Bangladesh Bank board opposes plan to open new banks

The board of directors of the central bank has opposed a government plan to allow more banks and financial institutions to come on the scene, saying the country does not require any new player in its financial regime.

Bangladesh Bank During an exclusive meeting with Finance Minister AMA Muhith on Sunday, the Bangladesh Bank board led by Governor Atiur Rahman expressed their opposition about the plan, said a finance ministry official. Before giving permission to open new banks, the government should conduct a study whether the move is viable, the BB said. The meeting also discussed the country's current economic climate, especially the risks in dealing with the macroeconomic factors in the current fiscal year in line with the new monetary policy of the central bank. The BB board members include a number of noted economists such as Sanat Kumar Saha, a professor of economics at Chittagong University, Sadiq Ahmed, a former World Bank high official, Mustafa K Mujeri, director general of Bangladesh Institute of Development Studies, and a number of government secretaries. Almost all board members said there is no logic in allowing opening of any new bank in the country, a board member told The Daily Star, requesting not to be named. They also said the number of banks in Bangladesh is too high compared to many other countries. If new banks are allowed to open, a new type of ill-competition would emerge. Even if new banks get permission, it would be given on political consideration. Besides, the BB will not be able to allow approval to set up new banks ignoring political influence, and scrutinising the applications will not be flawless, the board members said. The number of banks in Bangladesh stands at 47 now. Besides, there are more than 100 financial institutions, said a finance ministry official. Permission to set up any commercial bank or financial institution has not been granted since 2001. But the government is now under pressure from political front to allow opening of about five new banks.

The finance minister neither admitted nor refused the political pressure. Indirectly [people] might talk about the pressure, but the number of entrepreneurs has increased substantially. So the government is thinking of allowing new banks to give them a chance, Muhith told The Daily Star on Thursday. The banks that cannot survive in the competition should go for merger, he said. The central bank on July 26 will declare its half yearly monetary policy and the meeting also discussed how the next monetary policy would be. The BB board members said two risks would figure high in the next monetary policy containing inflation and minimising the pressure on balance of payments. The board also said easing the pressure on the balance of payments would also be the main challenge for the government in the current fiscal year. The board members said the central bank should not interfere in the foreign exchange market. The board of directors of the central bank has opposed a government plan to allow more banks and financial institutions to come on the scene, saying the country does not require any new player in its financial regime. During an exclusive meeting with Finance Minister AMA Muhith on Sunday, the Bangladesh Bank board led by Governor Atiur Rahman expressed their opposition about the plan, said a finance ministry official. Before giving permission to open new banks, the government should conduct a study whether the move is viable, the BB said. The meeting also discussed the country's current economic climate, especially the risks in dealing with the macroeconomic factors in the current fiscal year in line with the new monetary policy of the central bank. The BB board members include a number of noted economists such as Sanat Kumar Saha, a professor of economics at Chittagong University, Sadiq Ahmed, a former World Bank high official, Mustafa K Mujeri, director general of Bangladesh Institute of Development Studies, and a number of government secretaries. Almost all board members said there is no logic in allowing opening of any new bank in the country, a board member told The Daily Star, requesting not to be named. They also said the number of banks in Bangladesh is too high compared to many other countries. If new banks are allowed to open, a new type of ill-competition would emerge. Even if new banks get permission, it would be given on political consideration. Besides, the BB will not be able to allow approval to set up new banks ignoring political influence, and scrutinising the applications will not be flawless, the board members said.

During the meeting, Muhith asked the BB to prepare a report on the country's overall banking situation and send it to the finance ministry. Finance ministry officials said the central bank will include in the report a detailed study on the banking sector and also the observations of the BB board. The latest development came following Muhith's statement during the parliamentary budget session that the government would allow opening of new banks and would seek applications soon. Early this month, the finance ministry sent to the central bank the part of the finance minister's speech in parliament on the subject. The ministry, however, did not give any specific directive to the regulator about seeking application. The number of banks in Bangladesh stands at 47 now. Besides, there are more than 100 financial institutions, said a finance ministry official. Permission to set up any commercial bank or financial institution has not been granted since 2001. But the government is now under pressure from political front to allow opening of about five new banks. The finance minister neither admitted nor refused the political pressure. Indirectly [people] might talk about the pressure, but the number of entrepreneurs has increased substantially. So the government is thinking of allowing new banks to give them a chance, Muhith told The Daily Star on Thursday. The banks that cannot survive in the competition should go for merger, he said. The central bank on July 26 will declare its half yearly monetary policy and the meeting also discussed how the next monetary policy would be. The BB board members said two risks would figure high in the next monetary policy -containing inflation and minimising the pressure on balance of payments. The board also said easing the pressure on the balance of payments would also be the main challenge for the government in the current fiscal year. The board members said the central bank should not interfere in the foreign exchange market. The amount of unnecessary imports will go down if the greenback is made costlier, they said. The board also said money flowing to Bangladesh in the form of foreign aid should be disbursed quickly to trim down pressure on the external balance sheet. It also gave opinion in favour of cutting the credit flow to unproductive sectors and government borrowing from banking sector in an effort to reduce inflation.

This was the first meeting with the finance minister after the board was formed, said the central bank governor.

No to new banks
Entry of new banks will create an unhealthy competition in the industry, said former governor of the Bangladesh Bank. Salehuddin Ahmed also said there is no logic to allow new banks now; rather the small banks could be merged.

Proposed Banks The former governor said no country in the world having the size of Bangladesh has so many banks.

Vice Chairman of Policy Research Institute (PRI) Sadiq Ahmed said the central bank should make a proper analysis before taking decision on setting up new banks. He said several other issues have to be considered prior to giving permission to new banks -- in which criteria the banks will be allowed, and the ownership quality of the licence seekers. A BB official said the number of banks is highest in Bangladesh among the countries in the subcontinent. If gross domestic product, per capita income, foreign exchange reserve, and export and import of the country are taken into consideration, the size of the economy of Bangladesh, Sri Lanka, Nepal and Pakistan are almost the same. The official said, given the size of the economy and demand for banking services, it seems that the scope for allowing new banks is limited in Bangladesh, rather in the last 10 years a good number of banks were merged. In the past decade, Muslim Commercial Bank and Bank Scotia merged with local Bank Asia, while Grindlays Bank and American Express Bank with Standard Chartered Bank. During the tenure of the present government, Bangladesh Shilpa Bank and Bangladesh Shilpa Rin Sangstha went for a merger and took a new name, Bangladesh Development Bank. Citing an example, analysts also said the proposed Probashi Kalyan Bank was not necessary as its functions could be carried out by existing Karmasangsthan Bank. Bankers said there was no need for a separate bank for the non-resident Bangladeshis. They said the NRBs can meet their banking needs through the traditional banks, and can invest in the country's infrastructure sector.

BB board to decide on licences to new banks

Siddique Islam The central bank will place a study report to its board of directors' next meeting seeking decision on issuing lincences for new commercial banks, officials said. "We're now working to finalise the report with necessary information including the growth of banking industry considering the country's population," a senior official of the Bangladesh Bank (BB) told the FE Saturday. He also said the latest situation of the banking industry in the neighbouring countries will be included in the report. "The board will have to take a fresh decision on the issue as there is bar on establishing new banks. The board imposed the bar in 2005 considering the country's socio-economic condition," the BB official said without elaborating.

Talking to the FE, an executive director of the BB said the date of board meeting is yet to be finalised but it will take place shortly. Besides, the central bank of Bangladesh has already finalised a fresh guideline, spelling out the details that the intending sponsors will have to follow while filing applications for setting up new banks. If the board gives green signal on the issue, the central bank will publish the guideline along with advertisement inviting fresh applications from interested entrepreneurs to establish new banks, another BB official said. "We'll run all our businesses relating to issuance of fresh licences for new banks in line with our board decision," he added. Earlier, Finance Minister AMA Muhith said issuing of licences for new banks is a "political decision" of the government, brushing aside concerns of the central bank that the move is unnecessary as the banking sector is already "over-saturated". "It is our political decision to issue licences for new banks in the country despite reservation made by the BB," Muhith told economic reporters in Dhaka on July 24 last at a post-budget talk on challenges of the new fiscal year. Asked whether the decision is aimed at favouring political leaders, the minister said "it might be". He said it could be the last time the government was influencing the BB for issuance of new bank licences. "We'll be guided by our board," BB Governor Atiur Rahman told reporters Saturday while replying to a query relating to the government's political decision to issue licences for new banks. On June 29 last, AMA Muhith told Parliament that the government would invite applications from entrepreneurs willing to establish new banks and life insurance companies. Currently, a total of 47 commercial banks are in operation in Bangladesh.

BB to invite applications for new commercial banks

Applications made earlier won't be considered

Siddique Islam The central bank is going to start the process for issuing lincences for establishing new commercial banks in the country, officials said Tuesday. "We've received a letter from the Ministry of Finance (MoF) in this connection," a senior official

of the Bangladesh Bank (BB) told the FE, adding that the central bank will place a proposal to its board of directors seeking a decision on the issue. "We'll act in line with our higher authority's decision," the central bank official said without elaborating. "After announcement of advertisement by the BB, the interested entrepreneurs will have to apply for licence to establish a new bank," the central bank official said. The BB will finalise a guideline by the end of this month, setting out the details that the intending sponsors will have to follow while filing applications for setting up new banks. He also said the central bank will not consider the applications, which were earlier submitted to the BB. The BB's latest move came after the government announcement to invite applications from entrepreneurs willing to establish new banks and life insurance companies from July this year. On June 29 last, Finance Minister AMA Muhith told the parliament that the government would invite applications from entrepreneurs willing to establish new banks and life insurance companies from the next month. The BB officials, however, said the central bank officials have started preparations to submit a proposal in this connection to its Board shortly. "Normally, the central bank publishes an advertisement with a prescribed form for inviting applications for establishing new banks," another BB official said, adding that the central bank will follow a policy to issue licence for new banks. "The BB did not issue any lincece to establish bank after 2001," the central bank official noted. Currently, a total of 47 commercial banks are in operation in the country. The Awami League government during its earlier tenure between 1996 and 2001 allowed a good number of new banks and insurance companies to start operations. Prior to that, the Bangladesh Nationalist Party (BNP) government had issued licences to some PCBs for operations in the early 1990s.

BB to invite applications for new commercial banks

The central bank is going to start the process for issuing lincences for establishing new commercial banks in the country, officials said Tuesday.

Central Bank "We've received a letter from the Ministry of Finance (MoF) in this connection," a senior official of the Bangladesh Bank (BB) said, adding that the central bank will place a proposal to its board of directors seeking a decision on the issue. "We'll act in line with our higher authority's decision," the central bank official said without elaborating. "After announcement of advertisement by the BB, the interested entrepreneurs will have to apply for licence to establish a new bank," the central bank official said. The BB will finalise a guideline by the end of this month, setting out the details that the intending sponsors will have to follow while filing applications for setting up new banks. He also said the central bank will not consider the applications, which were earlier submitted to the BB. The BB's latest move came after the government announcement to invite applications from entrepreneurs willing to establish new banks and life insurance companies from July this year. On June 29 last, Finance Minister AMA Muhith told the parliament that the government would invite applications from entrepreneurs willing to establish new banks and life insurance companies from the next month. The BB officials, however, said the central bank officials have started preparations to submit a proposal in this connection to its Board shortly. "Normally, the central bank publishes an advertisement with a prescribed form for inviting applications for establishing new banks," another BB official said, adding that the central bank will follow a policy to issue licence for new banks. "The BB did not issue any lincece to establish bank after 2001," the central bank official noted. Currently, a total of 47 commercial banks are in operation in the country.

The Awami League government during its earlier tenure between 1996 and 2001 allowed a good number of new banks and insurance companies to start operations. Prior to that, the Bangladesh Nationalist Party (BNP) government had issued licences to some PCBs for operations in the early 1990s.

Finance ministry asks BB to start licensing process for new banks

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Existing banks enough for economy, new banks unnecessary: bankers Jasim Uddin Sarker The finance ministry has asked the Bangladesh Bank to invite applications for licences to set up new commercial banks. But in the view of two eminent bankers, the country at present does not need any new commercial banks if the number of existing banks and the size of the economy are taken into consideration. A high official of the Bangladesh Bank told New Age on Monday that the their board of directors was likely to approve the inviting of applications for licences for setting up new banks in its next meeting as the ministry last week had asked the BB to do so. The receiving of applications may start from next month, he said. But he sounded a note of warning. The political considerations in awarding licences for new banks might create instability in the banking sector. The Bangladesh Banks data show that at present 49 banks are operating in the country.

Of these, four are state-owned commercial banks, six are specialized banks, thirty are private commercial banks and nine are foreign banks. The former governor of the BB, Salehuddin Ahmed, told New Age, It is not rational to allow new banks in the country as the existing banks are themselves struggling to survive. The existing state-owned and private banks are enough to finance the countrys economic activities, he added. The BB should be very cautious about approving new banks. He suggested that the BB should initiate more programmes to improve the financial situation of the banks and help them to establish new branches and improve their services to the clients. Former deputy governor of the BB and chairman and Bangladesh Krishi Bank, Khandker Ibrahim Khaled, said that there is no need for new commercial banks as the number of existing private commercial banks is enough for the economy. He opined that the new banks will be burdensome for the economy and will prevent the existing banks from expanding and improving their services. If the government plans to establish new banks for special purposes like the Probasi Kallyan Bank, it might be a positive step. But new commercial banks are not necessary, he added. However the president of the Association of Bankers Bangladesh, K Mahmood Sattar, said that the size of the economy has increased in the last decade so the government should allow new banks, but proper scrutiny is important. Finance minister AMA Muhith in his budget speech in the Parliament on June 29 announced that the government would allow more private commercial banks to increase liquidity supply. Thirteen new private banks were given permission between 1999 and 2001 by the last Awami League government. The BB, in a survey on the prospects of new banks, found that most of the banks are allowed due to the political background of the banks owners. The previous elected government led by the Bangladesh Nationalist Party did not permit any new banks due to strong objection by the Bangladesh Bank. According to the rules, a new banks prospective owners have to show paid-up capital of at least Tk 400 crore to get a licence. According to the BB, the total number of all the banks branches is 7,019, of which 2,971 are located in the urban areas and 4,048 in the rural areas. The state-owned banks have a total of 3,389 branches, and most of the rural branches belong to them and specialized banks.

The total deposit in the banking sector was Tk 3,68,918 crore till April 2011, according to the BB.

BB under political pressure for approval new banks

7/30/2011 11:09:00 AM Bangladesh Bank, Banking, Politics, Private Banks

Bangladesh Bank (BB) has been under pressure from ruling party's politicians to approve for at least 15 new private banks, reports The Daily Star with a reference of Finance Ministry officials. Some ministers, Awami League lawmakers and business groups close to the ruling alliance are lobbying government high-ups for permission to set up new banks. Currently, 47 banks--local and foreign--are operating in the country. From 2001 till date, the central bank has received 82 applications, but none of them meets the requirements for obtaining licence, said a BB official. If it finds that allowing new banks is viable, BB will invite fresh applications through an advertisement, the official said. The number of new banks, however, will not cross three, added the official.

Speaking in the budget session in June, Finance Minister AMA Muhith said some new banks would be given licence and BB would soon invite applications for that. He had earlier said that only two banks--Probashi Kalyan Bank and the NRB (Non-Resident Bangladeshis) Bank--would get approval. But, how Finance Minister declared for new bank licence in the budget session? However, he was not discussed with Bangladesh Bank officials or he has unknown about the present condition the banking sector in our country. Earlier, he was inactive about the share market incident where politics was the main caused. If Bangladesh Bank give permission these bank appliers under the ruling party's pressure, who will be liable for any incidents in the banking sector? We believe that only Prime Minister who can prevent banking sector from the politicians. Probashi Kalyan Bank has already got the approval and the NRB Bank has been asked to submit its application. At a meeting with the finance minister on July 17, most members of the BB board of directors opposed giving licence to new banks. Banking sector figure in Bangladesh after liberation to 2001 Government Banks and Permission for new Banks During 1971 6 stated owned bank only Ershad rule (1982-87) 7 new banks and 2 denationalized BNP government (1992-1996) 8 new private banks AL government (1999-2001) 13 new private bank

New banks to join a saturated market

Though the number of banks in Bangladesh is more than those in its neighbouring countries, the government now considers giving permission for setting up new banks. According to Bangladesh Bank statistics, at present the number of local and foreign banks is 47, whereas the number is 21 in Sri Lanka, 39 in Pakistan and 26 in Nepal. Even Malaysia and the Philippines have only 26 banks each. However, being a big economy India has 90 banks. There are also some regional banks there. In Bangladesh, three successive governments in 1980s and 1990s allowed setting up new banks, but after 2001 no new bank was approved rather some were merged. When the BNP came to power in 2001, there was severe pressure to give approval to new banks but the central bank managed to outmaneuver the attempts. From 2001 till date, the BB received applications for 82 new banks, and of them, applications for 20 banks were submitted during the Awami League's present regime. More applications are in the pipeline, and many are still lobbying for permission. On July 12, 2005, the BB board okayed a new policy for setting up banks and branches of foreign banks. The BB also decided that no more permission will be given for setting up new banks given the country's economy and size of the money market. After the Liberation War in 1971 there were only six banks in Bangladesh and all of those were state-owned. Later, during the Ershad regime nine banks were set up in the private sector including the denationalised Pubali and Uttara banks from 1982 to 1987. During the BNP regime, eight new banks were approved from 1992 to 1996. Later, the Awami League-led government gave permission to 13 private banks during 19992001. After those no licence was given for opening new banks. After the Awami League-led grand alliance assumed power for the second time in 2009, the process of allowing two more banks was initiated, putting forward various reasons in the favour of the move. Twenty persons applied this time. Among the big shots, Awami League Presidium Member Mohiuddin Khan Alamgir has so far submitted applications twice. Also the chairman of the parliamentary standing committee on public accounts, Alamgir submitted an application in April 2009 to set up SME Bank. Md Mojibar Rahman, MA Rashid and AHM Tajul Islam were mentioned as the directors of the proposed SME Bank.

In 2010, Alamgir filed another application for a new bank, The Farmers' Bank Ltd. Md Atahar Uddin and Ebadul Karim were proposed as the directors of the bank. An application for setting up Modhumati Bank Ltd was submitted in 2010. Awami League lawmaker Sheikh Fazle Noor Taposh is one of the directors of the proposed bank. Other directors of the bank are Humayun Kabir and Sheikh Salahuddin. National Professor Kabir Chowdhury, Prof Deen Mohammad and Prof Azizur Rahman have taken initiative for setting up Self Employment Bank.

Ex-BB chief calls for more banks

Sun, Aug 7th, 2011 1:20 am BdST
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Dhaka, Aug 6 (bdnews24.com) Former Bangladesh Bank governor Muhammad Forashuddin believes that Bangladesh needs more banks to bring 'competition' in the market. "At present, on an average, one branch serves 22,000 people, whereas in India the ratio is 1:15000. So, new banks are required to open competition," he said at a view exchange meeting in the city on Saturday. The finance minister on July 24 said that the government plan to issue licences for new banks was a political decision, which the central bank has been opposing. "I expect that Bangladesh Bank would say the (financial) market is saturatedit's a political decision to allow setting up new banks," Muhith said. The finance minister, who was also present at the meeting on current economic issues, however, chose not to comment. Citing the adverse impact of no competition in the market, the ex-governor said, "Earlier, membership of the Dhaka Stock Exchange could be had for Tk 25,000, whereas now it requires Tk 1.25 billion." He also stressed on making the Trading Corporation of Bangladesh (TCB) more active to control the prices of commodities. Commerce minister Faruk Khan claimed that TCB had been strengthened. "During the past government, it had been rendered inactive." Muhith on the recent stocks fall said that those who expect a rise in the capital market everyday are nothing but insane. He said that the revamped market regulator Securities and Exchange Commission was taking

several new steps for the stability of capital market and that he was happy with its work.

Bangladesh central bank under political pressure

By Rejaul Karim Byron Bangladesh Bank has been under pressure from politicians to give approval for at least 15 new banks, finance ministry officials say. Some ministers, Awami League lawmakers and business groups close to the ruling alliance are lobbying government high-ups for permission to set up new banks. Currently, 47 banks -local and foreign - are operating in the country. From 2001 till date, the central bank has received 82 applications, but none of them meets the requirements for obtaining licence, said a BB official. If it finds that allowing new banks is viable, BB will invite fresh applications through an advertisement, the official said. The number of new banks, however, will not cross three, added the official. Speaking in the budget session in June, Finance Minister AMA Muhith said some new banks would be given licence and BB would soon invite applications for that. He had earlier said that only two banks--Probashi Kalyan Bank and the NRB (Non-Resident Bangladeshis) Bank--would get approval. Probashi Kalyan Bank has already got the approval and the NRB Bank has been asked to submit its application. At a meeting with the finance minister on July 17, most members of the BB board of directors opposed giving licence to new banks. After the meeting, Muhith said the central bank would conduct a study to find whether new banks can be approved in the prevailing situation. The findings will be placed in the BB board meeting next month. BB will send the study report to the government with the board's opinion. The minister at a meeting with the Economic Reporters' Forum the same day said political decisions will be taken about allowing new banks on receipt of the central bank's report. Asked whether the new ones will be allowed to operate at the behest of political leaders, he said, "May be. I don't know."

Twenty people have applied for banking licence since the AL-led grand alliance came to power in January 2009. Among the big shots, AL Presidium Member Mohiuddin Khan Alamgir has so far submitted applications twice. Also chairman of the parliamentary standing committee on public accounts, he submitted an application in April 2009 to set up SME Bank. In 2010, he filed another application for a new bank, The Farmers' Bank Ltd. An application for setting up Modhumati Bank Ltd was submitted in 2010. AL lawmaker Sheikh Fazle Noor Taposh is one of the directors of the proposed bank. National Professor Kabir Chowdhury, Prof Deen Mohammad and Prof Azizur Rahman have taken initiative for setting up Self Employment Bank. After the Liberation War in 1971, there were only six banks and all of those were state-owned. During the Ershad rule, nine banks were set up in the private sector including the denationalised Pubali and Uttara banks from 1982 to 1987. The BNP government gave permission to eight new banks from 1992 to 1996. In 1999-2001, the AL government allowed 13 new private banks. After that, no licence was given for opening new banks.

Central bank under political pressure

July 30, 2011 Intense lobbying for approval to 15 new banks Bangladesh Bank has been under pressure from politicians to give approval for at least 15 new banks, finance ministry officials say. Some ministers, Awami League lawmakers and business groups close to the ruling alliance are lobbying government high-ups for permission to set up new banks. Currently, 47 bankslocal and foreignare operating in the country. From 2001 till date, the central bank has received 82 applications, but none of them meets the requirements for obtaining licence, said a BB official. If it finds that allowing new banks is viable, BB will invite fresh applications through an advertisement, the official said. The number of new banks, however, will not cross three, added the official. Speaking in the budget session in June, Finance Minister AMA Muhith said some new banks would be given licence and BB would soon invite applications for that. He had earlier said that only two banksProbashi Kalyan Bank and the NRB (Non-Resident Bangladeshis) Bankwould get approval. Probashi Kalyan Bank has already got the approval and the NRB Bank has been asked to submit its application. At a meeting with the finance minister on July 17, most members of the BB board of directors

opposed giving licence to new banks. After the meeting, Muhith said the central bank would conduct a study to find whether new banks can be approved in the prevailing situation. The findings will be placed in the BB board meeting next month. BB will send the study report to the government with the boards opinion. The minister at a meeting with the Economic Reporters Forum the same day said political decisions will be taken about allowing new banks on receipt of the central banks report. Asked whether the new ones will be allowed to operate at the behest of political leaders, he said, May be. I dont know. Twenty people have applied for banking licence since the AL-led grand alliance came to power in January 2009. Among the big shots, AL Presidium Member Mohiuddin Khan Alamgir has so far submitted applications twice. Also chairman of the parliamentary standing committee on public accounts, he submitted an application in April 2009 to set up SME Bank. In 2010, he filed another application for a new bank, The Farmers Bank Ltd. An application for setting up Modhumati Bank Ltd was submitted in 2010. AL lawmaker Sheikh Fazle Noor Taposh is one of the directors of the proposed bank. National Professor Kabir Chowdhury, Prof Deen Mohammad and Prof Azizur Rahman have taken initiative for setting up Self Employment Bank. After the Liberation War in 1971, there were only six banks and all of those were state-owned. During the Ershad rule, nine banks were set up in the private sector including the denationalised Pubali and Uttara banks from 1982 to 1987. The BNP government gave permission to eight new banks from 1992 to 1996. In 1999-2001, the AL government allowed 13 new private banks. After that, no licence was given for opening new banks.

Political decision behind new pvt banks: Muhith

FE Report The finance minister Sunday said the government has planned a raft of austerity measures to cut bloating public expenditure in an effort to absorb external shock, but it won't back away from its decision to allow new private banks. AMA Muhith said issuing licenses for new banks is a "political decision" of the government, brushing off concerns of the Bangladesh Bank that the move is unnecessary as the banking sector is already "over-saturated". "It is our political decision to issue licenses for new banks in the country despite reservation made by the BB," Muhith told economic reporters in Dhaka during a post-budget talk on challenges of the new fiscal year. "The BB has told us that the banking sector is already oversaturated as far as issuing licenses for new banks is concerned after the Ministry of Finance sought the central bank's opinion," the finance minister said.

Asked whether the decision aimed at favoring political leaders, the minister said "it might be". He said it could be the last time the government was influencing the BB for issuance of new bank licenses. He, however, justified the government's move, saying entry of new banks won't over-crowd the market and the economy was now in better shape and is "growing fantastically" to make room for new financial institutions. "The existing banks are not adequate for our population," he said, and added that new banks would bring in better competition in the financial sector. The Finance Minister emphasised increased supervision in the banking system, and suggested that the BB should separate its Supervision and Inspection Division and Monetary and Management Division for better results. In his budget speech in June, Muhith spelled out the government's decision to invite applications from entrepreneurs to set up new banks and life insurance companies in the country. At present, 47 commercial banks and 18 life insurance companies operate in the country. Experts have said the move would impose extra burden on the central bank without bringing any meaningful benefit to the banking sector. On challenges of the budget for the 2011-12 fiscal year, the finance minister said the government has planned to unveil a set of austerity measures in an effort to cut bloating public expenditure and trim down heavy bank borrowing. The planned austerity measures include restricting foreign tours of government officials, limiting pompous decoration of public offices and reducing the allocation for entertainment, the minister elaborated. "We are planning spending cut of official travels, entertainment and decoration of government offices to build up good savings so as to meet future need and give the economy an additional shock-absorber," Muhith said. He said the country's balance of payment (BoP) has faced severe strains in recent months due to spike in import cost and "some mistakes" in determining the exchange rate against dollar. Lower-than-expected disbursement of foreign aid in recent period has also piled up extra pressures on the BoP, the minister said, adding "The pressure is now lessening." He said inflation remains a key area of concern although the economy has been growing at a steady pace as the government had implemented measures to boost domestic demand over the past two years. "The recent high trend in inflation, driven by external causes, prompted us to think about

observing austerity in some areas to ensure better use of our resources," Muhith said. Citing the soaring prices as a "matter of concern", Muhith said sometimes the consumers should avoid buying essential items to help calm the market. He said food prices are still lower in this country compared to the global market; and the government has scaled up OMS (open market sale) and VGF (vulnerable group feeding) programmes to cushion poor from soaring prices. The minister, however, blamed "unholy alliances" in the market for creating artificial crisis and price spike of essential food items ahead of the Ramadan. He said after independence inflation was high in 1972 and 1973, before a drastic slide into deflation of minus six per cent during 1974 and 1975. The current inflationary trend is higher, having already crossed 8.5 percent, he added. According to the Bangladesh Bureau of Statistics, the overall inflation rate rose to 8.80 percent in fiscal 2010-11 from 7.31 percent a year ago, while food inflation soared to 11.34 percent from 8.53 percent. The minister said the Securities and Exchange Commission (SEC) is working on to streamline the capital market regulation, updating book building method and amending some securities laws to ensure stability on the stock market. Muhith, however, termed December-January's stock crash as a "so-called collapse in share market" and said it was nothing but major price correction. Coming down heavily on chief executives of state-owned enterprises, the minister said they should rise above their "usual character" and have to offload the SOEs' stakes in "the stipulated time" or face severe consequences. Muhith is upbeat about attaining the revenue target of the budget and said the target could be revised upward as the trend of tax income in the new fiscal year is encouraging. "We are optimistic of achieving our revenue goal. So, there is no cause to worry on this particular issue," Muhith said. The minister stressed accuracy in census reports, saying that the country might face problem in preparing and implementing the budget if "correct picture of population" is not revealed by the latest enumeration. He said that the difference between the enumerated figure and the final figure in the two previous censuses was between four and five per cent. "I guess, the total population of the country will be around at 165 million in the final estimate which is being conducted by Bangladesh Institute of Development Studies," the finance minister

said. He blasted the past four-part alliance government for deliberately crippling the capacity of the state-run Bangladesh Bureau of Statistics (BBS), which now lacks required manpower and expertise to carry out its jobs perfectly. On the planned transit to India, Muhith said the government would sign agreements on 'a couple of protocol routes' during the visit of Indian premier Manmohan Singh to Dhaka in September. Responding to a question, the minister said the routes to be included in the transit agreement between Bangladesh and India could be as much as 15, but not all would be used by the Indians right now. "A number of certain routes could be opened for transit purposes soon after an agreement is signed between the two nations," Muhith said. The minister said the paid-up capital of non-banking financial institutions (leasing companies), which has been increased to Tk 1.0 billion and those of insurance companies are less than the standard amount to meet international criteria. He said it would be possible to achieve 14 per cent export growth target in the current fiscal following the 42 per cent increase last year. The exchange rate with the dollar will be between Tk 74-75, he added. He observed that some regulating agencies in the country, including in the insurance sector, should be more strengthened. On a separate pay-scale for the Bangladesh Bank, he said a decision is yet to be taken. On the political situation, he said the economy could suffer due to frequent hartals. Top officials of finance ministry and the National Board of Revenue were present at the meeting. Economic Reporters Forum President Monwar Hossain presided over the meeting. Abu Kawser, ERF General Secretary, gave vote of thanks.