
Bangladesh Limited. EXIM Bank is using the T24 Islamic Banking Solution of Temenos
which is already a recognized world leader in banking software technology with over 700
installations in over 125 countries, and more than 40 installations for Islamic Banking.
EXIM Bank extended all Islamic banking services including wide range of saving and
investment products, foreign exchange and ancillary services with the support of
sophisticated IT and professional management. The investment portfolio of the bank
comprises of diversified areas of business and industry sectors. The sectors include
textiles, edible oil, ready-made garments, chemicals, cement, telecom, steel, real estate
and other service industry including general trade finance. The bank has given utmost
importance to acquire quality assets and is committed to retain good customers through
customer relationship management and financial counselling. At the same time efforts
have been made to explore/induct new clients having good potentiality to diversify and
create a well-established structured investment portfolio and to minimize overall portfolio
risk.
International Award International Diamond Prize for Excellence in Quality" award
and "World Finance" award.

Implementation of the world renowned Core Banking Software (TEMENOS T24) and
Conversion from Conventional Banking to Shariah Based Islamic Banking.

Exim Bank has provided. At least 2% of our annual profit of every year is put aside for
the foundation to conduct Corporate Social Responsibilities (CSR) activities. The
mainstream CSR activities that are carried out through this foundation are Female
Employees' Interest Protection Policy" of EXIM Bank.
As per the Service Rules for the Employees of EXIM Bank, 30th November 2006,
Chapter IX, Section 9.1.1. Points (f) are covered disciplinary action against any offence
26

involving moral turpitude. In addition to that, to encourage a healthy & cordial work
environment, the following policy has been introduced and put in effect for well-being of
the female employees of the bank.

MISSION:
The mission of the Exim bank is Provide quality financial services especially in Foreign
Trade, Continue a contemporary technology based professional banking environment,
Maintain corporate & business ethics and transparency at all levels, Sound Capital Base,
Ensure sustainable growth and establish full value to the honourable stakeholders, Fulfil
its social commitments and Above all, to add positive contribution to the national
economy.

VISION:
The vision of Exim bank is Together Towards Tomorrow. Export Import Bank of
Bangladesh Limited believes in togetherness with its customers, in its march on the road
to growth and progress with service.

PRESENT SITUATION OF EXIM BANK LTD

Authorized Capital: The authorized capital of the bank at present remained at Tk. 20000
million .
Paid up capital: Tk. 10,515 million.
Reserve fund: Reserve fund Tk.3, 954.5million.
Face Value: Tk. 10
Profit/ (Loss) after tax: Tk. 2157,631,285.
Retained Earnings: Tk. 1,367,293,534.
Total Liabilities: Tk. 150,447,727,800.
27

NAV per share: Tk. 15.83( 2011 adjusted )


EPS (As per prospectus): Tk.2.05( 2011 adjusted )
Cash: 26,80,760,985
Assets: 167,056,626,119
Investments : 118,219,992,997

Financial performance:

Sl.
No
.
1

Particulars

Authorized Capital

3500.00

10000.00

10000.00

20000.00

20000.00

Paid-up Capital

2677.75

3373.96

6832.27

9223.56

10514.86

Shaerholders Equity

4989.20

6717.21

12474.85

14484.22

16641.86

Total Capital (Tier 1+ Tier 2)

5763.89

7718.89

13957.40

16109.56

18214.31

Statutory Reserve

1532.55

2092.97

3154.76

3849.78

4587.47

Total Assets

68446.46

86213.37

113070.98

129874.42

167056.63

Total liabilities

63457.26

79496.16

100596.13

115390.20

150414.77

Deposits

58833.06

73835.46

94949.40

107881.21

140369.66

Investment(General)

53637.68

68609.91

93296.65

99699.63

118219.99

10

Investment(Shares &
Securities exld.subs)

2894.02

2189.54

4522.04

6734.03

10345.38

11

Total Contingent liabilities

26070.57

30109.11

55098.36

54929.92

63950.48

12

Total risk Weighted Assets

53428.99

69058.87

140251.40

148053.70

166531.66

13

Total Fixed Assets

293.53

381.98

463.74

467.98

433.0920357.48

14

Total income

8356.82

10383.62

13723.95

15801.88

15023.14

15

Total Expenditure

5838.43

7201.84

7830.16

11846.06

5334.35

16

Profit before provision and


tax
Profit before tax

2518.39

3181.78

5893.79

3955.82

3688.45

1989.55

2802.12

5308.95

3475.06

2157.63

17

2008

2009

2010

2011

2012

28

18

Net profit after provision and


tax

1096.63

1694.10

3476.01

2009.37

270081.50

19

Foreign Exchange Business

156434.57

162604.61

227966.60

254407.47

143314.40

a) Import Business

78540.49

83911.51

129570.73

128445.77

120996.96

b) Export Business

76465.62

76240.77

95359.45

122217.34

5770.20

c) Remittance

1428.46

2452.33

3036.42

3744.36

398

278

333

354

336

131147.17

21

No. of Foreign
Correspondent
Profit earning assets

56192.52

69006.56

97901.97

109707.50

35909.46

22

Non Profit earning assets

12253.94

17206.81

15169.01

20166.92

84.22%

23

Investment as a % of total
Deposit

93.14%

92.92%

98.26

92.42%

10.94%

24

Capital adequacy Ratio

10.79%

11.18%

9.95

10.88%

10%

25

Dividend

26%

35%

35

14%

Cash

10%(proposed)

Bonus

26%

35%

35

14%

9.96%

20

Rights Share

1r:2

15.83

26

Cost of found

9.52%

9.09%

7.10

9.15%

2.05

27

Net Asset Value per share

186.32

199.09

18.26

15.70

10.14

28

Earning per share (EPS)

40.95

50.21

3.77

2.18

1.45%

29

Price earning ratio (times)

7.85

7.52

11.34

12.76

139482

30

Return on Assets (ROA) after


tax

1.83%

2.19%

3.54

1.65%

1909

31

No. of shareholders

24387

29302

99882

126681

72

32

Number of Employees

1312

1440

1686

1724

33

Number of Branches

42

52

59

62

Balance sheet
Particular

2008

2009

2010

2011

2012

Property and Assets

29

Cash
In hand (include foreign
currency)
with bank and its agent banks
(including foreign currency)

470456231

502312143

738876217

948773916

1314251466

6117457992

8714624948

9346699826

13964278341

24866509519

6587914223

9216937091

10085576043

14913052257

26180760985

Balance with other banks


and financial institution
In Bangladesh

747546381

123249512

539356994

3882017395

6186227238

Outside Bangladesh

1445278570

1406619922

865104309

1414527197

2768122145

2192824951

1529869434

1406461306

5296544592

895434383

Investment (shares and


bonds)
Govt securities

2250000000

2000000000

2756000000

2763708330

3263708330

Others

644021207

169435240

1766035569

3970320439

7081674745

2894021207

216945240

4522036564

6734028769

10345383075

50838709312

66898183938

90929921831

96855012694

115805715527

Bills discounted and


purchased

2798967791

1711723532

3744679959

1999007171

3554351738

Fixed assets

53637677103

68609907470

94674610790

100854019865

119360067265

Others assets

293529040

383332474

467930909

4739961675

439482675

Non-banking assets

2840497476

4294450230

1890860232

1717886434

Total assets

68446464000

86203931339

113047466849

129709816841

Money at call and short


notice

Investment
General investment

166997929817

30

Liabilities
Borrowing from other
banks, financial institutions
and agents

500000000

1298500

1658267943

3450000000

4300000000

Al wadiah current deposits


and other acc

6672698806

4444334819

4736853655

5461081193

6038002361

Mudaraba savings bank


deposits

2440817852

15466275929

16974377239

21633784660

90136641065

Call deposits

47333793478

8733452812

12673205230

13717321688

25180642319

1154621462

170730899587

4458554545
73835461825

8544555445
94951570297

9985544545
107515298597

1597045903
140025422505

Deposits and others


Accounts

Foreign currency deposits

Bill payable

4454565455
57586991798

Other liabilities

5370270246

5661064700

3997774194

4275035477

6122305295

Total liabilities

63457262044

79497825025

100601612424

115240334074

150447727800

3373959900

6832268790

9223562860

455445455

209294330

3154763651

3849775919

445522555

62775000

62775000

782542554

11763545654

2395946984

11716177

55455545

1295946984

13215503384

8725554

68446201956

12445854425

14469482767

40215012454

Capital/shareholders equity
Paid up capital
Proposed issue of bonus
shares
Share premium
Dividend equalization account
Statutory reserve
Total shareholders equity

2677746000
-

6552566

Total liabilities and


shareholders equity

62775000

1532550398

4989201956

31

68446464000
64446464000

Off balance sheet items


Contingent liabilities:
Acceptance and
endorsementsLetters of guarantee
Irrevocable letters of credit
Bills for collection
Other contingent liabilities
Total contingent liabilities
Others commitments

Total off balance sheet item

11304746684849

129709816841

45622156564

1926716986

2051493156

2843764312

3923644884

3667283774

8259107868

11023568510

24659729822

15239815112

18331133277

1207007428

1915178096

2101115742

2590679299

14677737243

15118871585

35098364372

259175780264

39576271160

26070569525

30109111347

34929919559

26070569525

30109111347

55098364372

54929919559

2375795416

63950483627

Loss and profit


Particular

2008

2009

2010

2011

2012

32

Investment income

6575384481

8147113948

9606185898

13266077269

17283330742

(4807489009)

(5942862461)

(6020054097)

(93398849)

(12228664694)

1767895472

2204251487

3586131801

3926192334

5054666048

Income from investment in


shares/securities

49290682

45980606

143927878

99745891

138120503

Commission, exchange and


brokerage

1358584309

1382364444

1822977090

1914082722

2070731029

4958930

192447997

1292104250

51467200

Other operating income

368602392

618702207

872161614

675060237

802080203

Total operating income

3549331785

4443746741

7717302633

6615081184

1475414349

648143840

1014492899

1338511684

2775414349

100138388

134306353

169548654

214630630

274271388

3439756

4030585

5552975

9345446

38277696

46319705

48855397

56864407

67963092

66565319

Stationery, printing,
advertisement, etc.

247500

1984110

1932031

3305582

1916685

Managing directors
remuneration

46507927

70697703

70168601

103852471

123360905

5329800

7569300

9885700

8986135

8088387

2585924

2508018

2206353

2382190

2291071

Profit paid on deposits


borrowings, etc.
Net investment income

Gain on sale of investment in


shares

Operating expense
Salaries and allowances
Rent, taxes, insurance,
lighting etc.
Legal expenses
Postage, stamp, telegram, and
telephone audit fees

Managing director fees


Directors fees
Depreciation on and repairs
to banks property

544058922

Other expenses

33

68248984

225292220

226881

308611

256736

214065794

1273078086

120096549

148557159

160452801

1030942700

3170676655

55897642

83883260

102409801

2518389085

301625753

334633376

547697143

569412576

Provision for off balance


sheet exposure

392862260

78036000

1841506068

2529423403

2822881452

Provision for diminution in


value of share

101460000

17 888196

554555442

34514026

2791014902

5290953783

31 18 60 666

3565445556

1989552753

1108024287

1832938651

3538005283

54542424

1096627046

1682990615

3458015132

2017715667

5456511356

608754548

716130558

117 6397684

2390143482

4549444571

33914343

750044901

4209449

608754548

11820607133

2390143482

5556525556

1705381594

2433035516

4638622265

4407859149

4522332212

397910560

560423932

1061789321

695012268

5545445454

149953560

Total operating expense


Profit before provisions
Provision for investment

Profit before tax


Provision for tax
Deferred tax
Profit after tax
Retained earnings brought
forward
Transfer from provision for
diminution in value of share
Adjustment for (under)/over
provision for tax made in
earlier years

Profit available for


appropriation
Appropriation:
Statutory reserve
Cash dividend

34

Issue of bonds shares

Retained earnings carried


forward
Earnings per ordinary
share

441386700

696213900

1180885960

2391294070

44555455245

989251036
716130558

1256637832
1176397684

224267281
2395946984

13215527885
1321552811

45254552456
2545545555

40.95

49.88

5.33

2.19

15.87

Types of loans:

Types of loan sanctioned by the bank given below:


1. Agriculture loan
2. Term Loan to large & medium scale industry
3. Term Loan to small Industry
4. Large & Medium Scale Industry
5. Small Industry
6. Export
7. Trade financing
8. Housing loan
9. Consumer credit
10. Credit card
11. Credit to NBFIs

35

Loan category based description:


a.
Continuous loan: loan continues year after year.
b.
Demand loan: loan to be paid on demand. Sanction of loan is made within short
period of time.
c.
Term loan: generally loan is sanction for long time. Say 5 to 15 years and
payment system is on installment basis.
A.
Continuous loan is two types :
1.
C.C pledged: where goods financed loan is kept under locks key of bank go
down. Goods will be released by the bank authority of their getting the value.
2.
C.C (Hypothecation) : bank sanction loan to client to purchase goods and service.
Title of goods remaining to client.
B. Demand loan:
1 .Lim (loan against imported merchandise) This loan is provided for very short
term say 10 to 15 days. This loan is related to foreign exchange business. When
document is received and make payment to foreign buyer.
2. MIB (imported Bill) when goods are received from foreign buyer; bank make
payment against the goods. Goods are kept in safe custody to bank and subsequently
released after getting the value.
3.
T.R (trust receipt): here loan is provided against imported goods. Loan is
generally provided go days. Basis difference between MIB and TR is that in MIB goods
are kept and TR is that in MIB goods are kept at Banks custodys in TR goods are lying
under customers custody.

Interest rate Movement:


Here the 5 years interest rate movement of loanable funds:

2014

36

100%

0.5

0.5

0.5

0.5

0.5

0.5

0.5

0.5

0.5

0.5

0.5

0.5

0.5

0.5

0.5

0.5

0.5

0.5

0.5

0.5

0.5

0.5

0.5

0.5

90%
80%
70%
60%
50%
40%
Feb

30%

Jan

20%
10%
0%

2013

37

100%

0.090.090.090.090.090.090.090.090.090.090.090.09

90%

0.090.090.090.090.090.090.090.090.090.090.090.09

80%

70%

0.120.120.120.120.120.120.120.120.120.120.120.12

0.090.090.090.090.090.090.090.090.090.090.090.09

others
credit to NBF is

60%

0.090.090.090.090.090.090.090.090.090.090.090.09

credit card
consumer credit
housing

50%

0.080.080.080.080.080.080.080.080.080.080.080.08

trade financing
export
small industry

0.040.040.040.040.040.040.040.040.040.040.040.04
40%

0.090.090.090.090.090.090.090.090.090.090.090.09

large & medium scale


industry
term loan to small industry

30%

0.080.080.080.080.080.080.080.080.080.080.080.08

term loan large & medium


scale industry
Agriculture

0.090.090.090.090.090.090.090.090.090.090.090.09
20%
0.080.080.080.080.080.080.080.080.080.080.080.08
10%
0.070.070.070.070.070.070.070.070.070.070.070.07
0%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2012

38

100%

0.090.090.090.090.090.090.090.090.090.090.090.09

90%

0.090.090.090.090.090.090.090.090.090.090.090.09

80%

70%

0.120.130.130.130.130.130.130.130.130.130.130.12

0.090.090.090.090.090.090.090.090.090.090.090.09

others
credit to NBF is

60%

0.090.090.090.090.090.090.090.090.090.090.090.09

credit card
consumer credit
housing

50%

0.080.080.080.080.080.080.080.080.080.080.080.08
0.030.040.040.040.040.040.040.040.040.040.040.04

40%

0.080.090.090.090.090.090.090.090.090.090.090.09

trade financing
export
small industry
large & medium scale
industry
term loan to small industry

30%

0.080.080.080.080.080.080.080.080.080.080.080.08

term loan large & medium


scale industry
Agriculture

0.080.090.090.090.090.090.090.090.090.090.090.09
20%
0.080.080.080.080.080.080.080.080.080.080.080.08
10%
0.060.070.070.070.070.070.070.070.070.070.070.07
0%
Jan Feb Mar Apr May Jun Jul AugSep Oct NovDec

2011
39

100%

0.11 0.12 0.12

0.09 0.09 0.09

0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09

90%

0.1 0.1 0.1 0.1

80%

0.01
0.01 0.01 0.01 0.1
0.1 0
0
0.1 0
0.1

70%

0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09


0.1 0.1 0.1 0.1

60%

50%

0.05 0.05 0.05 0.1


0.11 0.12 0.12

30%

0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09

0.04
0.1 0.1 0.1

0.11 0.12 0.12

others
credit to NBF is
credit card
consumer credit
housing

0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09


0.1

40%

0.13 0.13 0.13 0.13 0.13 0.13 0.13 0.13

trade financing
export
small industry

0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04


0.09 0.08 0.08 0.09 0.09 0.09 0.09 0.09

0.1
0.09 0.08 0.08 0.09 0.09 0.09 0.09 0.09

large & medium scale


industry
term loan to small industry
term loan large & medium
scale industry
Agriculture

0.08
20%

0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07

0.1 0.1 0.1


0.08

10%

0.1 0.1 0.1

0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07

0.08 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07

0%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2010

40

100%

90%

80%

0.110.110.110.110.110.110.110.110.110.110.110.11

0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

0.010.010.010.010.010.010.010.010.010.010.010.01
0
0
0
0
0
0
0
0
0
0
0
0

70%
0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

others
credit to NBF is
credit card

60%
0.050.050.050.050.050.050.050.050.050.050.050.05

consumer credit
housing

50%

0.110.110.110.110.110.110.110.110.110.110.110.11

trade financing
export
small industry

40%

0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

large & medium scale industry


term loan to small industry
term loan large & medium
scale industry

30%

0.110.110.110.110.110.110.110.110.110.110.110.11

20%

0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

10%

0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Agriculture

0%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Yield Classification:
Agriculture:
41

Year

Yield% =

Risk free Rate%

13 =

default premium
%+
8+

2014
2013

13 =

8+

2012

13 =

8+

2011

13 =

8+

2010

13 =

8+

Term Loan to large & medium scale industry:


Year

Yield %=

Risk free Rate%

15.50 =

default premium
%+
10.50 +

2014
2013

15.50 =

10.50 +

2012

14.37 =

9.37 +

2011

13 =

8+

2010

13 =

8+

Term Loan to small Industry:

42

Year

Yield% =

Risk free Rate%

18 =

default premium
%+
13 +

2014
2013

18 =

13 +

2012

16.66 =

11.66+

2011

13.63 =

8.63 +

2010

14.50 =

9.5 +

Risk free Rate%

Large & Medium Scale Industry:


Year

Yield %=

2014

15.5o =

default premium
%+
10.50 +

2013

15.50=

10.50 +

2012

14.38 =

9.38+

2011

15.50 =

10.50 +

2010

13 =

8+

Yield% =

default premium
%+

Risk free Rate%

Small Industry:
Year

43

2014

18 =

13 +

2013

18 =

13 +

2012

16.54 =

11.54+

2011

16.29 =

11.29 +

2010

14.50 =

9.5 +

Year

Yield% =

Risk free Rate%

2014

7 =

default premium
%+
2+

2013

7 =

2+

2012

7 =

2+

2011

7 =

2+

2010

7 =

2+

Year

Yield% =

Risk free Rate%

2014

15.50 =

default premium
%+
10.50 +

2013

15.50 =

10.50+

2012

14.40 =

9.40 +

2011

13.90 =

8.90 +

2010

13 =

8+

Export:

Trade Financing:

44

Housing Loan:
Year

Yield %=

Risk free Rate%

15 =

default premium
%+
10+

2014
2013

18 =

13+

2012

18 =

13 +

2011

13.79 =

8.79+

2010

13 =

8+

Year

Yield =

default premium+ Risk free Rate

2014

15=

10 +

2013

18 =

13+

2012

18 =

13+

2011

8.5 =

3.5 +

2010

00 =

00 +

Year

Yield =

default premium+ Risk free Rate

2014

24=

19 +

2013

24=

19 +

Consumer Credit:

Credit Card:

45

2012

24=

19 +

2011

24=

19 +

2010

1.67=

1.67+

Year

Yield %=

Risk free Rate%

2014

18=

default premium
%+
13 +

2013

18=

13 +

2012

18=

13 +

2011

13=

8+

2010

13=

8+

Year

Yield %=

Risk free Rate%

2014

18=

default premium
%+
13 +

2013

18=

13 +

2012

18=

13 +

2011

15.25=

10.25+

2010

14.5=

9.5+

Credit to NBF IS:

Others:

Credit risk premium score:


46

The credit risk grading score sheet of EXIM bank given below:

CRG:
Number

Grading

Short

Score

Superior

SUP

Fully
cash
secured, secured
by government

Good

GD

85+

acceptable

ACCPT

75-84

Marginal/ watchlist

MG/WL

65-74

Special mention

SM

55-64

Substandard

SS

45-54

doubtful

DF

35-44

Bad / loss

BL

<35

Source: secondary (EXIM Bank)

Exim bank divided the credit risk grading score by superior, good, acceptable, marginal, special,
substandard, doubtful and bad/ loss. Criteria of credit risk grading the Exim bank are financial
risk, business/ industry risk, management risk, security risk and relationship risk. . Under the
financial risk are leverage (15%), liquidity (15%) ,profitability (15%) and coverage (5%).

47

Criteria
weight

A
50%

Parameter

financial

scor
e

Actual

Score

Parame
ter

obtaine
d

1.32

10

1.03

10

Risk

1. Leverage: (15%)

Less than 0.25 x

15

Debt equity ratio (*)- times

0.26*to 0.35 x

14

Total liabilities to tangible net worth

0.36 * to 0.50x

13

All calculations should be based on

0.51 * to 0.75x

12

Annual financial statements of the

0.76 *to 1.25 x

11

Borrower ( audited preferred)

1.26 * to 2.00 x

10

2.01 *to 2.50 x

2.51 * to 2.75 x

More than 2.75 x

Greater than 2.74 x

15

Current ratio (*) times

2.50*to 2.74x

14

Current assets to current liabilities

2.00*to 2.49x

13

1.50*to 1.99x

12

1.10*to 1.49x

11

2. Liquidity (15%)

48

0.99*to 1.09x

10

0.80* to 0.89x

0.74* to 0.79x

Less than 0.79x

3. Profitability: (15%)

Greater than 25%

15

Operating profit margin (%)

20% to 24%

14

(operating profit/ sales * 100

15% to 19%

13

10% to 14%

12

&% to ( %

10

4% to 6%

1% to 3%

less than 1%

4. Coverage: (5%)
Interest coverage ratio (*) times

5
More than 2.oox

20.00% 14

1.87

Earnings before interest & tax More than 1.51*less than


( EBIT)
2.00x
3
Interest on debt

More1.25 *less than 1.5 x


More
than
than1.24x
Less than 1.00x

Total score financial risk

1.00*less
2
0
50

38
49

B.
Business
/industry
risk
>60.00
18%
1.Size
business (
BDT Crore)

of 30.00 59.99
in
10.00 -29.99

The size of the 5.00 9.99


borrowers
2.50 -4.99
business
Measured by the
most
recent
years

<2.50

3.33

4
Source : secondary ( EXIM Bank)
3
2
1
0

total
sales.
Preferably
audited
numbers.
2.Age of business

>10 years

The number of the years the >5 -10 years


borrower
<2 years
Engaged in the line of business

18

Stable

Moderate
(1% -5%)

2
1
0

3.Business outlook

Favorable

Critical assessment of medium term

Stable

Prospects of industry, market share

Slightly
uncertain

And economic factors

0
Cause
concern

4. Industry growth

for

Strong (10% +)
Good
-10%)

(>5% 2
1

Moderate (1%0
5%)
No

growth

50

Source: secondary (EXIM Bank )

c. Management risk 12%


Experience

More than 10 years 5


in the related
3
5-10 years in the
Quality of management based on related line of
2
total
1-5 years in the 0
of years of experience of the senior
related line of
management in the industry

No experience

2. second line / succession

Ready succession

More than 5
10 years in
the related
line

Ready
succession

Moderate

Succession within 1- 3
2years
Succession within 22
3 years

3. Team work

Total score management risk

Succession
question

in 0

Very good

Moderate

Poor

Regular conflict

12

11
51

Source: secondary (EXIM bank)

D.
risk
10%

security

1.security ( primary ) Fully pledged

Facilities/substantially
covered/reg. mortg. for HBL

cash

Registered
hypothecation
st
charge/1 pari passu charge)

(1st

2nd charge /inferior charge

Registered
hypothecation(
1st charge /1st
pari passu
charge

3
2

Simply hypothecation/negative lien 1


on assets
0
No security
2.collateral coverage Registered mortgage on municipal
( property location )
Corporation Prime area property

Registered mortgage on

Pourashava/ semi-urban area

Registered
4
mortgage
on
municipal
Corporation
Prime
area
property

Property
Equitable mortgage or no
Property but plant and machinery
As collateral

52

3. support
(Guarantee)

Negative lien on collateral

No collateral

Personal guarantee with high net 2


worth or strong corporate
Guarantee
Personal guarantees or corporate
1
Guarantees or corporate

Personal
2
guarantee with
high net worth
or
strong
corporate
Guarantee

Guarantee with average financial


Strength
0
No support / guarantee

Total
score
security Risk

10

Source: secondary (EXIM Bank)

E.
relationship
10%
1.
account
conduct

risk

More than 3 years accounts with 5


faultless record
Less than 3 years accounts with
4

More than 3 5
years accounts
with faultless
record
53

faultless record

Accounting having satisfactory


Dealing
with
payments

some

late 0

Frequent past dues & irregular


Dealing in account
2.Utilization of limit

More than 60%

(actual /projection0

40% -60%

Less than 40%

2.Compliance
covenants/ condition

3.Compliance
covenants/ conditions

4.personal deposits

of Full compliance

Some non-compliance

No compliance

of Full compliance

Some non- compliance

No compliance

Personal accounts of the key

Business sponsors / principals


are
Maintained in the bank, with
Significant deposits
0
No depository relationship

65.00%

Full
compliance

Full
compliance

Personal
1
accounts of the
key Business
sponsors
/
principals are
Maintained in
the bank, with
Significant
deposits

54

Total
risk

scorerelationship

Grand total All Risk

10

1
0

10
0

7
6

Source: secondary (EXIM Bank)


Under the business /industry risk are size of business, age of business, business outlook, industry
growth, market competition and entry / exit barriers. Under the management risk are experience,
second line / succession and team work. Under the security risk are security coverage (primary),
collateral coverage (property location) and support (guarantee).under the relationship risk are
account conduct ,utilization , compliance of covenants / condition and personal deposits.

Pure Keynesian theory: make a research is it


correct for Bangladesh:
Keynesian theory holds that the economy normally fails to employ all available resources and the
best technology and that government must regularly interfere with active fiscal and monetary
policies to move the economy toward full employment.
Lord John Maynard Keynes wrote the General Theory of Employment, Interest and Money as
a solution to the problem of periodic unemployment faced by developed industrial nations of the
West during the great depression of the thirties.
Many of his ideas were revolutionary, almost all were controversial. The central argument of The
General Theory is that the level of employment is determined, not by the price of labor as in
neoclassical economics, but by the spending of money. Keynes argues that it is wrong to assume
that competitive markets will, in the long run, deliver full employment or that full employment is
the natural, self-righting, equilibrium state of a monetary economy. On the contrary, underemployment and under-investment are likely to be the natural state unless active measures are
taken. One implication of The General Theory is that an absence of competition is not the main
55

issue and measures to reduce unemployment by benefits or wage cuts have no major effect. Its
applicability in underdeveloped countries is very limited. To quote Joan Robinson: Keyness
theory has little to say directly, to the underdeveloped countries, for it was framed entirely in the
context of an advanced industrial economy, with highly developed financial institutions and a
sophisticated business class.
Bangladesh is a developing country. So, Keynesian theory is not applicable in Bangladesh. The
reason has described in below:

Keynesian theory is fundamentally a capitalistic theory. It basically examines the


determinants of employment in a free enterprise economy. But Bangladesh is a mixed
economy system country.

Keyness theory deals with short-run phenomena only. It pays little attention to the longrun problems of a dynamic economy. But Bangladesh needs paying much attention to the
long run problems. If Bangladesh cannot able to solve long run problems, it will not be
developed.

Keynesian theory is not strictly applicable to underdeveloped countries. Keynes deals


with the problem of cyclical unemployment. Underdeveloped countries have the problem
of chronic unemployment and disguised unemployment. Thats why it is not capable for
Bangladesh.

He showed that full employment could be maintained only with the help of government
spending. He advocated in the General Theory that wages be kept stable. A general cut in
wages, he argued, would decrease income, consumption, and aggregate demand. This
would offset any benefits to output that the lower price of labor might have contributed.
But it is not possible for Bangladesh.

Although the policy measures suggested by the Keynesian theory may not be suitable to the
problems of underdeveloped countries, it does not mean that Keynesian economics has no
significance. Indeed, Keynesian methodology of thinking in macro-economic terms is very
56

essential and appropriate in understanding the major problems of any economy, whether
developed or developing. However, in view of the changing institutional set-up of the developing
economies during the process of planning and socio-economic reforms, Keynesian tools have to
be adopted with suitable modifications.

Reference:
Inflation rate
2004-2012

http://search.worldbank.org/quickview?name=%3Cem%3EInflation%3C%2Fem%3E
%2C+GDP+deflator+%28annual+
%25%29&id=NY.GDP.DEFL.KD.ZG&type=Indicators&cube_no=2&qterm=inflation+
rate+in+bd

Inflation rate
2013

http://www.bangladesh-bank.org/econdata/inflation.php

Annual report

http://www.eximbankbd.com/report/Annual_Reports

Risk free rate

http://www.bangladesh-bank.org/econdata/intrate.php

About Exim bank

http://www.eximbankbd.com/

Central Bank
how to regulate
commercial
bank

http://www.bangladesh-bank.org/

57

Role of
Bangladesh
Bank

Intermediate 1st paper books principles Business

Risk premium and


interest movement

Attach appendix

58

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