Table of Contents

1. Introduction 3

2. History of Banking in Bangladesh 5

3. Types of Banks in Bangladesh 7

4. List of Banks in Bangladesh 9

5. Non-Bank Financial Institutions 13

6. Functions of Central Bank 14

7. Functions of Commercial Bank 16

8. Islamic Banking 17

9. Mobile Banking in Bangladesh 19

10. Problems of Banking Sector of Bangladesh 21

11. Banking Sector for Sustainable Growth 23

12. Finding and Conclusion 25

 2

1. Introduction

The Bangladesh banking sector relative to the size of its economy is comparatively larger than
many economies of similar level of development and per capita income. The total size of the
sector at 26.54% of GDP dominates the financial system.

Bangladesh Bank is the Central Bank of Bangladesh and the principal regulator of the
sector.There are 57 scheduled banks in Bangladesh who operate under full control and
supervision of Bangladesh Bank which is empowered to do so through Bangladesh Bank Order,
1972 and Bank Company Act, 1991.

The sector comprises a number of banks in various categories. Considering ownership the
sector can be classified in to the following categories -

 State Owned Commercial Banks (SOCBs),

 State Owned Development Financial Institutions (DFIs),
 Private Commercial Banks (PCBs) and
 Foreign Commercial Banks (FCBs)

The Nobel Prize for Grameen Bank is a specialized micro-finance institution, the concept of
microcredit revolution and a major contribution to poverty alleviation and empowerment of
women in Bangladesh.

As of December 2015 there are 56 banks in Bangladesh and the number of bank branches
increased to 9397 from 9040 as of December 2014 due mainly to opening of new branches by
the banks during the year. At the end of June 2016, the total number of bank branches
increased further to 9453.Information on the banking structure by types of banks is shown in
the following table –
 3

Banking System Structure

(billion Taka)

Bank Number Number Total % of Deposits % of

Types of Banks of Assets Industry Deposits
Branches Assets

State Owned 06 3700 3219.1 26.1 2447.4 29.0

Commercial
Banks

State Owned 02 1407 302.2 2.5 247.4 2.9

Development
Financial
Institutions

Private 39 4271 8254.6 67.0 5382.3 63.8

Commercial
Banks

Foreign 09 75 550.6 4.5 358.9 4.3

Commercial
Banks

Total 56 9453 12326.4 100.0 8436.0 100.0

Source: Bangladesh Bank, June 2016

 4

2. History of Banking in Bangladesh

The first modern bank headquartered in Dhaka was Dacca Bank, established in 1846. It did a
very limited business and did not issue banknotes. It was purchased by Bank of Bengal in 1862.
Bank of Bengal opened branches in Sirajganj and Chittagong in 1873, and in Chandpur in 1900.
In 1947, upon the Partition of Bengal, it had six branches in East Bengal, in Dhaka, Chittagong,
Chandpur, Mymensingh, Rangpur, and Narayanganj.

In the beginning of 1971, there were 1130 branches of 12 banks in operation in East Pakistan.
The foundation of independent banking system in Bangladesh was laid through the
establishment of the Bangladesh Bank in 1972 by the Presidential Order No. 127of 1972 (which
took effect on 16th December,1971). Through the Order, the eastern branch of the former
State Bank of Pakistan at Dhaka was renamed as the Bangladesh Bank as a full-fledged office
of the central bank of Bangladesh and the entire undertaking of the State Bank of Pakistan in,
and in relation to Bangladesh has been delivered to the Bank.

After the independence, banking industry in Bangladesh started its journey with 6 Nationalized
commercialized banks, 2 State owned Specialized banks and 3 Foreign Banks. In the 1980's
banking industry achieved significant expansion with the entrance of private banks.

After the liberation of Bangladesh the twelve Banking companies who were doing business in
Bangladesh, were nationalized by the Government of the People’s Republic of Bangladesh under
president’s order No.26 of 1972 entitled “The Bangladesh Bank (Nationalizations) Order,
1972”on March 26, 1972. These are –

Authorized Paid-up
New Bank after
Existing Bank Capital (Lac Capital(Lac
Independence
Tk.) Tk.)

The National Bank of Pakistan, Sonali Bank 500 200

The Bank of Behawalpur Ltd.

The Premier Bank Ltd., The Agrani Bank 500 100

Habib Bank Ltd., The
 5

Commerce Bank Ltd.

The United Bank Ltd., The Janata Bank 500 100

Union Bank Ltd.

The Muslim Commercial Bank Rupali Bank 500 100

Ltd., The Standard Bank Ltd.

The Austrasia Bank Ltd., The Pubali Bank 500 100

Eastern Mercantile Bank Ltd.

The Eastern Banking Uttara Bank 500 100

Corporation Ltd.

There were no domestic private commercial banks in Bangladesh until 1982; When the Arab-
Bangladesh Bank Ltd. commenced private commercial banking in the country. Five more
commercial banks came up in 1983 and initiated a moderate growth in banking financial
institutions. Despite slow growth in number of individual banks, there had been a relatively
higher growth of branches of nationalized commercial banks (NCBs) during 1973-83. There
number had increased from 1512 in 1973-74 to4603 in 1982-83.
 6

3. Types of Banks in Bangladesh

Banking sector of Bangladesh is primarily of two types –

A. Scheduled Bank

B. Non-scheduled Bank

Scheduled Banks: The banks which get license to operate under Bank Company Act, 1991
(Amended upto 2013) are termed as Scheduled Banks. State-owned commercial banks, private
commercial banks, Islamic commercial banks, foreign commercial banks and some specialized
banks are Scheduled Bank.

Scheduled Banks are classified into following types:

 State Owned Commercial Banks (SOCBs): There are 6 SOCBs which are fully or
majorly owned by the Government of Bangladesh.
 Specialized Banks (SDBs):2 specialized banks are now operating which were
established for specific objectives like agricultural or industrial development. These
banks are also fully or majorly owned by the Government of Bangladesh.
 Private Commercial Banks (PCBs): There are 40 private commercial banks which
are majorly owned by the private entities. PCBs can be categorized into two groups:
 Conventional PCBs:32 conventional PCBs are now operating in the industry. They
perform the banking functions in conventional fashion i.e interest based operations.
 IslamiShariah based PCBs: There are 8 IslamiShariah based PCBs in Bangladesh and
they execute banking activities according to IslamiShariah based principles i.e. Profit-
Loss Sharing (PLS) mode.
 Foreign Commercial Banks (FCBs):9FCBs are operating in Bangladesh as the
branches of the banks which are incorporated in abroad.

Non-Scheduled Banks: The banks which are established for special and definite objective
and operate under the acts that are enacted for meeting up those objectives, are termed as
Non-Scheduled Banks. These banks cannot perform all functions of scheduled banks.
 7

Grameen Bank, ProbashiKallyan Bank, Karmasangsthan Bank, Progoti Co-operative Land

Development Bank Limited (Progoti Bank) and Answer VDP Unnayan Bank are Non-Scheduled
Bank.

There are now 6 non-scheduled banks in Bangladesh which are:

 Ansar VDP Unnayan Bank,

 Karmashangosthan Bank,
 Grameen Bank,
 Jubilee Bank,
 ProbashiKollyan Bank,
 PalliSanchay Bank
 8

4. List of Banks in Bangladesh

The following table contents the list of existing and running banks in Bangladesh –

Scheduled Banks

A. Central Bank

Bangladesh Bank Commenced on 1972

B. State Owned Commercial Banks

Banks Established

1. Agrani Bank Limited 26 March 1972

2. Janata Bank Limited By Bank Nationalisation Ordinance of 1972

3. Rupali Bank Limited By Bank Nationalisation Ordinance of 1972

4. Sonali Bank Limited By Bank Nationalisation Ordinance of 1972

5. Bangladesh Development Bank Limited On 16 November, 2009 by amalgamation

of Bangladesh Shilpa Bank (BSB) and
Bangladesh ShilpaRinSangstha (BSRS)

6. BASIC Bank Limited 21 January, 1989

C. State OwnedSpecialized Banks

1. Bangladesh Krishi Bank 1973

2. RajshahiKrishiUnnayan Bank (RAKUB) 15 March 1987 (President's Ordinance No. 58

of 1986)

D. Private Commercial Banks (PCBs):

I. Conventional PCBs
 9

1. AB Bank Limited 12 April, 1982

2. Bangladesh Commerce Bank Limited 16 Sep, 1999

3. Bank Asia Limited 27 November, 1999

4. BRAC Bank Limited 4 July, 2001

5. City Bank Limited 27 March, 1983

6. Dhaka Bank Limited 5 July, 1995

7. Dutch-Bangla Bank Limited 3 June, 1996

8. Eastern Bank Limited 1992

9. IFIC Bank Limited 1976

10. Jamuna Bank Limited 3 June, 2001

11. Meghna Bank Limited 21 April, 2013

12. Mercantile Bank Limited 2 June 1999

13. Midland Bank 9 April, 2013

14. Modhumoti Bank Limited 19 September, 2013

15. Mutual Trust Bank Limited 24 October, 1999

16. National Bank Limited 28 March, 1983

17. National Credit & Commerce Bank Limited In 1993 as commercial bank

18. NRB Bank Limited 2013

19. NRB Commercial Bank Limited 2013

 10

20. NRB Global Bank Limited 2013

21. One Bank Limited May, 1999

22. Premier Bank Limited 10 June, 1999

23. Prime Bank Limited 17 April, 1995

By Bank Nationalisation Ordinance of 1972;

24. Pubali Bank Limited
denationalized in the year 1983

25. South Bangla Agriculture & Commerce Bank 25 March, 2013

Limited

26. Southeast Bank Limited March, 1995

27. Standard Bank Limited 3 June, 1999

28. The Farmers Bank Limited 11 September, 2012

29. Trust Bank Limited 1999

30. United Commercial Bank Limited 1983

31. Uttara Bank Limited By Bank Nationalisation Ordinance of

1972; denationalized in the year 1983

32. Shimanto Bank Ltd 21 July, 2016

II. IslamiShariah based PCBs

1. Al-ArafahIslami Bank Limited 27 September, 1995

2. EXIM Bank Limited 3 August, 1999

3. First Security Islami Bank Limited August 29, 1999

4. ICB Islamic Bank Limited April, 1987

 11

5. Islami Bank Bangladesh Limited 13 March, 1983

6. ShahjalalIslami Bank Limited 10 May, 2001

7. Social Islami Bank Limited 22 November, 1995

8. Union Bank Limited 2013

E. Foreign Commercial Banks

Banks Started Operations in Bangladesh

1. Bank Al-Falah Limited 2005

2. Citibank N.A 1995

3. Commercial Bank of Ceylon PLC 2003

4. Habib Bank Limited 1976

5. National Bank of Pakistan August, 1994

6. Standard Chartered Bank 1905 (including ANZ Grindlays experience; SCB

originally established its first branch in
Chittagong in 1948)

7. State Bank of India

8. Woori Bank September 1996

9. HSBC Bank 1996

Non-scheduled Banks

1. Ansar VDP Unnayan Bank

2. Karmashangosthan Bank
3. Grameen Bank
4. Jubilee Bank

5. ProbashiKollyan Bank
6. PalliSanchay Bank
 12

5. Non-Bank Financial Institutions

Non-Bank Financial Institutions (FIs) are those types of financial institutions which are regulated
under Financial Institution Act, 1993 and controlled by Bangladesh Bank. Now, 33 FIs are
operating in Bangladesh while the maiden one was established in 1981. Out of the total, 2 is
fully government owned, 1 is the subsidiary of a SOCB, 15 were initiated by private domestic
initiative and 15 were initiated by joint venture initiative.

Investment Corporation of Bangladesh International Leasing and Financial Services

Limited

Agrani SME Financing Company Limited Islamic Finance and Investment Limited
Bangladesh Finance and Investment Company LankaBangla Finance Limited
Limited
Bangladesh Industrial Finance Company Meridian Finance and Investment Limited
Limited
Bangladesh Infrastructure Finance Fund MIDAS Financing Limited
Limited

Bay Leasing and Investment Limited National Finance Limited

CAPM Venture Capital and Finance Limited National Housing Finance and Investments
Limited
Delta Brac Housing Finance Corporation People's Leasing and Financial Services Limited
Limited

Far-east Finance & Investment Limited Phoenix Finance and Investments Limited
FAS Finance & Investment Limited Premier Leasing & Finance Limited

First Finance Limited Prime Finance & Investment Limited

GSP Finance Company (Bangladesh) Limited Reliance Finance Limited

Hajj Finance Company Limited Saudi-Bangladesh Industrial & Agricultural

Investment Company Limited

IDLC Finance Limited Uttara Finance and Investments Limited

Industrial and Infrastructure Development The UAE-Bangladesh Investment Company
Finance Company Limited Limited

Industrial Promotion and Development Union Capital Limited

Company of Bangladesh Limited
Infrastructure Development Company Limited United Finance Limited
 13

6. Functions of Central Bank

Bangladesh Bank the central bank as well as chief authority to regulate the state's monetary
and financial system, was established in Dhaka as a body corporate vide the Bangladesh Bank
Order, 1972 (P.O No. 127 of 1972) with effect from 16th December, 1971. Bangladesh Bank
started functioning with all capital and liabilities of Dhaka branch of State Bank of Pakistan.

Bangladesh Bank as the central bank of Bangladesh executes all the functions that a central
bank traditionally performs as elsewhere in the world. The core functions of BB are briefly
discussed as follows:

1) Bangladesh Bank formulates and implements monetary policy aiming at stabilizing

domestic monetary value and maintaining competitive external per value of taka for
fostering growth and development of country's productive resources in the best national
interest.

2) Itformulates and implements intervention policies in the domestic money market and
foreign exchange market. BB intervenes the money market with some policy instruments
such as
a. open market operation (treasury bills/bonds, repo, reverse repo auctions),
b. variations in reserve ratios such as cash reserve requirements (CRR) and
statutory liquidity ratio (SLR),
c. secondary trading,
d. discounting rate/ bank rate, and
e. moral suasion

3) It monitors and supervises scheduled banks and non-bank financial instructions (NBFIs)
that include off-site supervision and on-site supervision in order to enhance the safety,
soundness, and stability of the banking system to ensure banking discipline, protect
depositors' interest and retain confidence in the banking system.

4) It holds sole responsibility of the management of international reserve representing

aggregate of Bangladesh Bank's holding of gold, foreign exchange SDR and reserve
position in the IMF.
 14

5) Bangladesh Bank, as the central bank of Bangladesh reserves sole responsibility to issue
bank note.

6) It performs as a clearing house for the scheduled banks to clear and settle inter-bank
payment arising through drawing cheque, drafts, bills etc. to one another

7) It acts as a banker to the government.

8) It functions as a lender of the last resort for the government as well as for the country's
scheduled banks

9) Bangladesh Bank acts as an advisor to the government.

Additionally, Bangladesh Bank's functions include some other promotional activities such as
development of new instruments, guidelines for money and financial market participants,
providing training to the banks and NBFIs, monitoring and encouraging corporate social
responsibilities (CSR) executed by banks and NBFIs and so on.
 15

7. Functions of Commercial Bank

Functions of Commercial Banks in Bangladesh

Receiving Deposits Advancing Loans

Current SavingAc FixedDep Making Bank Cash Discounting

Account count osit Loans Overdraft Credit Bills

Short Term Medium Long Term

Loans Term Loans Loans
 16

8. Islamic Banking

Alongside the conventional interest bearing banking system, Bangladesh entered into an Islamic
banking system (profit-loss sharing) in 1983. At present, out of all the commercial banks in
Bangladesh, 8 commercial banks are operating as full-fledged Islamic banks.

Islamic banking is set about implementing a balanced and consistent economic policy
based on fair or equitable distribution of resources and for ensuring justice in sync with the
Islamic ideals and principles. In transaction process, this particular financial intermediary
system prohibits interest, practices familiar and natural procedures seeks to achieve the
objectives of the Islamic economic system based on equity and justice. Banks In this system,
founded on principles of non-discrimination, establishing justice and creating the socio-
economic infrastructure and generating employment opportunities.

The Islamic banking industry continued to show strong growth since its inception in 1983 to
present date in tandem with the growth in the economy, as reflected by the increased market
share of the Islamic banking industry in terms of assets, financing and deposits of the total
banking system.
Now, a total of 23 public and private commercial banks are operating full-fledged or partially
Islamic banking operations in Bangladesh. Among them, 8 full-fledged Islamic banks are
operating with 843 branches, 8 conventional commercial banks with 19 Islamic banking
branches and 7commercial banks with 25 Islamic banking windows in the country. A total of
26,135 employees are working in 887 Islamic banking branches and windows.

The average growth of deposit in the banking sector in last five years (2009-2013) was 19%
which was 20% for Islamic banks. For the same period, the total assets in banking sector
increased by 19%. In contrast, Islamic banks have achieved 21% growth.

Total deposit of the Islamic banks stood at Tk. 1,13,360 crore in December 2013, which was
18.00% of total deposits of the country and 29% deposits of the private commercial banks.
Total deposits of the Islamic banks stood at Tk. 1,33,561 crore in June 2014.
 17

Total investment of the Islamic banks was Tk. 97,530 crore on December 2013, which was
21% of total investments in the country's banking sector and 30% investment of the private
commercial banks. Islamic banks’ investment stood at Tk. 113,796crore on June 2014.

On December 2013, the size of Islamic banks assets stood at Tk. 135,900 crore, which was 17
percent of country’s banking assets and 27.40% of the total assets of private commercial
banks. Total amount of assets of Islamic banks was Tk. 147,604 crore on June 2014.

By following the principles of capital adequacy rules set by the central bank, Islamic banks’
share in total equity was in a satisfactory level in the past years. Total equity of Islamic banks
was Tk. 10,280 crore on December 2013. It is 15 percent equity of the country's banking
sector and 23 percent equity share of private commercial banks.
 18

9. Mobile Banking in Bangladesh

There are around 151.82 million people in Bangladesh (2012) of which only 13 percent have
bank accounts whereas more than 95 percent are mobile phone users. Banks can now offer the
banking services to both the rural community and the population (without banking transaction)
through mobile phones. Mobile banking refers to a system that enables bank customers to
access accounts and general information on bank products and services through Mobile devices.

Mobile banking in Bangladesh continues to grow fast, scaling a new height of 53 percent growth
year-on-year (2015). In 2015, the industry saw Tk 157,773.31 crore in transactions through
mobile phones -- the amount being more than half the country's national budget, according to a
report of Bangladesh Bank.

A recent report published by the USAID said, mobile money transfer is on the rise in the
country. Since its launch in 2011, mobile banking sector has been experiencing exponential
growth.

According to the report, the following table shows the growth of mobile banking in Bangladesh
between January 2013 and February 2014 –

Number of Number of Number of Transaction

Agents Registered Clients Transactions Value (in million
(in million) (in million) dollars)
Jan 2013 60,000 5 10 301
Dec 2013 189,000 13.18 31.36 862
Jun 2014 414,000 16.7 44.01 1,110
Dec 2014 541,000 25.2 74.47 1,361
Feb 2014 543,000 25.87 76.99 1,423

Dutch-Bangla Bank Limited (DBBL) has for the first time introduced its mobile banking
service expanding the banking service from cities to remote areas. Bangladesh Bank Governor
AtiurRahman inaugurated the service by depositing Tk 2,000 and withdrawing Tk 1,500
through Banglalink and Citycell mobile networks in Motijheel area. Bangladesh Bank has already
allowed 10 banks to initiate mobile banking. Of them DBBL kicked off first.
 19

BKash, a joint venture between BRAC Bank and US-based Money in Motion, will provide
mobile banking with a fully encrypted VISA technology platform for transactions through mobile
phones. Any mobile user can register and open up a bKash account and then do transactions
through their mobile phones in easy, convenient and reliable way.

Service Name Bank/Service First Operation in Mobile Partners of

Provider Market Place Operation

DBBL Mobile Dutch Bangla Bank May 2011 Banglalink (31 March 2011),
Banking Ltd. Bangladesh CityCell (31 March 2011),
Grameen Phone (27
November 2012),
Airtel (12 September 2011)
bKash Brac Bank Ltd. July 2011 Grameen Phone (18 January
Bangladesh 2012),
Banglalink (July 2011)
UCash United Commercial November 2013 Grameen Phone (20 Jun
Bank Ltd. Bangladesh 2014),
Banglalink (March 2014)
My Cash Mercantile Bank Ltd. February 2012 Grameen Phone (01
Bangladesh December 2013)
Banglalink (28 October 2013)
Easy Cash Prime Bank Ltd. 25 March 2012
Bangladesh
OK Mobile One Bank Ltd. October 2013 Grameen Phone (05 October
Banking Bangladesh 2013)
 20

10. Problems of Banking Sector of Bangladesh

The banking sector in Bangladesh has been performing well in terms of employment
generation, profitability and operations during the past few decades. The value of bank shares
in the stock market is reasonably high. But this sector's performance has noticeably declined in
the recent years. Its investment in private sector industries has down-turned due to anti-
investment environment prevailing in the country. The banking industry has been facing the
challenges arising from political instability and uncertainties, in addition to inept management,
frauds, corruption, inadequate capital base, unprofessional personnel in the management,
political interference in decision making and so on.
The banking sector in Bangladesh is currently experiencing a classic ‘problem of plenty’ with
rising volume of excess liquidity. Press reports state excess liquidity has surpassed BDT 1
trillion. This is certainly a matter of concern, as it reflects inability of the economy to
productively utilize available capital.
Increasing availability of foreign currency loans, depressed commodity prices in international
markets and infrastructural constraints have subdued credit demand from the private sector.
Advance-deposit ratio has fallen to around 70% from 80%(and higher) in previous years.
Banks usually invest excess liquidity in treasury securities. But rise in sale of National savings
schemes (NSS) prompted government to reduce sale of treasury bills and bonds, squeezing
investment options for banks.
Problem of banking sector is widespread and is not related to banking system only. The
regulatory entity should be independent but accountable. Prudential regulation should be
limited to deposit-taking institutions and should be clearly separated from non-prudential
regulation. The problem of lower profitability of bank is that it might reduce the tax and
thus make a trace on fiscal system where bank is the number one source of tax under large tax
unit of NBR.
Though opinions may differ, competition in Bangladesh seems to be the deadliest of all. It not
only brings in positive developments but also encourages malpractice. There is competition not
only from other banks but also from non-bank financial institutions (NBFI) and micro finance
institutions (MFI).
 21

Not only are the institutions competing, the regulators and customers are also pitting one
against the other, making the situation extremely difficult giving you the feeling of being stuck
between a rock and a hard wall. A customer will often try to make the best out of the situation
by not complying with the regulatory requirement, referring to the service provided by another
bank or banks.
The requirement of bankers to meet steep targets often results in succumbing to the demand of
these corporates, resulting in bypassing of the regulation. One bypass results in another
and then another resulting in a whole network of malpractices, which often becomes the norm.

Competition in the banking industry is also hitting from the capital market end, with the
corporates increasingly going to the equity market to raise funding. This not only hits the banks
in the belly by affecting their core business but also indirectly affects their contribution to
market cap which dropped from 59% in 2007 to less than 25% in June 2010. More
importantly it forces them to risk their position by over exposing them to volatile capital market
through proprietary trading and position taking in order to maintain profitability.

Other challenges faced by the banking industry in Bangladesh are lack of effective and
efficient corporate governance. Best practice of corporate governance can speed up the
operations, cut corruption, increase profitability and the performance of banks. The
performance of private banks and public banks (state-owned banks) in the country justifies the
views of this scribe. Imbibing best practice of corporate governance in the banking industry is
the crying need of the time.

Highly inconsistent interest rates of deposits and lending of banks in the country stand as a
stumbling block to bank's investment. The lending interest rates are highly anti-investment
and abnormally high in comparison to many economies. Because of high interest rates on
lending from the local banks, some off-shore banks have started lending in the country at lower
rates than the local banks. They are not investing in stocks or shares. If the process continues,
the local banks will face more problems in investment.

Experts opine that wrong policies of the policy-makers of banks and the controlling authorities
have made the banking industry week and vulnerable in terms of profitability, operations and
growth.
 22

11. Banking Sector for Sustainable Growth

Bangladesh's financial sector is dominated by the banking sector. The dominance of the
banking sector makes the financial sector vulnerable on the one hand, but highlights the crucial
importance of the sector in resource mobilization and economic growth, on the other. The role
of the banking sector in accelerating growth is contingent upon the soundness and depth of the
sector. In Bangladesh the banking sector has travelled through a journey where the sector has
experienced several ups and downs. Reforms measures have been undertaken in an attempt to
improve upon the structural constraints of the sector.
Such measures have been driven by objectives such as increasing the capital adequacy of
banks, streamlining guidelines for rescheduling of various types of loans, tightening provisions
for non-performing loans, strengthening disclosure requirements and improving accounting
system. These have undoubtedly improved the soundness of the sector over the years.
However, the performance of the banking sector in the recent past has not been satisfactory. At
present, key performance indicators of commercial banks in the country reflect the poor health
of banks. Most banks have not been able to show significant improvements on indictors such as
capital to risk weighted asset, non-performing loans, expenditure-income ratio, return on asset,
return on equity, liquid asset and excess liquidity despite several measures taken by the central
bank.
Since large financial irregularities in Sonaliand BASIC banks, monitoring and inspection of
Bangladesh Bank have increased. The central bank has also appointed observers in 14 banks
and financial institutions, both state-owned and private to check further deterioration of these
banks and supervise closely to improve their governance. The results, however, are yet to show
up in the performance indicators of these banks.
Profitability, measured by return on asset and return on equity, has been negative for the
state-owned banks (SCBs).For private commercial banks, though these indicators are positive,
but very low. In case of non-performing loans (NPL) similar performance is observed.
Though the share of NPL to total loans in SCBs has slightly declined in September 2015 from
June 2014, the rate is still as high as 21.82%. On the other hand, NPL in private commercial
banks (PCBs) and foreign commercial banks (FCBs) have increased. Because of high NPL,
state-owned banks have to make larger provisions.
 23

The government has to inject capital into these banks to keep them going. Clearly,
implementation of BASEL III requirements that call for capital adequacy ratio to be raised to
12.5% of their risk-weighted assets by 2019 will be challenging for the SCBs. As of September
2015, capital adequacy ratio of SCBs was only 6.2%.
Lower profits in SCBs are mainly due to bad assets, inefficiency and political interference. In
case of PCBs, stricter compliance requirements by the central bank and low appetite for credit
by the private sector due to sluggish business environment are the major reasons for lower
profits. This is reflected through high volume of liquidity in banks. The advance-deposit ratio
has been little over 70% in November 2015 even though banks are allowed to lend up to
80% of their total deposit.

The banking sector has achieved considerable success due to the reforms in the 1990s, 2000s
and afterwards. However, the sector will have to prepare for the next generation of global
regulatory framework and meet emerging clients' needs. In the coming days, the banking
industry will have to achieve the ability to absorb shocks arising from financial and economic
stress, improve risk management and governance, and strengthen banks' transparency and
disclosures. And if the sector has to play the larger role of contributing towards a stable and
sound macroeconomic situation, the banking sector has to go through the painful path of
stricter policy and legal measures.
 24

12. Finding and Conclusion

The commercial banks are now considered the nerve system of all economic development in the
Bangladesh. Commercial banks are now using latest information technology, competing in the
open market with high technology system, changing from domestic banking to investment
banking.
Bangladesh is a rising economic country. In Bangladesh we have total 57 banks to provide their
servicesnationwide. However, all banks do not provide online banking services. Some bank
services are very limited (such as only general banking). State owned commercial bank and
specialized development bank is not efficient for foreign people, because of their relatively lower
quality service.
Private commercial banks have potential for foreign expanding. Some private commercial banks
are providing one stop services for non- resident Bangladeshi (NRB) which is very effective for
foreign citizens. Such as BRAC Bank, Dutch Bangla Bank, Islami Bank Bangladesh Limited, National
Bank Limited etc.
Although liberalization policy has been pursued for long time, the result is still far from the
expected ones.Interest rate is still too high (above 15 percent) which is not favorable to business
entities.
Coming years will witness banks striving to create sound internal control or risk management
processes. With the focus on regulation and risk management in the Basel II framework gaining
prominence, the post-Basel II era will belong to the banks that manage their risks effectively. The
banks with proper risk management systems would not only gain competitive advantage by way of
lower regulatory capital charge, but would also add value to the shareholders and other
stakeholders by properly pricing their services, adequate provisioning and maintaining a robust
financial structure.

“The future belongs to bigger banks alone, as well as to those which have minimized
their risks considerably.”
 25

References
 A Report on Banking Sector of Bangladesh by Mansur Ahamed (Ph. D),Research Department, JBBC Corporation
 Banks & FIs (https://www.bb.org.bd/fnansys/bankfi.php)
 History of Banking in Bangladesh (Part 2) By Md. MahmudulHasan (http://www.reportbd.com/articles/1618/1/-
History-of-Banking-in-Bangladesh-Part-2/Page1.html)
 Banking in Bangladesh (https://en.wikipedia.org/wiki/Banking_in_Bangladesh)
 List of banks in Bangladesh (https://en.wikipedia.org/wiki/List_of_banks_in_Bangladesh)
 Bangladesh Bank (https://en.wikipedia.org/wiki/Bangladesh_Bank)
 History of Banking in Bangladesh (http://www.assignmentpoint.com/business/banking/history-banking-
bangladesh.html)
 Banking Sector of Bangladesh (http://www.assignmentpoint.com/business/banking/banking-sector-of-
bangladesh.html)
 Lists of Banks in Bangladesh (http://bankinfobd.com/banks)
 All Bank Listings in BD (http://www.banksbd.org/banks/)
 State Bank of India, Bangladesh (https://sbibd.com/)
 List of International Foreign Banks Bangladesh (http://www.bangladeshtrades.com/banks-in
bangladesh/foreign-banks-in-bangladesh.html)
 Bangladesh Bank (http://en.banglapedia.org/index.php?title=Bangladesh_Bank)
 The Functions of Bangladesh Bank by Md. RakibulHasanRony
 Islamic Banking in Bangladesh: Progress and Potentials by Mohammad Abdul Mannan, Managing Director,
Islami Bank Bangladesh Limited
 Information on Mobile Banking (http://rtn.bcc.net.bd/index.php/information-on-mobile-banking)
 Mobile banking sees stellar growth - Muhammad Zahidul Islam (http://www.thedailystar.net/business/mobile-
banking-sees-stellar-growth-211759)
 Mobile Banking, bKash, And Future Of Mobile Financial Services - Ibrahim Mahbub
(http://futurestartup.com/2015/06/24/mobile-banking-bkash-and-future-of-mobile-financial-services/)
 “Mobile Banking in Bangladesh” A New Device to Explore Banking, By Sheikh ShamcurRahman (Tusher), Faculty
of Business & Economics, Daffodil International University
 Banking sector challenges in Bangladesh - Mamun Rashid (http://www.thedailystar.net/news-detail-154934)
 Challenges the banking industry faces - M Jalal Hussain (http://www.thefinancialexpress-
bd.com/2015/12/22/7012)
 Banking sector for sustainable growth - FahmidaKhatun (http://www.thedailystar.net/supplements/25th-
anniversary-special-part-5/banking-sector-sustainable-growth-212689)
 Banking Sector Performance, Regulation and Bank Supervision (Chapter 5) – Annual Report by Bangladesh
Bank (July 2015 - June 2016)
 Appendix-4 - Banking Performance Indicators (Table: I-XIII) - Annual Report by Bangladesh Bank (July 2015 -
June 2016)