Banking Industry of Bangladesh was adversely affected by the covid-19

pandemic during the FY2020. The internal and external affairs of the
financial market caused significant pressure on the sector as a whole. To
assist the banks to survive in this critical situation Bangladesh Bank (BB) has
declared a series of policies and prudential measures from the inception of
the pandemic. ➢ Repo Rate lowered to
5.25%.
As a part of initiative to support the economy from the negative fallout due ➢ Fall in CRR to 3.50%
to the pandemic, BB took several measures. The central bank lowered the (daily basis) & 4.00%
repo from 6.00% to 5.25%, followed by a reduction of the cash reserve (bi-weekly basis).
requirement (CRR) from 5.00% to 3.50% on a daily basis, and 5.50% to
4.00% in bi-weekly basis. Moreover, BB eminent the advance/investment
deposit ratio (ADR/IDR) by 2.00%, increasing ADR to 87.00% for
conventional banks and IDR to 92.00% for Shariah-based Islamic Banks. In
addition, BB stated several schemes for refinancing to aid in the credit flow
to businesses and households.
350

300

250

200
Through Banks
150
Through BB Refinance
100
Schemes
50

0
Industries and Service Sector Cottage, Micro, Small and Medium *Figure in BDT Billion
Enterprises
Exhibit 1: Government initiatives to support businesses & strengthening banks’ liquidity

As shown in the graph above, the government initiated interest payment

subsidies for working capital loans by banks to the businesses, with BDT 330
billion to industries and service sectors plagued by the coronavirus pandemic
and BDT 200 billion loans provided to Cottage, Micro, Small and Medium
Enterprises (CMSMEs). In this regard, BB introduced refinance schemes of
BDT 150 billion and BDT 100 billion respectively to ensure sufficient liquidity
of banks.

Bangladesh Bank has taken measures like relaxation over non-performing

loan classification, waiver of credit card interests & penalties for delay in
repayment, postponing loan payments with no additional penalties; imposing
restrictions on bank dividend payments etc. Classification of loans has not
changed since January 1 till December 31 of 2020 even during failure to pay
back the loan. BB also instructed the banks to extend the repayment tenure
of existing term loans by up to two years. Bangladesh Bank has also provide
relaxation on loan installment and as per Bangladesh Bank Circular financial
institutions can rearrange the numbers of installments for the short and long
term borrowers who are unable to pay the due installments between January
1 to December 31 of 2020 against their loans, lease and advances.
Bank deposits (excluding inter-bank items) increased by BDT 1,217,840.00 Comparison to June
million or 10.61% at the end of June 2020 as compared to June 2019 when 2019:
the growth rate was 9.89% compared to December 2018. The rise in total • Bank deposits
bank deposits was shared by all kinds of deposits. Demand deposits increased by 10.61%
increased by BDT 173,110.00 million or 14.64% to BDT 1,355,280.00 million in June 2020
in at the end of June 2020 against 4.42% increase at the end of June 2019. • Demand deposits
Besides, time deposits increased by 10.48% in June 2020 against 10.67% increased by 14.64%
increase as compared to June 2019. Government deposits increased by BDT in June 2020
5,320.00 million or 6.43% to BDT 880,990.00 million in June 2020 against • time deposits
9.20% increase compare to the data of June 2019. increased by 10.48%
Exhibit 2: Credit and Deposit of Banking Industry in June 2020
Particulars June 2020 June 2019 2019 2018 2017 2016
Deposits (BDT in Millions) 12,690,990 11,473,150 12,219,640 10,440,950 9,874,890 8,933,920
Credit (BDT in Millions) 10,940,070 10,041,810 10,520,930 8,994,930 8,050,850 6,787,940
Deposit Growth (%) 10.61 9.89 17.04 5.73 10.53 12.10
Credit Growth (%) 8.95 11.64 16.97 11.73 18.61 13.58
Source: Monetary Policy Department and Statistics Department, Bangladesh Bank

On the other hand, outstanding bank credit (excluding foreign bills and  Rise in the bank
inter-bank items) in FY2020 rose by 8.95% at the end of June 2020 as credit by 8.95%
compared to previous year’s same period and the growth rate was  Advances increased
11.64% in FY2019 (June) as opposed to the December 2018. The rise in by 9.91%
the bank credit occurred due to increasing of advances by banks while
bills purchased and discounted by banks slightly decreased in June 2020.
Advances increased by BDT 964,390.00 million or 9.91% in June 2020
against the increase of 11.74% compare to June 2019. Bills purchased
and discounted decreased by BDT 66,130.00 million or 21.63% in at the
end of June 2020 against the increase of 8.40% which was at the end of
June 2019.
Exhibit 3: Gross NPL Ratio of Banking Industry (in percentage)

Particulars 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020*
State Owned
11.3 23.9 19.8 22.2 21.5 25.1 26.5 30.0 23.9 22.7
Commercial Banks
Specialized Banks
14.6 26.8 26.8 32.8 23.2 26.0 23.4 19.5 15.1 15.9
(DFI)
Private
2.9 4.6 4.5 4.9 4.9 4.6 4.9 5.5 5.8 5.9
Commercial Banks
Foreign
3.0 3.5 5.5 7.3 7.8 9.6 7.0 6.5 5.7 5.5
Commercial Banks
Total 6.1 10.0 8.9 9.7 8.8 9.2 9.3 10.3 9.32 9.2
Source: Banking Regulation and Policy Department (BRPD), Bangladesh Bank
*June 2020

The overall NPL of the banking industry stood at 9.32% as on

December 31, 2019. The NPL fell further to 9.2% as on June 2020.
The reduction of NPLs was affiliated with “One Time Exit Policy” for  NPL fell
bad loan rescheduling offered by Bangladesh Bank at the beginning further to
of FY2020 and scaled up efforts for loan recovery by banks. Gross 9.2%
NPL for both SCBs and FCBs went down to 22.70% and 5.50% as on  Net NPL
June 30, 2020. Overall provisioning against classified loans further ratio fell
to 0.15%
improved at the end of second quarter of FY2020, however, SCBs
witnessed deterioration. The system-wide net NPLs of the banking
industry witnessed an improvement, Net NPL ratio of the banking
sector was 1.02% in December 2019 which fell to 0.15% at the end
of June 2020.
 Industry
Highlights RMG Sector
Bangladesh being the second largest apparel exporter in the world
fetching more than 84% of the country’s export earnings had been facing • Contribution to GDP
a tremendous challenge after the coronavirus outbreak. Over the last around 11.2%.
three decades, the RMG exports have registered a cumulative average
• 36% of manufacturing
growth of 14.8% per annum reaching USD34.2 billion in FY2019 which is
employment engaging 4.1
84.2% of the country’s total exports and dropped by more than 18% to
million workers
around USD27.95 billion in FY2020 according to EPB data.

60000
40000
20000
0
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Source: EPB (*FY2019-20 July-Sep)
Total Export RMG Export
Exhibit 4: RMG Export in Comparison to Total Export
Orders Cancelled or
Many international buyers had been cancelling or postponing confirmed Suspended: USD 3.16
procurement orders as their retail outlets were substantially closed in billion worth of
Europe, North America, Asia and elsewhere. shipments involving
1,142 factories affecting
Moreover, the country has been facing tough competition from its close 2.26 million workers
contender, Vietnam, in the global market. Vietnam has comparatively (April 18, 2020)
done better than Bangladesh during the lockdown as it started its
operations early and has advantage in lower raw material prices, higher
production capacity, lower lead time, productive employees, product
diversification, etc. The sector is looking forward for government support
and policies to overcome the challenges of Bangladesh.

Nonetheless, the government announced a stimulus package of BDT50

billion for RMG and other export-oriented industries for paying salaries-
allowances to workers & employees with fund of USD5.0 billion facilitating
short-term obligations for importing raw materials for export-oriented
industries. However, it will only meet a fraction of the massive
requirements of the sector, which needs at least USD470 million to pay
wages every month.
3,500.00
3,000.00
2,500.00
2,000.00
1,500.00
1,000.00
500.00
-
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
Woven 1,625. 1,505. 1,200. 194.55 622.16 1,075. 1,494. 1,103. 1,064. 985.50 1,110.
Knit 1,414. 1,278. 1,055. 180.12 608.38 1,164. 1,750. 1,364. 1,348. 1,338. 1,334.
Total 3,039. 2,784. 2,256. 374.67 1,230. 2,240. 3,244. 2,468. 2,413. 2,323. 2,444.
Woven Knit Total Source: EPB (USD Million)
Exhibit 5: Month wise Woven & Knit export till December
 Insights from
Industry Expert’s Perspective
 Economic and
Business Indicators