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NAMES Raihan Nawajesh Ayesa Siddika Nisha Aktar ID’S 2006110000230 2006110000029 2006110000003
Assistant Professor, Department of Business Administration School of Business Studies Southeast University
Date of Submission: 22nd April,
As we are the student of Southeast University of B.B.A. Program, we‘re completing a subject name ‘Central banking & monetary policy’. To make our study more practical, our honorable course teacher Minhajuddin Ahmed has given us an assignment on “Functions of Bangladesh Bank”. It will help us to increase our knowledge about understanding the central banking functions of Bangladesh Bank. According to this we have done our assignment on the Topic
name. So we’re very grateful to him to give us such an assignment.
22/04/08 Minhajuddin Ahmed Assistant Professor School of Business Department of Business Administration Southeast University, Banani, Dhaka. Subject: Submission of Assignment on Central Banking & Monetary Policy. Dear Sir, Here is an assignment on “Functions of Bangladesh Bank”. This assignment was assigned to us as a partial fulfillment of Central banking & monetary policy. This study report concentrates on the over all information, functions, rules, activities of Bangladesh bank. We are tried to gather a collection of information to make our report specific. Through the procedure of preparing the report we developed a clear understanding of the fact which is related with Bangladesh Bank both for personal and entrepreneur and organizations. We are tried our best to make this assignment as reflective as possible. We appreciate to provide any information or clarification if necessary. Thank you for consideration. Yours sincerely,
Name of group members: 2006110000230 Eptekhar Ejaj 2006110000008 Jannatul Ferdous 2006110000267 ID’s: Raihan Nawajesh
Table of Contents
In Brief Bangladesh Bank Exchange rates Monetary policy Bangladesh Bank Investments Loan classification & provisioning Social development in BB Profile Of Grameen phone Brief History Of Forming Grameen phone Management
4) 5) 6) 7) 8) 9)
Benefits Provided For Grameen phone Employees
Bangladesh Bank, the central bank of the country, was established as a body corporate vide the Bangladesh Bank Order, 1972 (P.O. No. 127 of 1972) with effect from 16th December, 1971. The powers and functions of Bangladesh Bank are governed by various laws and acts including the Banker's Books Evidence Act 1891, Insolvency Act 1920, Banking Companies Ordinance 1962, Foreign Exchange (Regulation) Act 1986, Money Loan Court Act 1990, Banking Companies Act 1991, Financial Institutions Act 1993 and Rules 1994, Companies Act 1994 and Bankruptcy Act 1997. Bangladesh Bank performed all the traditional central banking functions including the sole responsibilities of issuing currency, keeping the reserves, formulating and managing the monetary policy and regulating the credit system of Bangladesh and maintaining a high level of production, employment and real income in the country and managing the country’s foreign exchange and the gold reserve. The bank acts as the banker to the government and accepts government deposits, cheques and drafts, and undertakes collection of cheques and drafts drawn on other banks. It acts as the public debt manager and runs a public debt office (PDO) within itself. The bank also sells government treasury bills (T-Bill) on tender, prize bonds and different types of saving certificates. The bank acts as the clearing house of the scheduled banks. In addition to bank rate and open market operations, it uses a number of other weapons. It can vary the minimum reserve requirements of
scheduled banks whenever circumstance so warrant. Being responsible for maintaining external value of Bangladesh currency, the bank also handles the exchange control. The paid up capital of Bangladesh Bank is Tk 30 million divided into 300,000 shares of Tk 100 each that are fully paid up by the government. A nine-member board of directors comprising the governor as chairman, one deputy governor and seven members oversees the affairs of the bank. The governor and the deputy governors of the Bank are appointed by the government for a period not exceeding five years and are eligible for reappointment.
The general superintendence and direction of affairs and business of the Bank are entrusted to a nine member Board of Directors which consists of the Governor as chairman, a Deputy Governor, three senior government officials and four persons having experience and proven capacity in the fields of banking, trade, commerce, industry or agriculture - all nominated by the government. The board, which is the highest policy making body, meets at least six times a year and at least once every quarter under the chairmanship of the Governor. The Governor, appointed by the government as the chief executive officer, directs and controls all the affairs of the Bank on behalf of the Board. The broad objectives of the Bank are: a) To regulate the issue of the currency and the keeping of reserves; b) To manage the monetary and credit system of Bangladesh with a view to stabilizing domestic monetary value; c) To preserve the par value of the Bangladesh Taka; d) To promote and maintain a high level of production, employment and real income in Bangladesh; and to foster growth and development of the country's productive resources for the national interest.
Head Office & Departments:
Accounts & Budgeting Department Agricultural Credit and Special Programs Department
Anti-Money Laundering Department Bangladesh Bank Training Academy Banking Regulation and Policy Department Central Bank Strengthening Project Cell Common Services Department Credit Information Bureau Department of Banking Inspection 1 Department of Banking Inspection 2 Department of Currency Management and Payment System Department of Financial Institutions and Markets Department of Off-site Supervision Department of Public Relations and Publications Department of Research Equity and Entrepreneurship Fund Unit Expenditure Management Department Foreign Exchange Investment Department Foreign Exchange Policy Department Forex Reserve & Treasury Management Department Governor's Secretariat Human Resources Department Information Systems Development Department Internal Audit Department IT Operation & Communication Department Law Department Monetary Policy Department Secretary's Department Security Management Department Special Studies Cell Statistics Department
Barishal Office Bogra Office Chittagong Office Khulna Office Motijheel Office Rajshahi Office Rangpur Office Sadarghat Office Sylhet Office
The exchange rates of Taka for inter-bank and customer transactions are set by the dealer banks themselves, based on demand-supply interaction. The Bangladesh Bank is not present in the market on a day-to-day basis and undertake purchase or sale transactions with the dealer banks only as needed to maintain orderly market conditions. The exchange rates are used as reference rates to purchase or sale transactions for Bangladesh Bank with Government or different International Organization. But USD/BDT buying and selling rates represent previous day inter bank market's highest and lowest exchange rates.
Recent Reference Exchange Rates:
Currency Buying Selling 21st November, 2007 A. USD/BDT Rates (based on interbank transaction) USD 68.60 68.61 B. Cross Rate JPY 0.62 0.62 GBP 141.71 141.77 EUR 101.67 101.71 CAD 70.01 70.06 AUD 61.07 61.10
Background: The fourth issue of the half-yearly Monetary Policy Statement (MPS) presents the monetary stance that the Bangladesh Bank (BB) is going to pursue in the first half of FY08 taking into account the performance of real sector and external sector and also the monetary developments in the recent past. Objectives, targets and instruments: As usual, monetary policy pursued by BB aims at supporting the highest sustainable output growth while maintaining price stability, adjusting smoothly to the internal and external shocks faced by the economy from time to time. Monetary policy is accordingly designed around a projected real GDP growth rate, a moderate level of CPI inflation attainable/sustainable without unduly depressing output. Reverse repo and repo interest rates and BB bill rates are the routinely employed policy instruments for influencing financial and real sector prices towards the targeted path for inflation. Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) for banks are less frequently used instruments that directly influence available volumes of credit. Annual monetary programs based on the projected real GDP growth and targeted inflation rate employ Reserve Money (RM) and Broad Money (M2) as intermediate targets, while also tracking other asset and liability side sub-aggregates. Growth outcome and outlook: Projection for real GDP growth for FY07 has been revised down to 6.5 percent following setbacks in the agriculture sector that experienced a moderate growth mainly due to inadequate rainfall, distribution problems relating to fertilizer, and shortages of power for irrigation. Growth in the industry sector continues to be strong in FY07 reflecting steady growth in export-oriented manufacturing and increased domestic demand. Industry and service sectors are expected to continue the robust performance in FY08. Following some government
measures, growth in agriculture is expected to be higher than the previous year. Overall, real GDP growth is projected to be 7.0 percent in FY08. Inflation outcome and outlook: Annual average inflation in Bangladesh went down to 6.72 percent (below the target range 6.85– 6.95 percent for FY07) in January ′07 from 7.16 percent in June ′06.Thereafter, annual average inflation rate showed an uptrend owing to rises in prices of fuel, metal, food grain and other essentials in the international market coupled with supply problems in the domestic front and reached 7.06 percent in May ′07. The government has taken some immediate measures to cope with the situation and is expecting to succeed in limiting annual average inflation to hover around 7.0 percent in June ′07. Despite continued unfavorable price development in the international front, the corrective measures taken by the government to handle the supply side rigidities and by BB to manage the demand side, the pressure on consumer price is expected to go down in the coming months provided there is no sharp and continued rise in the oil price. In this backdrop, BB’s monetary policy will target an annual average CPI within a range of 6.5–7.0 percent for FY08. Policy stance for FY08: The cautious, restrained monetary policy stance followed by BB in the last 18 months would be continued during the first half (H1) of FY08 along with the supply-side measures taken by the government. Despite cautious monetary policy pursued by BB, the actual growth of several monetary aggregates exceeded the program levels. It may be necessary to review BB policy rates. BB may review SLR/CRR of banks including Islamic ones which have remained unchanged since 2005, in view of the unfolding price developments. As before, the private sector will receive necessary policy attention to ensure desired level of economic growth.
1. Introduction: Following a strong growth of 5.4 percent in 2006, global output growth is projected to be 4.9 percent in 2007 (WEO, April ′07, IMF); while developing world would grow by 7.0 percent. Economic growth in Bangladesh has also got its momentum like its neighboring countries. Bangladesh experienced a real GDP growth of 6.63 percent in FY 06. The growth projection for current fiscal year is 6.5 percent. The policy strategy recently initiated and the reform programs undertaken by the government would not only help the economy to grow by 7.0 percent
in FY08 but also pave the way for Bangladesh to become a member of the “middle income group country” by the end of the next decade.
2. Macroeconomic development: outcome and outlook 2.1 Growth: During the last three years real GDP grew on an average at above 6.0 percent up to FY 06. The growth momentum though expected to continue in FY07, the revised estimate of GDP growth rate has been revised lower to 6.5 percent from the projected range of 6.5– 6.8 percent largely reflecting setback in agriculture that faced supply failure of fertilizers, shortages of power for irrigation and inadequate rainfall. Production of aus and aman crops were 1.51 million and 10.80 million tons in FY07 against 1.75 million and 10.80 million tons respectively in FY 06. Output of Boro, the largest crop in the year, is estimated at 14.50 million tons compared to 14.00 million tons in FY 06. Production of maize has increased as farmers have largely substituted maize for wheat. The latest estimate of overall food grain production is about 27.54 million tons, slightly above than that of the last year and less than the target 32.27 million tons for FY07.Growth in the industry sector continues to be robust in FY07 owing to steady growth in exportoriented manufacturing and increased domestic demand. Looking at the growth trend of quantum index of manufacturing industries, it is expected that the growth in the industry sector would be within 10.010.5 percent. The buoyancy of growth in industry is supporting corresponding growth in the service sector. The accelerated pace of growth in the transport and communications sector would likely offset the apparent slow down in the construction and real estate sector. Overall GDP growth, according to forecast for FY08, is expected to regain its momentum mainly representing the conducive economic and political environment created by the present government. Growth in the agriculture sector in FY08 is thus likely to be higher than that in FY07 aided by the projected higher disbursement of agricultural loans and supportive measures cited above. The industry sector is expected to continue to show robust performance in FY08 mainly due to steady
growth in export-oriented manufacturing and new capacity addition especially in the telecommunications and the energy sectors. Increase in import of industrial raw materials (12.2 percent) and capital machinery (16.6 percent) during July 06–May ′07 indicate that industry sector growth will sustain. The service sector is likewise expected to experience buoyant growth in FY08. Overall, real GDP growth in FY08 is projected to be 7.0 percent in line with the projection in the Medium Term Macroeconomic Framework (MTMF).
2.2 Inflation: FY07 commenced with an average inflation rate of 7.16 percent but eased to 6.72 percent by the end of January, ′07 reflecting both seasonality and restrictive monetary policy that was pursued. Inflation projection for FY07 was lowered from 7.0 percent to a range of 6.85-6.95 percent in the Monetary Policy Statement announced in January 2007. In the international front, prices of fuel, metals, food grains and other essential commodities soared, while in the internal front, selective depreciation in the exchange rate, revision of fuel prices, production shortfall of food items and political unrest, some of which have already been subdued, put pressure on the prices. Inflation rate, on an average basis, went up to 7.06 percent in May ′07 (8.05 percent on point-to-point basis).Inflationary pressure was mainly felt on the food component, which went up to 8.02 percent at the end of May ′07 from 7.56 percent at the end of January ′07 while non-food inflation rose slightly to 5.67 percent at the end of May ′07 from 5.53 percent at the end of January ′07.Apart from steps to monitor supply in domestic markets, the government has taken price stabilization measures to ease the pressure which include withdrawal of duties, importation of food grain by the government, strengthening of internal procurement, provision for subsidy on fertilizers and diesel and widening of the Social Safety Net program. Besides, banks are now providing credit facilities on softer terms to new importers, easing the LC margin for food items, extending time limit for customer facility and arranging higher agricultural credit. Since global commodity prices are not projected to fall in 2008 (WEO, IMF, April 2007) these measures may only slightly lessen the pressure on consumer prices. Hence monetary stance of the Bangladesh Bank over the coming quarters will continue to target the containment of annual average inflation within a range of 6.5–7.0 percent for FY08.
2.3 External sector: Exports and imports grew by 18.50 percent and 17.83 percent respectively, year on year basis in first ten months of FY07. Growth in worker’s remittances were also steady at 24.52 percent up to June ′07. Surplus in the current account balance emanating mostly from robust growth in exports and workers remittances in spite of higher growth in imports helped releasing pressure in foreign exchange market that prevailed in the last part of H1 FY07.With the marked increase in supply of foreign currency the foreign exchange reserves continued to build up to reach an all time high of 5.1 billion US dollar. Mirroring floating exchange rate management, the exchange rate of taka against US dollar, amidst fluctuations, appreciated by 1.26 percent to Tk. 68.80 at the end June ′07 from Tk. 69.67 at the end June 06. Some downside risks in the global perspective in FY08 remains the main concern affecting external sector outlook. Besides, it has been apprehended that export sector of Bangladesh may bear some pressure with the end of restrictions on Chinese apparels by the end of 2007. However, increased flow of remittances, probable higher FDI flow, reasonable export growth and normal import trend are expected to persist in FY08. Bangladesh Bank will continue to use its monetary policy tools, if necessary, to sterilize liquidity to emanate from expected higher foreign currency inflows. 2.4 Fiscal Sector: The overall deficit in the revised budget of the government for FY07 remained the same as in the original estimate and amounted to Tk. 173.64 billion or 3.7 percent of GDP, funded by Tk. 73.33 billion in foreign loans and grants and Tk. 100.31 in domestic borrowings including bank borrowing of Tk. 65.31 billion. Actual outturn in bank borrowing is less at Tk. 59.8 billion as on 30 June ′07. The budget for FY08 projects an overall deficit of Tk. 223.13 billion or 4.2 percent of GDP, to be funded by Tk. 42.55 billion in foreign grants, Tk. 63.05 billion in foreign loans and Tk.117.53 billion in domestic borrowing including bank borrowing of Tk. 72.53 billion. BPC’s accumulated loss of Tk. 75.23 billion is included in the budget. As indicated in the budget this will not create immediate additional fiscal liabilities as it will be financed by a “Non-Cash Bond” issue.From the beginning of FY07, a modified arrangement of Government’s bank borrowings was put in place under the supervision of a Cash and Debt Management Committee (CDMC) chaired by Secretary, Finance Division. The new arrangement included a widened Ways and Means Advance Limit (Tk. 10.00 billion instead of Tk. 0.65 billion) and auction
of treasury bills and bonds according to volumes pre-announced in the borrowing calendar. This new arrangement segregated BB’s role in government debt management from its monetary policy operations but there is no inbuilt mechanism to limit government bank borrowings within the ceiling of budgetary provisions. Until now, following the changed treasury rules BB holds treasury bills and bonds at cut off rate if market supply of fund falls short of Government’s demand set by CDMC (which is known as devolvement). From the 4th quarter FY07, BB was allowed to offload the devolved amount to the banks and financial institutions at the cut off rate of last auction for the remaining period. Recently the CDMC has agreed in principle that from the beginning of FY08 the devolvement system will be replaced by a system where the extra amount will be devolved on the primary dealers on the basis of underwriting. This new system will enthuse the primary dealers to create a secondary market for government securities. The new system will make it easier for BB to improve its monetary management. 3. Monetary Policy Stance 3.1 Recent Monetary Developments: Bangladesh Bank has been continuing to pursue a cautious, restrained monetary stance since H2 FY05 with a view to curbing excess demand from inflationary expectations. An upward bias in policy interest rates (Table 3.1) and reintroduction of BB bills in October 2006 helped in limiting inflation around the targeted seven percent despite international price pressure. In spite of cautious monetary policy, M2 year-on-year growth (18.2 percent) at the end of May ′07 exceeded the end-June target (14.7 percent), growth rate of private sector credit that mirrors a part of the aggregate demand grew at 15.6 percent which was lower than previous year’s growth rate of 17.1 percent. Net foreign assets of banking sector has been continuing to grow at a rate leading to the build up of foreign exchange reserves that reached $ 5.1 billion by the end of June ′07. From Table 3.1 it appears that the gap between short term rates (of T-Bills) and those of 5/10 years BGTB is significant. In order to dampen inflationary expectation, it may be prudent to reduce the gap. This may be done by changing short-term interest rates and developing secondary market of government securities leading to lowering of yield on long
term bonds. However, in adjusting short term rates one has to be careful in view of the fact that due to present situation of excess liquidity with the banks, BB may be able to withdraw money growth through reverse repo offering relatively higher rate of interest. BB has been continuing to follow the cautious monetary stance with a view to ensuring that the existing inflation is not further fuelled by increased aggregate demand. However, BB is committed to ensuring flow of credit in the productive sectors like agriculture, small scale industries, low cost housing etc., where market has failed to deliver. BB has already taken a decision to introduce a refinancing scheme for housing loans for lower and middle income groups. This step will provide impetus to the housing sector which provides employment to a large number of people. In order to boost credit in the agricultural sector, BB requested the commercial banks (which hitherto did not provide much agricultural credit) to come forward, and in response to that these banks have assured to provide more than Tk. 1,000crore as agricultural credit during next 12 months. After strengthening the regulatory framework, improving the bank supervision process, and completing procedure for selling Rupali Bank, BB is now focused on corporatizing and restructuring the nationalized commercial banks (NCBs). The process of corporatization of three NCBs – Sonali, Janata and Agrani – has started. Meantime, these banks have been turned into public limited companies. NCB reforms will increase efficiency of financial system which in turn will enhance its resilience contributing to firm up the monetary stability. 3.2 Monetary Stance for FY08: Keeping in view the prevailing price situation and enhanced excess liquidity emanating from moderating private sector credit demand and increase in net foreign assets, BB’s monetary stance will continue to be cautious in FY08. Despite persuasion of a cautious policy, growth in both money supply (estimated) and reserve money has exceeded the program levels at the end of June 2007. In this backdrop, further review of policy interest rates may be necessary. Since the bond/bill market is not yet developed to reduce the inflationary expectation in the longer term, interest rate of the instruments of the shorter tenor may have to be revisited relative to that of longer term.SLR/CRR of banks including Islamic ones have remained unchanged since 2005. In view of the unfolding price developments BB may review these rates. Above all, coordination among monetary, fiscal and trade policies is required to
help curb rising inflationary pressure and achieving 7.0 percent economic growth in FY08. As before, the private sector will receive necessary policy attention to ensure desired level of economic growth.Apart from monetary policy stance, BB is of the opinion that the following issues to be kept in perspective for overall economic development of the country: (a) fiscal discipline should be adhered to by the government as strictly as possible, (b) the spread between rate of interest on deposits and that on lending charged by the banks should be reduced to help private sector enterprises, (c) heterodox policies to improve production and marketing of agricultural products should be considered by the government, (d) introduction of international prudential norms for banks and financial institutions to be calibrated for consistency with the objective of greater financial inclusion.
Bangladesh Bank Investments:
Introduction On March 24, 1994 the Bangladesh Taka was declared convertible for current account transactions in terms of Article VIII of the IMF Articles of Agreement. The declaration symbolized a turning point in the country’s exchange management and exchange rate systems. The period preceding this declaration saw an intensification of reforms undertaken by Bangladesh Bank to ease controls on foreign payments and exchange rate arrangements. These reforms and the subsequent further changes have been summarized in the following paragraphs. The relevant FE Circulars/Notifications contain the details. 2. Investment 2. Investment in Bangladesh: 1 With the exception of a few reserved sectors, foreign investors are free to make investments in Bangladesh in industrial enterprise. An industrial entity may be set up in collaboration with local investors or may even be wholly owned by the foreign investors. No permission is needed to set up such enterprises if
the entrepreneurs use their own funds. However, to avail of facilities and institutional suport provided by the government, entrepreneurs/sponsors are advised to apply for registration with the Board of Investment (BOI). For items in the control list, the office of the Chief Controller of Imports & Exports (CCI & E) prescribes the basis and conditions of import entitlement. Shares may be issued in favour of foreign investors against capital machinery brought into Bangladesh. For issuance of shares against foreign investment in the form of capital machinery, the exchange control copy of bill of entry evidencing clearance of the capital machinery from the Custom Authorities, copies of the relative import permit, invoice and bill of lading are required. 2. Investment in shares/securities by non-residents: 2 a) Non-residents are free to invest in shares / securities quoted in the stock exchanges, with foreign exchange sent or brought into Bangladesh. b) They may also invest in new, yet-to-be-listed public issues of Bangladeshi shares/securities. In such cases investors are not required to transact through any registered broker/member of stock exchange. 5% shares of Initial Public Offering (IPO) of a company is reserved for Non-Resident Bangladeshi (NRB). Non-Resident Bangladeshi (NRB) can purchase/subscribe securities in foreign currency through "Foreign Currency Account for IPO" opened for the purpose only by the issuing company. Over subscription can be repatriated after completion of formalities. c) Permission of Bangladesh Bank is not required for issue and transfer of shares in favor of non-residents against their investments in joint ventures in Bangladesh. d) Non-resident share holders can freely transfer their shares to other non-residents. 2. Remittance of profits: 3 Branches of foreign firms/companies including foreign banks, insurance companies and financial institutions are free to remit their post-tax profits to their head offices through banks authorized to deal in foreign exchange (Authorized Dealers) without prior approval of Bangladesh Bank.
2. Remittance of dividend/capital gain: 4 Prior permission of Bangladesh Bank is not required for : - remittance of dividend income to non-residents in respect to their investments in Bangladesh; remittance of dividend declared out of previous year’s accumulated reserves; and - dividend and sale proceeds (including capital gains) of shares of companies listed in a Stock Exchange in Bangladesh. Such remittance may be effected prior to actual payment of taxes provided that the amount payable to the tax authorities at the applicable tax rate is withheld by the company. Remittance of sale proceeds of shares of companies not listed in Stock Exchange requires prior Bangladesh Bank permission, which is accorded for amounts not exceeding the net asset values of the shares. 2. Remittance of salaries and savings by expatriates: 5 Expatriates working in Bangladesh with the approval of the Government may remit through an Authorized Dealer (AD) 50% of salary and 100% of leave salary as also actual savings and admissible pension benefits. No prior Bangladesh Bank approval is necessary for such remittances. 2. Remittance of royalty/technical fees: 6 Industrial enterprises may enter into agreements for payment of royalties, technical know-how/technical assistance fees abroad without prior permission if the total fees and other expenses connected with technology transfer do not exceed (a) 6% of the previous year’s sales of the enterprises as declared in their tax returns, or (b) 6% of the cost of imported machinery in the case of new projects. These agreements, however, need to be registered with the Board of Investment (BOI). Agreements not in conformity with these general guidelines require prior permission of the BOI. ADs may remit the royalties, technical knowhow/technical assistance fees payable as per agreements registered with/approved by BOI, without prior approval of Bangladesh Bank. 2. Remittance on account of training and consultancy: 7 Industrial enterprises producing for the local market may remit through ADs up to 1% of their sales as declared in their previous year's tax returns for the purpose of training and consultancy
services without prior approval of Bangladesh Bank. Remittance by shipping lines, airlines, courier service 2. companies: 8 Foreign shipping lines, airlines and courier service companies may send abroad, through an AD, funds collected in Bangladesh towards freight and passage, after adjustment of local costs and taxes, if any. 3. FOREIGN AND LOCAL BORROWINGS 3. Foreign loans: 1 Industrial enterprises in Bangladesh (local, foreign or joint venture) may borrow abroad with prior Board of Investment (BOI) approval. Remittances towards payment of interest and repayment of principal as per terms of BOI approved borrowing may be made through ADs without prior Bangladesh Bank approval. 3. Local borrowings : 2 Banks in Bangladesh may extend working capital loans or term loans in local currency to foreign-controlled or foreign-owned firms/companies (manufacturing or non-manufacturing) operating in Bangladesh on the basis of normal banker-customer relationship, without reference to Bangladesh Bank Banks in Bangladesh are free to grant local currency loans to joint venture industries in EPZ up to the amount of short term foreign currency loans obtained from abroad. CONVERTIBILITY ON TRADE ACCOUNT Bangladesh Taka is fully convertible for settlements of trade related transactions. Import licence is not required for import of items not in the control list. An importer has automatic access to foreign exchange for import of all items outside the control list, and also for import of control list items as per general or specific authorization of the office of the Chief Controller of Imports and Exports. 5. EXCHANGE FACILITIES FOR EXPORTERS
5. New Exporters: Annual foreign exchange quota for business 1 travel abroad for new exporters has been set at US $ 6000. Bonafide requirement beyond US $ 6000 is accommodated by Bangladesh Bank upon written request submitted with supporting documentation. 5. Retention Quota for merchandise exporters:Merchandise 2 exporters may retain up to 50% of realised FOB value of their exports in foreign currency accounts in US$, Euro, Japanese Yen. For export items with high import contents (such as naptha, furnace oil, bitumen, readymade garments etc.), the retention quota is 10%. The computer software and data entry/processing service exporters may also retain up to 50% of realised export proceeds in foreign currency accounts. Funds from these accounts may be used to meet bonafide business expenses, such as business visits abroad, participation in export fairs and seminars, import of raw materials, machineries and spares etc. Funds from these accounts may also be used to set up offices abroad without prior permission of Bangladesh Bank. Exporters may, at their option, retain the foreign currency in interest bearing renewable term deposit accounts in Bangladesh with a minimum amount of USD 2,000 or Pound Sterling 1,500 equivalent. 5. Retention quota for service exporters : Service exporters 3 may retain 5% of their repatriated income in foreign currency accounts. Funds may be drawn from these accounts to meet expenses for bonafide business expenses abroad. This quota may also be kept in interest bearing renewable term deposit accounts. However, foreign exchange earnings on account of indenting commission or agency commission for export from Bangladesh may not be credited to such accounts since these incomes originate from Bangladesh sources. 6. DECLARATION OF FOREIGN EXCHANGE ON FORM ‘FMJ’ Incoming passengers may bring in amount of foreign exchange with declaration on form FMJ at the time of arrival. No declaration is necessary for amounts up to US$ 3,000. For non-residents, the entire amount brought in with declaration, or up to US$ 3,000 brought in without declaration may be freely taken out at the at the time of departure. Up to US$ 3,000 brought in without declaration may also be retained and taken out freely by a person ordinarily resident in Bangladesh. 7. FOREIGN CURRENCY ACCOUNTS
NFCD Accounts: Non-resident Foreign Currency Deposit (NFCD) accounts may now be maintained as long as the account holders 7. desire. Amounts brought in by non-resident Bangladeshis can be 1 deposited in foreign currency account any time after return to Bangladesh F.C Accounts of non-resident Bangladeshis: Foreign currency accounts opened in Bangladesh in the names of Bangladesh 7. nationals or persons of Bangladesh origin working or self 2 employed abroad can now be maintained as long as the account holders' desire. 7. Accounts: Persons ordinarily resident in Bangladesh may 3 maintain foreign currency accounts with foreign exchange brought in at the time of their return to Bangladesh from visits abroad. These accounts are termed as Resident Foreign Currency Deposit (RFCD) accounts.The amount brought in with declaration to customs authorities on form FMJ and up to US $ 5000 brought in without declaration may be credited to this account. However, proceeds of export of goods or services from Bangladesh and commission earnings arising from business deals in Bangladesh cannot be credited to such accounts. Balances of such accounts are freely remittable abroad. Balances of RFCD accounts may also be used by the accounts holders for their travel abroad in the usual manner. RFCD accounts may be opened in US Dollar, Euro, Pound Sterling, Deutsche Mark or Japanese Yen and may be maintained as long as the account holders desire. Interest may be paid on these deposits if these are for a term of not less than one month and the balance is not less than US $ 1000 or Pound Sterling 500 equivalent. 7. F.C Accounts of other entities: 4 ADs do not require prior permission of Bangladesh Bank for opening of foreign currency accounts of : -non-resident foreign persons/firms; -diplomatic missions in Bangladesh and their expatriates; -diplomatic bonded warehouses (duty free shops); -local and joint venture contracting firms employed to execute projects financed by foreign donors/international donor agencies; -Bangladesh nationals working in the international bodies in Bangladesh and drawing pay and allowances in foreign currency. 7. Maintaining of bank accounts abroad: Bank accounts outside 5 Bangladesh opened by Bangladesh nationals while working abroad may now be maintained even after their return to
Bangladesh. 8. VISITS ABROAD 8. Booking of Passage: No Bangladesh Bank approval is needed 1 for booking of passage for Bangladesh nationals against payment in Taka. Prepaid Ticket Advice (PTA) in favour of foreign guests invited by Government, Semi-Government, autonomous organizations or bodies affiliated with UN agencies or other internationally recognized agencies may be issued without prior approval of Bangladesh Bank. Air tickets may be issued against payment in Taka to foreigners working in Bangladesh if they draw salaries in Bangladesh Taka or if the cost of the ticket is to be borne by the employer, as per terms of the work permits approved by Bangladesh Government. 8. Private Travel: Annual travel quota entitlement of Bangladesh 2 nationals is US$ 1000 per person for visits to SAARC member countries and Myanmar (US$ 500 for overland visits), and US$ 3000 per person for visits to other countries. Bonafide requirements beyond these limits are accommodated by Bangladesh Bank on written request supported by satisfactory documentation. International credit cards may also be issued against such travel entitlements. Release of foreign exchange in excess of US$ 200, requires valid visa
8. Business travel quota for importers and manufacturers 3 producing for domestic markets: i) Subject to an annual upper limit of US $ 5000, importers are entitled to business travel quotas @ 1% of their imports settled during the previous financial year. ii) Subject to an annual upper limit of US $ 5000, non-exporting producers are entitled to business travel quotas @ 1% of their turnover of the preceding financial year as declared in their tax returns. The same business organization engaged in imports as well as production shall, however, draw business travel entitlement only on one count.
8. Education: Prior permission of Bangladesh Bank is not required 4 for releasing foreign exchange in favor/on behalf of Bangladesh students studying abroad or intending to proceed abroad for studies. Remittances may be made through Authorized Dealers (ADs) for all regular courses. 8. Seminars and workshops: ADS may release allowance not 5 exceeding US$ 200 per day for countries in the SAARC region and Myanmar and not exceeding US$ 250 per day for all other countries to private sector participants for attending seminars, conferences and workshops arranged by recognized bodies. 8. Medical treatment: ADs may release foreign exchange up to 6 US$ 10000 for medical treatment abroad on the basis of recommendation of Medical Board constituted by the Health Directorate or on the basis of the need established through recommendation of appropriate medical specialists and the cost estimate from a foreign medical institution. Bonafide requirements in excess of US$ 10000 are accommodated by Bangladesh Bank on written request along with satisfactory documentation supporting the bonafides of the expenses. 8. Taking out/bringing in of Bangladesh Taka: 7 Incoming/outgoing passengers may bring in/take out up to Taka 500 per person in Bangladesh currency. 8. Taking out/bringing in of personal jewelers: 8 Incoming/outgoing adult female passengers may take out/bring in any quantity of personal jewelers worn on their person or as part of their personal baggage.
MISCELLANEOUS REMITTANCES 9. Remittance of membership fees: ADs may remit membership 1 fees of foreign professional, scientific institutions and fees for application, registration, admission, examination (TOEFL, SAT etc.) in connection with admission into foreign educational institutions as per estimate of the concerned institution. 9. Evaluation and Visa Processing Fee: ADs may remit 2 evaluation and visa processing fee on behalf of Bangladeshis desiring immigration to foreign countries, as per demand note of
the foreign immigration authorities. 9. Visa fee: Intending travellers may send visa fees through ADs to 3 the embassies of countries that do not have consular offices in Bangladesh. Consular/visa fees collected by foreign embassies in Bangladesh Taka may be remitted abroad by the ADs without prior approval of Bangladesh Bank. 9. Family maintenance: Remittance of moderate amounts of 4 foreign exchange for maintenance abroad of family members (spouse, children, parents) of Bangladesh nationals are allowed by Bangladesh Bank, on written request supported by certificates from the Bangladesh mission in the concerned country. 1 COMMERCIAL REMITTANCES 0. Prior permission of Bangladesh Bank is not required by the Ads for: -opening back-to-back import LCs on account of manufactureexporters for their input imports as per prescribed input-output coefficients; -issue of bank guarantee/performance bond on account of the merchandise exporters of Bangladesh in favor of foreign buyers; -remittance on account of short weight, quality claim, partial shipment etc. unto 10% of realized export proceeds. -payment of discount not exceeding 10% of the invoice value at the request of the exporter where foreign importers refuse to clear goods due to discrepant documents etc., -remittance of premia on foreign currency policies taken by Bangladesh nationals while residing abroad, -remittance of premia on account of re-insurance, -remittance of “General Average” collected from consignees in Bangladesh,
-remittance of pre-shipment inspection fees, -remittance of bonafide expenses incurred by Bangladesh Biman and Bangladesh Shipping Corporation in foreign ports/stations, -remittance on account of charter hire of foreign ships, -remittance of purchase price of ships acquired by private firms/companies, -remittance of royalty/honoraria/fees to non-residents including foreign news agencies for features, articles etc. subscribed by local newspapers/magazines, -advertising of Bangladeshi commodities in mass media abroad.
1 OTHERS 2. - Funds from non-resident Taka accounts can be freely withdrawn regardless of the amounts involved. - Declaration in Form C is not required in case of remittances sent by Bangladesh nationals working abroad. However, persons other than Bangladesh nationals are required to declare in Form C if the inward remittance is US $ 2000 or above.
1 ACTIVATION OF FOREIGN EXCHANGE MARKET 3. Bangladesh Bank has taken the following steps to stimulate/activate the interbank foreign exchange market:
1) Bangladesh Bank has stopped sales and purchases with ADs of any currency other than the US Dollar, to encourage interbank cross currency transactions.
2) To encourage inter-bank deals and to dissuade frequent recourse to transactions with the central bank, Bangladesh Bank has raised its transaction threshold to US$ 50,000 with values in multiples of US$ 10,000, for its deal with ADs. The exchange rates for the Bangladesh Bank's spot purchase and sales transactions of US Dollars with ADs is decided on a case to case basis, Bangladesh Bank does not undertake any forward transaction with ADs. The ADs are free to quote their own spot and forward exchange rates for inter-bank transactions and for transactions with non-bank customers. 3)To provide greater flexibility in the foreign exchange transactions of ADs, Bangladesh Bank has abolished their foreign exchange holding limits; they are, however, required to be within the open position limits prescribed by Bangladesh Bank in respect of exposure to exchange rate fluctuation risk. 4) Bangladesh Foreign Exchange Dealers Association (BAFEDA) has been formed and a “Code of Conduct” for treasury operations and interbank foreign exchange market has been formulated. 5) ADs have been allowed to maintain with Bangladesh Bank FC Clearing Accounts in Euro, Japanese Yen, as well as US Dollar & Pound Sterling.
Loan Classification and Provisioning:
Bangladesh Bank introduced new accounting policies with respect to loan classification, provisioning and interest suspense in 1989 with a view to attaining international standards over a period of time. A Revised policy for loan classification and provisioning was introduced from 1st January,1999.The Revised policy calls for an independent assessment of each loan on the basis of qualitative factors and
objective criteria. Each loan is branded with the worst level of classification resulting from these independent assessments. If a Continuous Credit or a Demand Loan remains non-performing for 6 months or more it is classified Sub-standard. It is classified as Doubtful if it remains non-performing for 9 months and classified as Loss if nonperforming for 12 months or more. In the case of a Term Loan, which is repayable within a maximum period of 5 years, if any installment is not repaid within the specified period and if the time-equivalent of such unadjusted balance is 6 months, it is classified Sub-standard. A Term loan is classified Doubtful and Loss if the time-equivalent of unadjusted balance is 12 months and 18 months respectively. Agricultural Loan and Micro-Credit is classified Sub-standard if nonperforming for 12 months, Doubtful if non-performing for 36 months and Loss if non-performing for more than 60 months. Under the existing system scheduled banks are required to maintain provisions against unclassified and substandard loans in addition to doubtful and loss loans. They are allowed to book interest against classified loans only on cash basis. Whether a credit is classified or not under the objective criteria, it is subjected to classification under qualitative judgments if any doubt arises regarding repayment of loan.
Social Development in Bangladesh Bank:
Bangladesh has achieved substantial progress in mass literacy, public health, reduction of population growth and self employment support for rural poor. Primary education is compulsory and female education is free through the first eight years. The strong commitment to primary education and to gender equity means that three out of four girls now enter primary education.
In the area of health, over 80% of the country's children are immunized against the six `killer` diseases. Infant mortality has decreased significantly. There has been a sharp decline in the fertility rate. The increased participation of women in poverty alleviation programs as well as in Bangladesh's ready-made garments sector, which provides jobs for more than 1 million women, has helped create an awareness of women's issues at all levels. An unparalleled concentration of innovative and committed non-governmental organizations has brought about a micro-credit revolution and guided countless indigent women and landless households into income generating activities. The safety net programs initiated by the government in improving the condition of the poorest to a level of survival are proving effective.
The Bank is providing policy advice and investments in rural infrastructure (roads, bridges, power), water resource management as well as microcredit programs for the poor. It is also supporting the government’s disaster mitigation efforts, emphasizing greater empowerment and participation of affected communities. World Bank funding for riverbank protection has helped prevent land loss, settlement destruction, and prevented increases in regional flood levels. The Bank is also a key development partner in helping the government design and implement a national program for the mitigation of arsenic in the country’s drinking water.
Private Sector-led Development
The World Bank is working with the International Monetary Fund and Asian Development Bank to provide advice on financial sector reform, particularly in banking. In energy and infrastructure, it is helping to promote improved regulation, private provision of services, privatization of poorly managed state assets, and policy reform. The World Bank Group’s International Finance Corporation (IFC) has a local representative in the Bank’s Dhaka Office. The IFC focuses on supporting private investments in infrastructure, agribusiness, and manufacturing and on developing financial markets. IFC’s current portfolio includes $97 million in loans, $13 million in equity, and $37 million in B-loans. The Multilateral Investment Guarantee Agency (MIGA), also part of the World Bank Group, is helping to encourage foreign investment in Bangladesh by providing guarantees in the
manufacturing, financial, and infrastructure sectors against loss caused by noncommercial risks.
Bangladesh joined the World Bank in 1972, soon after independence. Since then, the International Development Association (IDA), the World Bank’s concessional lending window, has financed 174 operations with loans totaling almost $10 billion equivalent of assistance. In fiscal year 2003, the World Bank approved around $554 million in low-interest credits for five operations, including the Development Support Credit
commercial Banks The commercial banking system dominates Bangladesh's financial sector with limited role of Non-Bank Financial Institutions and the capital market. The Banking sector alone accounts for a substantial
share of assets of the financial system. The banking system is dominated by the 4 Nationalized Commercial Banks , which together controlled more than 54% of deposits and operated 3388 branches (54% of the total) as of December 31, 2004. Specialized Banks
Out of the 5 specialized banks, two (Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank) were created to meet the credit needs of the agricultural sector while the other two (Bangladesh Shilpa Bank (BSB) & Bangladesh Shilpa Rin Sangtha institutions like the Bangladesh Shilpa (BSRS) are for extending Bank (Industrial Bank), term loans to the industrial sector. There are other specialized financial Bangladesh Shilpa Rin Sangstha (Industrial credit organization), Krishi (Agriculture) Bank, House Building Finance Corporation, Grameen (Rural) Bank and several cooperative banks. The Industrial Promotion and Development Corporation (IPDC) of Bangladesh and the Investment Corporation of Bangladesh (ICB) provide equity support to public limited companies in the private sector. The government has recently replaced the Controller of Capital Issues by establishing a full fledged Securities and Exchange Commission with enhanced power for the growth and development of the Securities market in Bangladesh. Liberal fiscal policy has resulted in the highest forex reserve.
Specialized Banks like BKB and RAKUB have been encouraged to provide a considerable amount of their rural credit to the poor without security. However, the amount is much less compared to the deposit mobilization from the rural sector of the country. The Industrial Promotion and Development Corporation (IPDC) of Bangladesh and the Investment Corporation of Bangladesh (ICB) provide equity support to public limited companies in the private sector. The government has recently replaced the Controller of Capital Issues by establishing a full fledged Securities and Exchang sCommission with enhanced power for the growth and development of the Securities market in Bangladesh. Liberal fiscal policy has resulted in the highest forex reserve.
We did this assignment about Bangladesh bank. There are many thinks to share about Bangladesh Bank. As govt. bank, Bangladesh bank is a huge institution where maintenance of banking and monetary policy runs by specific common law & procedure. These information’s are web and journal base .We had discussed in this assignment about exchange rates, monetary policies, investments of BB, provisioning and loan classifications and so on. In this assignment we tried to focus on the functions of Bangladesh Bank. Bangladesh bank can an important role in one’s organization.
Journal of Syed Ahmed Khan, Faculty Member of Bangladesh Institute of Bank Management (BIBM).
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www.bangladesh-bank.org www.bibm-bd.org www.articles2k.com www.dnet-bangladesh.org www.emeraldinsight.com www.en.wikipedia.org
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