Professional Documents
Culture Documents
Any bank's key assets that they use as their uses or savings are: reserve, cash item in the collecti
on process, other bank deposits, shares, and most importantly, loans. But there are many probl
ems in our banking sector related to the poor quality of reserves that banks use day after day.
We noticed two major issues related to the quality problem of the assets of our banking industr
ies during our research.We will try to concentrate on certain unique problems from the further
part of our debate.
In our banking sector, the reserve requirement is 19.5 percent where the Statutory Liquidity Ra
tio (SLR) is 19.5 percent, including the 6.5 percent Cash Reserve Ratio (CRR). It would be recogni
zed or indicated as an excess reserve if any bank holds more money than its necessary reserve.
For the economy of any country, the adequacy of the bank's required reserve is very important
because if any bank holds any excess reserve, the money they keep in their volts or other sector
s would be reported as idle money that does not bring any return. In October and at the end of
2013, the gross liquid assets of the banking sector were Tk. 1860 Billion, more than 1.86 times h
igher than the statutory reserve ratio of liquids (SLR).As we discussed before this surplus cash o
r excess reserve will not bring any return to our economy or will not contribute. While a substan
tial gap was created in the sources and uses of funds in our banking industry over some of the la
st year.
Our banking industry is burdened with liquidity surplus and it is still ongoing if we see central ba
nk statistics data and it shows that the excess liquidity in banking sectors stood at 102,223 core
at the end of May 2014. Commercial banks prefer to deposit surplus liquidity with the central b
ank where the central bank charges 5.25% interest and on the other hand, it charges 7.25% inte
rest rate if banks borrow money from the central banks.Commercial banks are depositing their
more orexcess funds to the central bank in the current situation instead of borrowing the mone
y that raises the cost of the central bank or Bangladesh Bank. NPL is another issue we want to i
mplement (NonPerformingLoan). The rate of nonperforming loans or NPLs in our banking secto
r is constantly rising, touching 567 trillion at the end of September 2013.If we see the 2012 NPL
data, it will show us that from the end of December 2012 to the end of September 2013, the a
mount of NPL has increased by more than 33 percent over the past few months. The NPL ratio a
lso grew from 10 to 13 percent between the end of December 2012 and the end of September
2013. Loans are the primary source of assets for the bank, representing 74 percent of its entire
asset section.
However, due to negative credit growth in both the private and public sectors, the rate of bank
growth has deteriorated, suggesting that our country's financial sector has been deregulated. In
2013, private sector credit growth was 11.07 percent over the previous year which was lower th
an the 19.88 percent growth seen in the same timeframe of the previous year.Credit growth ha
s also deteriorated in recent years due to the Bangladesh Bank's successive monetary policy, po
litical instability, turmoil in our country and most of all, lack of infrastructure and lawlessness.
The risk management framework is a combination of several words, including: quality of assets,
adequacy of capital, non-performing loan, ratio of expenditure revenue, return on asset (ROA),
& return on equity (ROE). If we speak about the appropriateness of capital first we would concl
ude that this is a buffer for a bank that avoids bank failure. The capital adequacy of the Risk Wei
ghted Asset is determined by capital.The central bank rule is that a commercial bank has to hold
10% of the risk weighted asset (RWA) or tk. 200, whichever is greater than the minimum capital
required by banks. If the banks are unable to retain or keep their required amount of capital, thi
s is referred to as 'Shortfall of Capital' as a scenario. The government will have to restore its capi
tal position under the extended credit facility loans issued by the International Monetary Fund i
n this situation (IMF).
The bank's capital deficit at the end of 2013 was TK. Heart of 8863. Our finance minister has agr
eed to amend the recapitalization of the banks proposal in order to fulfill the requirement of th
e IMF and will allocate 4100 core in the first phase against their capital shortfall for that banking
sector.The management of the banking industry is either sound or not solely indicated by the Ex
penditure Income Ratio (EIR).If the EI ratio is high, the bank will not be good or sound. The facto
rs behind the high EI ratio in our country are the provision of loan losses, high operating costs, o
verhead costs, interest suspension for graded loans and the lack of prudential regulation of the
banking sector. ROA stands for how much revenue per asset unit has been gained. ROA should
be more than 1% in every sector if we adopt BASEL guidelines. But if we look at the historical da
ta from 2007 to 2012, we can understand that over time, the reported commercial banks have
achieved almost zero percent of the ROA. The situation in the Development Financial Institution
s is even worse, as their ROA is less than 1% over the period 2010 to 2012.The total ROA in the
banking sector was 0.60 percent at the end of 2012, compared to 1.3 percent in 2011. If this co
ntinues, the overall ROA in the banking sector could be reduced in 2013 by 0.55%. ROE suggests
that equity efficiency is high. The total ROE of the banking industry was 14.3 percent in 2011, bu
t the volume of ROE declined in 2012 and decreased by 6.5 percentage points.Experts say that t
he volume of ROE would be reduced to 6.80 percent in 2013 if this pattern persists. As we can s
ee, some issues have affected all facets of the risk management system and low ROA and ROE le
vels suggest that our banking sector's profit margin is not very high. In addition to these major c
hallenges facing our banking industry, we would like to discuss a variety of other banking-
related issues:
1. Industrial Loan:
The growth rate of industrial term loans has fluctuated with erratic movement since April-June
2011 and the growth rate was also negative. A consideration such as our developing country is
very critical for adequate capital formation loans.
After the month of September 2013, the growth rate of disbursement of agricultural credits and
the recovery of loans started to decline. The disbursement of agricultural credit in September 2
013 was 1149.04 cores, but the volume decreased to 1086.56 cores in October 2013. In October
2013, the growth rate of agricultural credit disbursements declined by 5.4 percent.
With the exception of the specialized loans issued by all banks and financial institutions to the b
anking sector, the loans were increased to Tk. Core 473242.7 from Tk at the end of September,
2013. At the end of June, 2013, 466162.3 heart, but the SME loan decreased by Tk. Core 9451.9
1 from Tk at the end of September, 2013. At the end of September, 24398.34 from 2012. This in
dicates that the growth trend in the SME lending sector is negative.
5. Credit Growth:
The growth of credit is the rise in credit for the private sector, individuals, institutions and publi
c organizations. Consumers can borrow and spend more when credit is expanding or growing, a
nd companies can borrow and invest more. The extension of credit appears to increase the pric
e of assets such as property and stocks, thereby boosting the public's net worth. Growing dema
nd and investment generates jobs and raises sales and earnings. Every credit induced economic
boom, however, comes to an end when one or more major sectors of the economy are unable t
o repay the interest on their debt (Kgb response, 2015). In 2013, the domestic credit growth rat
e was 10.78 compared to 16 in the previous year. On the other hand at the end of 2013, the gro
wth deposit was above 18 percent compared to 19 percent over the past year. There was a disp
arity between the origins and uses of the banking industry's funds. There has been a liquidity su
rplus in the economy. The liquid asset sum went up to Tk. 1860 billion, which was greater than t
he liquidity ratio allowed by law. The Advance Deposit Ratio dropped from 76.59% to 71.70 per
cent. It went from 79.65 percent to 77 percent for private commercial banks.
6. Non-Performing loans:
The increased capital requirement could put pressure on a large number of banks with margina
capital adequacy on the capital requirement (The Financial Express, 2015). The number of bank
s was increased by Bangladesh Banks. They thought it would help to improve the efficiency of B
angladesh's banking sector. For new banks, the opening ratio is within the rural area.After conc
entrating on urban areas, no banks are willing to concentrate on rural areas here. Alarming situ
ations have been created by issuing too many licenses to lots of new banks. With 47 commercia
l banks, the banking industry is already saturated. The implementation of more was not rational
. Unhealthy rivalry may occur (The Financial Express, 2015).
7. Surplus Liquidity:
There is excess liquidity where cash flows into the financial system persistently surpass the cent
ral bank's liquidity withdrawals from the sector. Liquidity Surplus: Consequences for Central Ba
nks. Surplus sources
Because of weak investment and lower credit demand, Bangladesh's commercial banks are was
hed up with idle money. The companies remained suspended mostly due to elections due to po
litical uncertainty. According to Bangladesh Bank numbers, excess liquidity increased by Tk240b
n or 40 percent during the January-September period of the current year and stood at TK 840bn
from Tk600bn in January.The sum of surplus liquidity grew steadily, although credit growth con
tinued to decline. In January, the banks' credit growth was 13.39 percent with Tk600bn surplus l
iquidity, followed by 10.29 percent growth with Tk660bn in excess liquidity in March. In June, w
hen the liquidity was Tk790bn, the growth was 8.97 percent and in September, 7.40 percent as
the liquidity increased to Tk840bn.