Bangladesh University of Professionals

Assignment on 9 Regulations and Guidelines Imposed by

Bangladesh Bank (BB) for Banking

Course: Bank Management (FIN 4204)

Submitted To:

MD. Nahid Alam

Lecturer, Bangladesh University of professionals

Submitted By:

Taj Ul Al Tonoy

ID: 17221052

Section: B

Department of Business Administration in Finance and Banking

Faculty of Business Studies,

Bangladesh University of Professionals

th
Date of Submission: 14 July, 2020
 1. Guidelines to establish a banking company in Bangladesh

According to the banking company’s act 1991, banking company in Bangladesh needs to obtain
a license from the Bangladesh bank. There are some other rules to follow for opening a bank in
Bangladesh discussed below-

 The company has to be a public limited company.

 Paid up capital has to be of 400 crores in Bangladeshi taka.
 The payment has to be done in liquid form such as cash.
 Company has to issue public shares within 3 years.
 Each sponsor must have at least of 1 crore of the shares to a maximum of 10% of the total
shares.
 Sponsors shares cannot be transferred within 3 years of the opening.
 The director of the bank cannot be a director of any other banking company.
 There can be a highest of 13 board of directors.
 The CEO has to have experience of 15 years in banking profession.
 The ratio of urban to rural branches has to be 1:1.
 5% of total lending activities has to be to the agricultural sector.

These are some main points in establishing a banking company in Bangladesh. There are a lot
more rules to follow.

2. Prudential Guidelines for Agent Banking Operations in Bangladesh

In exercise of the powers conferred to Bangladesh Bank in Section 45 of the Bank-Company

Act, 1991 (Act no. XIV of 1991). These guidelines may be called as the “Prudential Guidelines
for Agent Banking Operation in Bangladesh”. Agent banking is the business of providing
banking services through agent networks. Agent banking has currently been on the rise as banks
are trying to reach unbanked people in the rural areas. Here are some major rules for the banks to
establish agent network.

 Banking companies willing to offer agent services has to take permissions from the
Bangladesh bank.
 Banks has to show the full risk disclosure of the operations.
 Opinion of an independent auditor has to be submitted to establish an agent network.
  The approximate implementation schedule has to be submitted

3. Guidelines for conducting Islamic banking

Islamic banking means the banking or financing activity that complies with Sharia (Islamic law)

and its practical application through the development of Islamic economics .Some rules they
need to follow are as follows-

 It has to be a public limited company and at least 50% of the shares has to be listed.
 Financial transactions have to be according to the financial system of the Holy Quran.
 Paid up capital of 2 Billion BDT.
 They need to follow the capital adequacy ratio of other conventional banks.
 Minimum shareholders need to have is 2.5 million to highest of 10% of the total value.
 CEO has to have 3 years of experience in Islamic banking.
 They need to follow other banking company rules.

4. Guidelines on Risk Based Capital Adequacy

To ensure that insurers maintain a capital adequacy level that is commensurate to their risk
profile at all times, “Basel III: A global regulatory framework for more resilient banks and
banking systems” in December 2010 by Insurance and Reinsurance Companies transacting
insurance business. Some of their main goal is to-

 Strengthening the capital framework.

 Enhancing risk coverage.
 Supplementing the Risk-based Capital Requirement with a Leverage Ratio.
 Reducing procyclicality and promoting countercyclical buffers.
 Addressing systemic risk and interconnectedness.

 Introducing a global liquidity standard.

 Transitional arrangements.

This is a detail capital adequacy risk discussion that follows these main points.
 5. Policy Guidelines for Green Banking

It is the high time for the banks to adopt a comprehensive Green Banking Policy in a formal
and structured manner in line with global norms so as to protect environmental degradation
and ensure sustainable banking practices.

There are 3 phases of adoption of green banking according to BB’s timeline-

 Phase i

 Policy Formulation and Governance

 Incorporation of Environmental Risk in CRM
 Initiating In-house Environment Management.
 Introducing Green finance.
 Creation of Climate Risk Fund.
 Introducing Green Marketing.
 Online Banking.
 Supporting Employee Training, Consumer Awareness and Green Event.
 Disclosure and Reporting of Green Banking Activities.
 Phase ii

 Sector Specific Environmental Policies.

 Green Strategic Planning.
 Setting up Green Branches.
 Improved In-house Environment Management.
 Rigorous Programs to Educate Clients.
 Disclosure and Reporting of Green Banking Activities.
 Phase iii

 Designing and Introducing Innovative Products

 Reporting in Standard Format with External Verification.
 6. Guidelines on Internal Credit Risk Rating System for Banks

Credit risk is the risk of losses arising from borrowers' failure to repay the loans or meet
contractual obligations. In order to establish a sound credit risk management, adopting a modern
rating mechanism is important.

Some general instructions for credit rating are-


Banks shall strictly follow this guidelines and rating system issued by Bangladesh Bank
without making any change, extension, modification or deletion.


The ICRR shall be applicable for all exposures except consumer loans.


ICRR shall be an integral part of the credit approval process.


Banks shall use the latest audited financial statements of the borrower for generating the
quantitative rating under ICRR.
There are many more ICRR rules to follow according to the industry and sectors of the
companies and everything.

7. Credit Risk

Credit risk is the risk of loss that may occur from the failure of any party to abide by the terms
and conditions of any financial contract, principally, the failure to make required payments on
loans due to an entity. Credit risk is one of the integral part of bank management.
Some indicators of high credit risks are-

 The level of loans is high relative to total assets and equity capital.
 The bank is highly dependent on interest and fees from loans and advances.
 Loan yields are high and reflect an imbalance between risk and return.

Indicators of poor credit risk management:

 Credit culture or materially is absent flawed.

 Anxiety for income dominates planning activities.

 There is little evidence of accountability for loan quality in the origination and/or
administration function.
 8. Foreign exchange risk

Foreign exchange risk is one major concern for international transaction and businesses which is why
we need to assess the risk efficiently to survive in the interconnected global financial system.

Some market risk management procedures according to the central bank are as follows-

 Review policy at least annually and update as required.

 Independently identify all relevant market risk factors for each risk taking unit.
 Ensure that limits/ triggers are appropriately established.
 If applicable, review and approve limit frameworks, as well as limit change requirements.
 Recommend corrective actions for any limit excesses.

9. Money laundering risks.

Money laundering is the illegal process of making large amounts of money generated by a criminal
activity, such as drug trafficking or terrorist funding, appear to have come from a legitimate source.
Guidelines for Money Laundering Risks prevention which was established under the guidance of
the Bangladesh Bank to supervise the issues regarding implementing of the Prevention of Money
Laundering Act 2002, the Rules and Directives of the Bangladesh Bank. Some preventive
measures according to BB money laundering risk measurements-

 Each bank and other financial institution must maintain an anti-money-laundering

compliance policy that ensures and monitors compliance with the Act.
 The written anti-money-laundering compliance policy at a minimum should establish clear
responsibilities and accountabilities within their organizations to ensure that policies.
 The Policies should be tailored to the institution and would have to be based upon an
assessment of the money laundering risks, taking into account the Financial institution’s
business structure and factors.