Chapter-5

Banking Sector Performance, Regulation and Bank Supervision

5.1 The performance of the banking sector
of Bangladesh has been largely affected by
the COVID-19 pandemic situation for the last
four months of FY20. Almost all the large
financial markets around the world have
been extremely impaired due to the lockdown
aiming at hindering the escalation of pandemic.
Bangladesh has also lost huge export earnings
and its pace of internal production has been
reduced significantly due to 66 (sixty six) days
long countrywide lockdown. Both the internal
and external situations of the financial market
have created enormous pressure on the
banking sector. Despite these, all scheduled
banks of the country remained operational for
specified time in every working day during the
lockdown period to provide regular banking
services to their customers. Moreover, to help
the scheduled banks and non-bank financial
institutions (NBFIs) to survive in this critical
situation and to continue their contribution in
revamping the country's economy, Bangladesh
Bank (BB) has announced a series of policies
and prudential measures from the very
beginning of the pandemic situation. These
include but not limited to, re-fixation of the
regulatory liquidity ratios to ensure additional
liquidity in the banking sector, issuance of
sufficient prudential guidelines to maintain
proper office environment in the banks for
continuing the business activities in a limited
scale as well as compensation package for
the employees as frontline workers during
the lock down period, easing of foreign trade
and foreign currency transaction regulations,
temporary relaxation in the loan classification
policy, modeling and implementation of the
Govt. stimulus packages for different segments
of the economy and refinance schemes to
provide liquidity support to those packages
and introduction of special fund for capital
market investment, etc. Furthermore, the pre-
announced ceiling of lending rate was also
introduced from April 01, 2020. As a part of
supervisory activities, regular and special
on-site inspections have been conducted
throughout the year. The performance of the
Risk Management Committee at the board
level of banks is also being evaluated regularly.
Special monitoring has been continued by BB to
oversee the liquidity level of the banking sector
which results in a sufficient and strong level of

Table 5.1 Banking Systems Structure, Assets and Deposits

(In billion BDT)
2018 2019
Bank Share in Share in Share in Share in
types Number Number of Total industry Total industry Number of Number of Total industry Total industry
of banks branches assets assets (in Deposits deposits (in banks branches assets assets (in Deposits deposits (in
percent) percent) percent) percent)
SCBs 06 3746 3732.2 25.6 2868.4 26.6 06 3773 3995.4 24.51 3038.6 25.0
SBs 03 1412 324.0 2.2 286.0 2.6 03 1483 357.5 2.2 312.7 2.6
PCBs 41 5060 9769.7 67.0 7127.2 66.0 41 5257 11048.2 67.8 8269.6 68.1
FCBs 09 68 747.1 5.2 517.2 4.8 09 65 897.2 5.5 524.4 4.3
Total 59 10286 14572.9 100.0 10798.7 100.0 59 10578 16298.4 100.0 12145.2 100.0
Note: All banks, except BKB and RAKUB, prepare their balance sheet on calendar year basis, and are obliged to submit their audited
balance sheet at the end of every calendar year. That is why banks' performance-related figures are stated in calendar year basis.
Source: DOS and BRPD, BB.

37
Chapter-5 Banking Sector Performance, Regulation and Bank Supervision

Chart 5.1 Aggregate Industry Assets Chart 5.2 Aggregate Industry Liabilities
(In billion BDT) (In billion BDT)

December, 2018 Loans & December, 2018 Deposits,

Advances, 10798.71,
9228.96, 74.1%
63.3%

Govt. bills &

bond , Other Share
1643.09 , Assets, holder's
11.3% Other
Deposit with Cash in tills, 2726.04, equity, liability,
BB, 834.92, 139.9, 1.0% 18.7% 930.97, 2843.24,
5.7% 6.4% 19.5%

December, 2019
December, 2019 Loans &
Advances, Deposits,
10315.09, 12145.18,
63.3% 74.5%

Govt. bills &

bond, Other
2157.1, Share Other
Assets, holder's
13.2% 2779.13, liability,
Deposit with Cash in tills, equity, 3125.7,
161.64, 1.0% 17.1%
BB, 885.4, 1027.48, 19.2%
5.4% 6.3%

Source: DOS, BB. Source: DOS, BB.

aggregate liquidity at the end of FY20. Besides, the mode of operations (e.g. conventional and
BB continues its efforts to reduce overall NPLs Islami Shariah based), there are three type of
of the banking sector. At the end of FY20, the banks: full-fledged conventional banks, full-
overall NPL ratio and Capital to Risk weighted fledged Islami Shariah based banks and banks
Asset Ratio (CRAR) stood at 9.56 percent and with dual operation. Information on the banking
11.63 percent respectively. structure and activities by type of banks is
shown in Table 5.1.
Banking Sector Performance
5.3 In 2019, the SCBs held 24.5 percent
5.2 Depending on the ownership structure,
share of the total assets which was 25.6
there are four categories of scheduled banks
percent in 2018. PCBs' share of the total assets
in Bangladesh: state-owned commercial banks
increased slightly to 67.79 percent in 2019 from
(SCBs), state-owned development financial
67.0 percent in 2018. The FCBs held 5.5 percent
institutions (SBs), private commercial banks
share of the total assets in 2019, showing an
(PCBs) and foreign commercial banks (FCBs).
increase of 0.3 percent over the last year. The
Total number of scheduled banks operated in
SBs' share of the total assets was 2.2 percent
2019 was 59. Two (02) new banks (Prabashi
in 2019 which was same in 2018. At the end
Kallyan Bank, Community Bank) have received
of December 2019, total assets of the banking
license and started their operation. Besides,
sector stood at BDT 16298.4 billion which was
one new bank (Bengal Commercial Bank)
11.84 percent higher than that of the previous
has got license as scheduled bank as on 23
year (Table-5.1).
February 2020. The number of bank branches
increased to 10,578 at the end of December 5.4 Total deposits of the banking sector
2019 from 10,286 of December 2018 (Appendix stood at BDT 12145.2 billion in 2019 which
4, Table I). On the other hand, depending on was BDT 10798.7 billion in 2018, showing an

38
Banking Sector Performance, Regulation and Bank Supervision Chapter-5

increase of 12.46 percent. From the year 2018 Chart 5.3 Aggregate Capital Adequacy
to 2019, considering the share in total deposit Position
of the banking sector, SCBs' share decreased 12000 15

from 26.6 percent to 25.0 percent, PCBs' share 10000 12

increased from 66.0 percent to 68.1 percent, 8000
9

in billion BDT
FCBs' share decreased from 4.8 percent to 4.3 6000

in percent
6
percent and SBs' share remained same which 4000
3
was 2.6 percent in both years (Table 5.1). 2000

0 0
Banking Network by Branches

2020*
2011

2012

2013

2014

2015

2016

2017

2018

2019
5.5 As on 31 December 2019, total number Capital RWA Capital/RWA (RHS)

of branches of the 59 scheduled banks were *30 June 2020

Source: DOS, BB.
10,578 (Appendix 4, Table. I). Among these,
48.51 percent (5131) of the bank branches
were in rural areas and the rest (5447 branches Table 5.2 Capital to Risk Weighted Assets
Ratio by Type of Banks
or 51.49 percent) were in urban areas. The (In percent)

SCBs had 2018 rural branches and 1755 urban Bank

End
2011 2012 2013 2014 2015 2016 2017 2018 2019 June
branches. Specialized banks had 1205 rural types
2020

branches and 278 urban branches. Private SCBs 11.7 8.1 10.8 8.3 6.4 5.9 7.0 10.3 5.0 6.9

commercial banks had 1908 rural branches and SBs -4.5 -7.8 -9.7 -17.3 -32.0 -33.7 -32.8 -31.7 -32.0 -36.5

3349 urban branches. Foreign commercial banks PCBs 11.5 11.4 12.6 12.5 12.4 12.4 12.2 12.8 13.6 13.3

had total 65 branches. FCBs 21.0 20.6 20.2 22.6 25.6 25.4 23.3 25.9 24.5 24.4

Total 11.4 10.5 11.5 11.3 10.8 10.8 10.8 12.1 11.6 11.6
Aggregate Balance Sheet
Source: DOS, BB.

5.6 In 2019, total assets of the banking

FY20 and it (excluding inter-bank) constituted
sector stood at BDT 16,298.4 billion showing an
74.5 percent of the total amount of liability and
increase of 11.8 percent over the total assets in
shareholders' equity in 2019. Total shareholders'
2018. During this period, the SCBs' assets rose
equity of the banks was BDT 1027.5 billion at
by 7.1 percent and that of the PCBs' increased
the end of December 2019 which was BDT
by 13.1 percent. The aggregate banking sector
931.0 billion in 2018 (Chart 5.2).
assets consisted of BDT 10315.1 billion as
loans and advances (63.3 percent of total Capital Adequacy
assets), BDT 161.6 billion as cash in tills
5.8 Capital adequacy focuses on the
including foreign currencies, BDT 885.4 billion
overall position of bank's capital and the
as deposit with BB including foreign currencies,
protection of the depositors and other creditors
BDT 2157.1 billion as investment in treasury
from potential losses that a bank might incur.
securities and BDT 2,779.1 billion as other
It helps banks to absorb possible losses due
assets during the period (Chart 5.1).
to credit, market and operational risks that a
5.7 Deposits continued to be the main bank might be exposed to during its normal
sources of funds of the banking industry in course of business. Under Basel-III, banks

39
Chapter-5 Banking Sector Performance, Regulation and Bank Supervision

in Bangladesh are instructed to maintain the Chart 5.4 Aggregate Position of NPLs to
Minimum Capital Requirement (MCR) at 10.0 Total Loans
percent of the Risk Weighted Assets (RWA) or
12000 12
BDT 4.0 billion as capital, whichever is higher. 10000 10

in billion BDT
The aggregate amount of regulatory capital of 8000 8
the banking sector was BDT 1211.35 billion as 6000 6

in percent
on 31 December 2019 which increased to BDT 4000 4
2000 2
1267.09 billion at the end of June 2020.
0 0

2020*
2011

2012

2013

2014

2015

2016

2017

2018

2019
5.9 Table 5.2 shows the Capital to Risk
Weighted Assets Ratio (CRAR) by type of Total Loans NPLs NPL Ratio (RHS)

banks. It is observed that the CRAR of SCBs, *Up to 30 June 2020

Source: BRPD, BB.
PCBs and FCBs were 6.93, 13.31 and 24.35
percent respectively as on 30 June 2020.
Both the SBs failed to maintain MCR on risk Table 5.3(a) Ratio of Gross NPLs to Total Loans by
Type of Banks
weighted assets basis. Besides, 4 SCBs and 3 (in percent)

PCBs could not maintain the minimum required Bank

End
2011 2012 2013 2014 2015 2016 2017 2018 2019 June
types
CRAR. The CRAR of the banking industry as 2020

a whole was 11.63 percent at the end of June SCBs 11.3 23.9 19.8 22.2 21.5 25.0 26.5 30.0 23.9 22.7
SBs 24.6 26.8 26.8 32.8 23.2 26.0 23.4 19.5 15.1 15.9
2020 (Chart 5.3).
PCBs 2.9 4.6 4.5 4.9 4.9 4.6 4.9 5.5 5.8 5.9
Asset Quality FCBs 3.0 3.5 5.5 7.3 7.8 9.6 7.0 6.5 5.7 5.5
Total 6.1 10.0 8.9 9.7 8.8 9.2 9.3 10.3 9.3 9.2
5.10 The most important indicator to
Source: BRPD, BB.
demonstrate the asset quality is the ratio of
gross Non-Performing Loans (NPLs) to total
Table 5.3 (b) Ratio of Net NPL to Net Total
loans and net NPLs to net total loans. At the Loans by Type of Banks
(in percent)
end of December 2019, the gross NPL ratio of
End
the banking sector stood at 9.32 percent. Table Bank
2011 2012 2013 2014 2015 2016 2017 2018 2019 June
types
2020
5.3 (a) shows that FCBs had the lowest and
SCBs -0.3 12.8 1.7 6.1 9.2 11.1 11.2 11.3 6.1 3.2
SCBs had the highest gross NPL ratio. FCBs'
SBs 17.0 20.4 19.7 25.5 6.9 10.5 9.7 5.7 3.0 2.7
gross NPL ratio was 5.74 percent, whereas PCBs 0.2 0.9 0.6 0.8 0.6 0.1 0.2 0.4 -0.1 -0.5
those of SCBs, PCBs and SBs were 23.86, FCBs -1.8 -0.9 -0.4 -0.9 -0.2 1.9 0.7 0.7 0.2 -0.4
5.78 and 15.13 percent respectively at the end Total 0.7 4.4 2.0 2.7 2.3 2.3 2.2 2.2 1.0 0.2

of December 2019. Source: BRPD, BB.

5.11 From the table 5.3(a), it is observed
that the ratio of gross NPLs to total loans and
advances indicates a mixed trend in the banking
sector during the period from 2011 to June
2020. NPL ratio of the banking sector was 6.1
percent in 2011. But the ratio sharply increased
to 10.0 percent in 2012 mainly due to adaptation
of new loan classification policy. From 2013, a
fluctuating trend of NPL ratio was observed and
it was 9.32 percent as on 31 December 2019. At
the end of June 2020, NPL ratio of the banking
sector stood at 9.16 percent [Table 5.3(a)].

40
Banking Sector Performance, Regulation and Bank Supervision Chapter-5

5.12 Comparatively poor assessment and

Table 5.4 Amount of NPLs by Type of Banks
inadequate follow-up and supervision of the (in billion BDT)

loans have eventually resulted into the current End

Bank
2011 2012 2013 2014 2015 2016 2017 2018 2019 June
types
situation of poor asset quality of SCBs and SBs. 2020

However, various measures (i.e. strengthening SCBs 91.7 215.2 166.1 227.6 272.8 310.3 373.3 487.0 439.9 429.4
SBs 56.5 73.3 83.6 72.6 49.7 56.8 54.3 47.9 40.6 45.2
of recovery unit and special recovery program)
PCBs 72.0 130.4 143.1 184.3 253.3 230.6 294.0 381.4 441.7 465.9
for increasing recovery against non-performing
FCBs 6.3 8.5 13.0 17.1 18.2 24.1 21.5 22.9 21.0 20.6
loans have been taken by the banks. Besides,
Total 226.5 427.4 405.8 501.6 594.0 621.8 743.1 939.2 943.3 961.2
several policy initiatives regarding restructuring,
Source: BRPD, BB.
rescheduling, recovery, one time exit and write-
off of classified loans have also been taken by
Table 5.5 Required Provision and Provision
Bangladesh Bank to reduce NPLs. Maintained-all Banks
(in billion BDT)
5.13 Table 5.3 (b) shows that the ratio of net End
Bank
2011 2012 2013 2014 2015 2016 2017 2018 2019 June
NPLs (net of provisions and interest suspense) types
2020
to net total loans (net of provisions and interest Amount
of NPLs 226.4 427.3 405.8 501.6 594.1 621.7 743.0 939.1 943.3 961.2
suspense). Net NPL ratio of the banking sector
Required
was 1.02 percent in December 2019. The net Provision 148.2 242.4 252.4 289.6 308.9 362.1 443.0 570.4 613.2 654.0

NPLs ratios were 6.12, 3.00, -0.07 and 0.19 Provision

maintained 152.7 189.8 249.8 281.6 266.1 307.4 375.3 504.3 646.6 609.0
percent for the SCBs, SBs, PCBs and FCBs Excess(+)/
shortfall(-) 4.6 -52.6 -2.6 -7.9 -42.8 -54.7 -67.7 -66.1 -66.6 -45.0
respectively at the end of December 2019. Net
Provision
NPL ratio of the banking sector stood at 0.15 maintenance
ratio (%) 103.0 78.3 99.0 97.2 86.1 84.9 84.7 88.4 89.2 93.1
percent at the end of June 2020.
Source: BRPD, BB.

5.14 Table 5.4 shows the amount of NPLs of

the four type of banks from 2011 to June 2020.
During 2011 to 2019, the amount of NPLs of
SCBs, PCBs and FCBs have increased by BDT
348.2 billion, BDT 369.7 billion and BDT 14.7
billion respectively and the amount of NPLs of
SBs have decreased by BDT 15.9 billion. As of
June 2020, the total volume of non-performing
loans (NPLs) of the banking sector was BDT
961.2 billion.
5.15 Table 5.5 shows the aggregate amount
of NPLs, the required provision and the actual
provision maintained by the banks from 2011
to June 2020. The table shows that there was
provision shortfall against NPLs in the banking
sector except for the year 2011. In 2011,
provision maintenance ratio was 103.0 percent.
The ratio showed declining trend from 2014 to
2017 and from 2018 the situation started to
improve slightly with the ratio standing at 89.15
percent in 2019. As of June 2020, provision
maintenance ratio of the banking industry was
93.12 percent.
5.16 A comparative position of provision
against loans (for both classified and
unclassified) of four type of banks from 2018
to June 2020 is shown in Table 5.6. From the
table, it is observed that SBs, PCBs and FCBs,
except SCBs, were able to maintain required
provision against loans from 2018 to June
2020. However, provision maintenance ratio of
SCBs has increased slightly in June 2020.

41
Chapter-5 Banking Sector Performance, Regulation and Bank Supervision

5.17 In order to rectify an unnecessarily Chart 5.5 Trends in Aggregate Position

and artificially inflated size of the balance of Income and Expenditure in
sheet, a uniform guideline for write off loans the Banking Industry
was introduced in 2003 by Bangladesh Bank. 1400 90

Furthermore, a new policy was introduced in 1200 85

1000

in billion BDT
February 2019 in this regard via BRPD circular 80

in percent
800
no.01 dated February 6, 2019. Banks may 600
75

70
write off their bad/loss loans complying with the 400
65
terms and conditions covered by the new policy 200
0 60
guidelines. The cumulative amount of written-

2020*
2011

2012

2013

2014

2015

2016

2017

2018

2019
off loans by different bank categories is given
Total Expenses Total Income EI Ratio (RHS)
in Table 5.7.
*Up to 30 June 2020
Source: DOS, BB.
Management Soundness

5.18 Sound management is one of the Table 5.6 Comparative Position of Provision
important pre-requisites for the strength Adequacy
(In billion BDT)
and growth of any financial institution. Year Items SCBs SBs PCBs FCBs

Although there is no direct means to measure Required provision 289.3 23.4 241.1 16.6
2018 Provision maintained 210.6 25.9 250.2 17.6
management soundness but total expenditure Provision maintenance ratio (%) 72.8 110.7 103.8 106.0
to total income, operating expenses to total Required provision 275.9 21.1 300.6 16.0
2019 Provision maintained 197.4 22.5 309.3 17.5
expenses, earnings and operating expenses
Provision maintenance ratio (%) 71.7 106.7 102.9 109.2
per employee and interest rate spread are Required provision 276.9 23.9 337.5 15.9
2020
generally used to determine management June
Provision maintained 216.9 25.3 347.8 19.0
Provision maintenance ratio (%) 78.4 105.8 103.0 121.1
soundness of a financial institution. Besides,
Source: BRPD, BB.
issues such as technical competence and
leadership of mid and senior level management, Table 5.7 Writing-off Bad Debts by Type
compliance with banking laws and regulations, of Banks
(In billion BDT)
implementation of internal policies, ability to
Bank 30 30 30 30 30 30 30 30 30 30
implement strategic plan and taking timely Types June June June June June June June June June June
11 12 13 14 15 16 17 18 19 20
initiatives, etc. are taken into consideration to SCBs 82.4 72.9 107.2 154.8 210.3 220.4 224.4 226.2 232.2 179.4
measure the quality of management. SBs 32.0 24.5 32.6 34.2 5.6 5.6 5.6 5.6 5.8 3.8
PCBs 77.1 64.9 109.7 127.7 155.5 189.4 216.7 246.5 294.3 239.4
5.19 Table 5.8 shows that the Expenditure FCBs 2.4 2.6 3.7 4.4 5.1 7.2 8.6 10.7 12.3 10.1
Total 193.9 164.9 253.2 321.1 376.5 422.6 455.3 489.0 544.6 432.7
to total Income (EI) ratio of the banking sector
Source: BRPD, BB.
was 78.0 percent at the end of December 2019.
As evident from table, the EI ratio of the SBs December 2019. The EI ratios of all bank
was 159.8 percent which is the highest among categories showed an increasing trend
the bank categories in 2019 mainly due to compared to that of the last year. The EI ratio
high operating expenses of these banks. The of the banking sector stood at 84.10 percent
EI ratios of the SCBs, PCBs and FCBs were at the end of June 2020. The increasing trend
84.9, 77.6 and 48.8 percent respectively in in EI ratio particularly operating expenses to

42
Banking Sector Performance, Regulation and Bank Supervision Chapter-5

total expenses has the negative impacts on Chart 5.6 Trends in Aggregate Profitability
the net profits and management soundness of in the Banking Industry
the banks. Chart 5.5 shows the expenditure- 24
income ratio of the banking sector.
18

Earnings and Profitability 12

in percent
5.20 Although various indicators are used to 6

determine earnings and profitability, the most 0

representative and widely used ones are return

2020*
2011

2012

2013

2014

2015

2016

2017

2018

2019
on assets (ROA), return on equity (ROE) and
ROA ROE
net interest margin (NIM).
*Up to 30 June 2020
Source: DOS, BB.
5.21 Earnings as measured by ROA and
ROE differ among the bank categories. Table
Table 5.8 Expenditure-Income Ratio by
5.9 shows ROA and ROE of four type of banks Type of Banks
during the period from 2011 to June 2020. (In percent)
End
Bank
The table illustrates that the ROA of the SCBs types
2011 2012 2013 2014 2015 2016 2017 2018 2019 June
2020
and SBs were always less than the industry SCBs 62.7 73.2 84.1 84.1 84.5 90.2 81.3 80.5 84.9 85.8
average ROA. The ROA of SCBs has slightly SBs 88.6 91.2 94.8 99.5 113.9 137.8 124.0 144.6 159.8 189.0
PCBs 71.7 76.0 77.9 75.8 75.5 73.5 73.8 76.7 77.6 82.6
improved (-0.61percent) in 2019 as compared
FCBs 47.3 49.6 50.4 46.8 47.0 45.7 46.6 47.5 48.8 45.5
to that (-1.30 percent) of 2018. On the other Total 68.6 74.0 77.8 76.1 76.3 76.6 74.7 76.6 78.0 84.1
hand, after showing an increasing trend from Source: DOS, BB.

2012 to 2016, ROA of PCBs has gradually

declined in the recent years. Though ROA of
FCBs showed a decreasing trend from 2014
to 2018 but it always remained in a strong
position. ROA of the banking sector stood at
0.42 percent in June 2020.
5.22 Table 5.9 also presents that ROE of
the SCBs stood at -13.68 percent in 2019 which
was -29.61 percent in 2018. ROE of SBs also
fell down to -17.04 percent in 2019 whereas
ROE of PCBs increased to 11.16 percent in
2019 from 10.98 percent in 2018. ROE of FCBs
has been in declining trend since 2015 but in
2019, it has increased to 13.43 percent. ROE
of the banking sector stood at 6.68 percent in
June 2020. Trends in aggregate profitability for
all banks are given in chart 5.6.
5.23 Table 5.10 shows that Net Interest
Margin (NIM) of the banking industry stood at
3.12 percent in 2019 which was 3.22 percent in
2018. The NIM for all the type of banks (SCBs,
SBs, PCBs and FCBs) dropped off in 2019
as compared to that of 2018. Analysis of the
indicator reveals that NIM for PCBs (except
2011) and FCBs was always higher than the
industry average. NIM for SCBs was negative
0.32 percent in 2013, afterwards it showed a
mixed trend during the period from 2014 to
2019. However, NIM for overall banking sector
was significantly high (3.56 percent) in 2014,
afterwards it exhibited a downward trend up
to 2019 except an increase in 2018. NIM for
overall banking sector stood at 2.70 percent at
the end of June 2020 (Table 5.10).

43
Chapter-5 Banking Sector Performance, Regulation and Bank Supervision

Table 5.9 Profitability Ratios by Type of Banks

(In percent)
ROA ROE
Bank End End
types 2011 2012 2013 2014 2015 2016 2017 2018 2019 June 2011 2012 2013 2014 2015 2016 2017 2018 2019 June
2020 2020
SCBs 1.3 -0.56 0.59 -0.55 -0.04 -0.16 0.21 -1.30 -0.61 0.04 19.7 -11.87 10.93 -13.46 -1.47 -6.02 3.45 -29.61 -13.68 0.81
SBs 0.1 0.06 -0.40 -0.68 -1.15 -2.80 -0.62 -2.77 -3.31 -5.11 -0.9 -1.06 -5.81 -5.97 -5.79 -13.88 -3.07 -13.47 -17.04 -22.86
PCBs 1.6 0.92 0.95 0.99 1.00 1.03 0.89 0.79 0.77 0.58 15.7 10.17 9.76 10.26 10.75 11.09 12.01 10.98 11.16 8.48
FCBs 3.2 3.27 2.98 3.38 2.92 2.56 2.24 2.23 2.30 2.19 16.6 17.29 16.93 17.67 14.59 13.08 11.31 12.42 13.43 13.80
Total 1.5 0.64 0.90 0.64 0.77 0.68 0.74 0.25 0.43 0.42 17.0 8.20 11.10 8.09 10.51 9.42 10.60 3.86 6.83 6.68
Source: DOS, BB.

Liquidity Table 5.10 Net Interest Margin by Type of

Banks
5.24 Effective liquidity management helps (In percent)
to ensure bank's ability to meet cash flow Bank June
2011 2012 2013 2014 2015 2016 2017 2018 2019
types 2020
obligations, which are uncertain as they are SCBs 3.66 1.18 -0.32 1.96 1.62 1.75 1.98 2.35 1.94 1.87
affected by external events and other agents' SBs 3.70 2.92 1.98 1.50 1.43 0.76 2.05 0.62 0.01 -0.91
PCBs 3.19 3.06 2.77 4.11 3.85 3.89 3.52 3.55 3.52 2.95
behaviour. Indicators like advance-deposit ratio FCBs 5.57 5.56 3.73 5.98 6.08 4.99 4.35 4.30 4.21 4.21
(ADR), statutory liquidity ratio (SLR), interbank Total 3.48 2.79 2.02 3.56 3.28 3.27 3.13 3.22 3.12 2.70
Source: DOS, BB.
call money rate, and repo rate show the real
picture of liquidity of the banking sector. On the
Table 5.11 SLR Eligible Assets as Percentage
other hand, one can evaluate bank's strength of ATDTL by Type of Banks
(In percent)
to survive in any liquidity stressed situation
Bank June
2011 2012 2013 2014* 2015 2016 2017 2018 2019
through liquidity coverage ratio (LCR) and net types 2020
SCBs 31.3 29.2 44.3 42.0 41.4 40.0 30.4 24.8 27.3 30.8
stable funding ratio (NSFR) by assuming a
SBs 6.9 12.0 15.3 6.6 0.0 0.0 0.0 0.0 0.0 0.0
hypothetical scenario. PCBs 23.5 26.3 28.0 28.2 19.7 17.8 14.8 14.2 16.4 18.0
FCBs 34.1 37.5 46.2 56.9 51.8 48.2 43.8 48.4 29.7 37.9
5.25 Overall advance deposit ratio (ADR) in Total 25.4 27.1 32.5 32.7 26.5 24.9 19.9 18.2 19.9 22.3
the banking sector stood at 76.2 percent in June * The calculation of liquidity ratio has been changed from 01 February
2014 (MPD Circular no. 02/2013)
2020. The regulatory maximum limit of ADR for Source: DOS, BB.

conventional banks and investment deposit

ratio (IDR) for Islamic Shariah based banks 13.00 percent of ATDTL. In case of Islamic
were 87 percent and 92 percent respectively. Shariah based banks, the rate of SLR is 5.50
percent of their ATDTL. Four banks (three
5.26 All scheduled banks have to maintain
specialized banks and BDBL) are exempted
Cash Reserve Ratio (CRR) averaging 4.00
from maintenance of SLR, but these banks
percent daily on a biweekly basis against
have to maintain CRR at the same rate like
average total demand and time liabilities
other scheduled banks. Banks have to maintain
(ATDTL) of the second preceding month, with
CRR in cash with Bangladesh Bank.
an obligation to maintain daily minimum 3.50
percent cash against the same ATDTL held by 5.27 Banks having Off-shore Banking
the bank. The current rate of SLR (statutory Operation (OBO) have to maintain CRR and
liquidity reserve) for conventional banks is SLR for the liabilities arising from their operation

44
Banking Sector Performance, Regulation and Bank Supervision Chapter-5

at the same rate applicable for Domestic hand, total credit of the Islami banks and
Banking Operation (DBO) from 01 September Islami banking branches of the conventional
2019. A circular in this regard was issued in banks stood at BDT 2558.4 billion at the end
February 2019. of December 2019 which accounted for 24.9
percent of total credit (BDT 10258.9 billion) of
5.28 Table 5.11 shows SLR eligible assets
the banking sector (Table 5.12).
as a percentage of ATDTL by type of banks.
FCBs have the highest ratio followed by the Legal Framework and Prudential Regulations
SCBs. The ratio for SBs is shown zero as they
Risk Based Capital Adequacy (RBCA) for
do not need to maintain SLR.
Banks
5.29 As on 30 June 2020, the Liquidity
5.31 According to the road map of the
Coverage Ratio (LCR) of the banking sector was
phase-in arrangements, December 2019 was
213.52 percent (against minimum requirement
the final timeline for the implementation of
of 100 percent), indicating that almost all banks
Basel III framework by the banks. Basel III
had a reasonable buffer of high-quality liquid
framework requires increasing the level as well
assets to cover the cash outflow for a minimum
as the quality of capital that banks must hold.
of next 30 calendar days under any stressed
Banks are expected to maintain a minimum
scenario. The Net Stable Funding Ratio (NSFR)
total capital ratio of 10.0 percent, where 6.00
of the banking sector, as a whole, was 110.57
percent is to be maintained as Tier-1 capital.
percent in June 2020 indicating that banks are
more dependent on stable funding rather than Besides, all banks must hold Common Equity
volatile fund to expand their business activities. Tier 1 (CET1) capital (the highest quality and
most loss absorbing form of capital) in an
Islamic Banking amount of at least 4.50 percent of total Risk
5.30 In FY20, out of 59 scheduled banks in Weighted Assets (RWA) at all time.
Bangladesh, 08 PCBs operated as full-fledged 5.32 Banks have been submitting capital
Islamic banks and 18 conventional banks adequacy reports/statements following new
(including two FCBs) were involved in Islamic
Basel III accord from the quarter ended in March
banking through Islamic banking branches.
2015. It is found that Capital to Risk Weighted
The Islami banks have continued to show
Asset Ratio (CRAR) of the banking industry
strong growth as reflected by the increasing
stood at 11.63 percent at the end of June 2020
market share in terms of assets, financing and
while CET1 was 7.70 percent which fulfilled
deposits of the total banking industry. A brief
Basel III Capital Adequacy Requirements.
picture of the performance of Islami banks is
However, at individual level, 7 and 10 banks
given in Table 5.12. Total deposits of the Islami
out of 59 scheduled banks failed to maintain
banks and Islami banking branches of the
CET1 and minimum capital requirements, i.e
conventional banks stood at BDT 2734.1 billion
CRAR respectively.
at the end of December 2019 which accounted
for 21.8 percent of total deposits (BDT 12541.3 5.33 Under Basel III, banks will have to
billion) of the banking sector. On the other build up additional Capital Conservation Buffer

45
Chapter-5 Banking Sector Performance, Regulation and Bank Supervision

Table 5.12 Comparative Position of The Islamic Banking Sector (as of end December 2019)
(In billion BDT)
Conventional banks*
Islamic banks Islamic banking All banking secto
Particulars (Conventional+Islamic)
2019 2018 2019 2018 2019 2018 2019 2018
1 2 3 4=2+3 5
Number of banks 8 8 18 16 26 24 58 57
Deposits 2582.0 2196.7 152.0 124.6 2734.1 2321.3 12541.3 11165.3
Credits 2433.7 2153.8 124.7 110.8 2558.4 2264.6 10258.9 9246.4
Investment deposit ratio (IDR in %) 89.0 91.5 71.9 78.4 88.1 90.8 77.3 77.5
Liquidity: excess(+)/shortfall(-)** 224.7 52.3 15.8 3.2 240.5 55.5 1056.8 763.7
*Conventional banks which have Islami banking branches maintain CRR and SLR separately.
**The head offices of the respective banks maintain a combined liquidity position.
Source: DOS, BB.

(CCB). Maintenance of CCB has ended up
with 2.50 percent in 2019. CCB of the banking
industry stood at 1.63 percent at the end of June
2020. Besides, at individual level, 37 banks
have already fulfilled the CCB requirements.
5.34 In order to avoid building-up excessive
on and off-balance sheet leverage in the
banking system, Bangladesh Bank introduced
the minimum requirement of leverage ratio as 3
percent. This ratio of the banking industry stood
at 4.58 percent at the end of June 2020 where
at individual level, 49 banks have already
fulfilled the minimum requirements.
5.35 Internal Capital Adequacy Assessment
Process (ICAAP), as a part of the implementation
of Pillar II of Basel III is going on. Banks have to
evaluate their internal processes and strategies
to ensure adequate capital resources covering
all material risks and submit the ICAAP reports
to BB. Supervisory Review Evaluation Process
(SREP) inspections are conducted by the
concerned departments of BB. Based on the
findings of ICAAP reports (base year 2018)
and SREP inspection reports (base year 2018),
a series of bilateral meeting with the banks
have been arranged since 05 March 2020 and
meeting with 13 banks have been completed
by 22 March 2020. Due to Covid-19 situation
the ICAAP (for base year 2018) has not been
completed yet. It was observed from the last
three meetings of different years that estimated
additional capital requirement for residual risk,
which arises mainly due to documentation
error, was the highest among the pillar II risks.
Apart from that, strategic risks and appraisal of
core risks management practice were the other
major concerns for the banks. Banks were
advised to take necessary measures based on
the outcome of these meetings.
Loan Classification
5.36 Recent COVID-19 pandemic situation
has critically worsened overall economic and
business environment in the country. With a view
to facilitating the existing business environment
and aligning with the macroeconomic cycle,
some amendments have been brought in the
objective criteria of loan classification policy
of BB declared in 2013. Two circulars have
been issued in this context on 19 March 2020
and 15 June 2020 respectively to facilitate
the borrowers through the deferral of the loan
classification. Moreover by issuing a circular
on July 21, 2020 Bangladesh Bank relaxed
the loan classification and provisioning rules to
facilitate cottage, micro and small industries of
the country and to encourage participation of
the banks in disbursing loans to cottage, micro
and small sectors.

46
Banking Sector Performance, Regulation and Bank Supervision Chapter-5

Box 5.1 Banking Services and Customer Care: Bangladesh Bank’s Initiatives

FICSD has been playing a vital role in bringing discipline and desired changes in the financial sector by
resolving various types of complaints of the customers. Like previous years, FICSD has broadened its
scope to resolve various types of complaints from the customers during FY20. The activities of FICSD
during FY20 are as under:
1) FICSD receives complaints from the complainants through phone, fax, web-based complaint box,
mails/emails and some popular social communications media or directly during the office hour of
working days. In addition, a mobile apps “BB Complaints”, has been developed in order to ease
the complaint receiving process from the customers. This Department is well aware of upgrading
complaint management system; and working relentlessly to incorporate user friendly features.
2) Category-wise complaints: It reveals from the table that Remittance related complaints were the
highest i.e. 24.36 percent among total complaints so far received through three means (over
phone, written and online, mobile apps system). Complaints regarding General Banking, Foreign
Trade Bill, Loans and Advances were 18.06, 9.72 and 9.60 percent respectively. Complaints
regarding Cards (Debit cards/Credit Cards/ATM Cards) is 8.75 percent, Local Trade Bill 5.03
percent, Service Dissatisfaction 3.87 percent, Fees and Charges 2.78 percent, Bank Guarantee
2.38 percent, Mobile Banking 2.30 percent, Notes and Coins 1.78 percent, Legal Notice 1.43
percent, Cheque forgery 0.69 percent and Miscellaneous types of complaints were 9.21 percent. It
is worth mentioning that the commencing of telephone short code (16236) has facilitated ‘one stop’
service. The overall arrangement of complaint management has extended the horizon of FICSD
from local arena to international arena and people from various parts of the world (immigrants
or foreigners) access to our system easily for submitting their complaints when aggrieved. The
success of settling the complaints was almost 100 percent from our end.

Table: Category wise statement of Complaints in FY20

No. of Complaints
Category of Complaints Written Mobile
Phone form Online apps Total
General Banking 261 504 11 6 782
Bank Guarantee 16 86 0 1 103
Notes and Coins 73 4 0 0 77
Service Dissatisfaction 88 74 5 1 168
Legal Notice 3 58 1 0 62
Mobile Banking 61 32 5 2 100
Loans and Advances 88 321 4 3 416
Fees and Charges 84 32 4 0 120
Local Trade Bill 33 182 3 0 218
Foreign Trade Bill 18 392 5 6 421
Cheque forgery 11 18 1 0 30
Remittance 197 837 13 8 1055
Cards(Debit cards/Credit Cards/
ATM Cards) 175 188 16 0 379
Others/Miscellaneous 95 295 6 3 399
Total 1203 3023 74 30 4330

47
Chapter-5 Banking Sector Performance, Regulation and Bank Supervision

3) Special Inspection conducted by the department during FY20: FICSD closely scrutinizes the
financial sector of Bangladesh in order to prevent and minimize corruption and fraud-forgeries
through conducting special inspections. Total 62 numbers of special inspections were conducted
in FY20. Many of the special inspections were carried out on the basis of complaints received from
various sources, while some were carried out proactively or as per the instruction of the higher
authority on different occasions.
4) FICSD is working to promote financial literacy awareness and update the customer protection
guideline time to time for introducing a proactive and efficient Customer Protection regime across
the banking industry.

Supervision of Banks well as protecting the interest of depositors, BB

carries out two types of supervisory activities
5.37 CAMELS rating continues to be
namely (i) off-site supervision and (ii) on-site
the most important supervisory tools for
inspection. Department of Off-site Supervision
evaluation of banks’ overall health. However,
(DOS) of BB is accountable for conducting off-
Bangladesh Bank (BB) is continuously adopting
site supervision of banks. During FY20, the
international regulations and best practices
department has taken some more innovative
on bank supervision and continues its quest
initiatives to strengthen banking supervision
for developing more effective supervisory
for intensive and rapid analysis of the financial
tools to uplift and ensure a sound and stable
health of the banks.
performance of the banks. Since Risk-Based
Supervision (RBS) is rapidly becoming the Risk Management Activities of Banks
dominant approach to regulatory supervision
5.39 BB has revised six core risks
tool to supervise the financial institutions
management guidelines to ensure robustness,
around the world, BB is in a process to move
efficiency and effectiveness of risk
towards RBS approach to promote an efficient,
management system for the banking sector.
fair, safe and stable banking system for the
Besides, the guideline issued in 2012 named
benefit and protection of all stakeholders. In
'Risk Management Guideline for Banks' has
this regard, it can be mentioned that meanwhile
been revised and already been put into effect
IMF is providing technical assistance (TA) to
to facilitate banks in adopting contemporary
BB for strengthening its supervisory capacity
methods to identify, measure, monitor and
through implementation of effective risk-based
control the risks and thus improve their resilience
supervision.
capacity. At present, BB is monitoring banks’
Off-site Supervision of Banks implementation progress of various instructions
given in those guidelines.
5.38 With a view to promoting and
maintaining soundness, solvency and 5.40 BB assigns a comprehensive risk
systematic stability of the financial sector as management rating for each bank on half

48
Banking Sector Performance, Regulation and Bank Supervision
yearly basis based on the information
of Comprehensive Risk Management
Report (CRMR), minutes of executive risk
management committee (ERMC) meetings and
board risk management committee (BRMC)
meetings, compliance status of BB instructions
as submitted by the concerned bank and other
sources.
On-site Inspection of Banks
5.41 Under the continuous supervision/
surveillance system, the overall financial
condition of the banks operating in Bangladesh
is monitored throughout the year on the basis
of periodic on-site inspections conducted by
the concerned departments of Bangladesh
Bank. As part of statutory function, currently
six departments of BB namely Department
of Banking Inspection-1 (DBI-1), Department
of Banking Inspection-2 (DBI-2), Department
of Banking Inspection-3 (DBI-3), Department
of Banking Inspection-4 (DBI-4), Department
of Foreign Exchange Inspection (DFEI) and
Financial Integrity and Customer Services
Department (FICSD) are conducting on-site
inspection activities. These six departments
conduct on-site inspection on SCBs, SBs,
PCBs (including banks operating under
Islamic Shariah), FCBs and other financial
institutions including Investment Corporation
of Bangladesh (ICB) and money changers.
These departments conduct different types of
inspections, which may be summarized into
three major categories like (i) comprehensive/
regular/traditional inspection (ii) Core risks
evaluation and (iii) special/surprise inspection.
5.42 The overall performance of the banks
(such as capital adequacy, asset quality,
liquidity, earnings, management competence,
etc.) is evaluated in a comprehensive
49
Chapter-5
inspection and banks are rated from "1" to
"5" scale in ascending order based on the
evaluation. The on-site inspection departments
also monitor the compliance of the suggestions
or recommendations made in the inspection
reports. Inspection is also conducted to examine
the compliance of the core risk management
guidelines on Asset Liability Management,
Credit/Investment Risk Management, Internal
Control & Compliance, and Information Systems
Security issued by the Bangladesh Bank.
Special/surprise inspections are conducted for
specific purposes or to investigate complaints
received from the banks’ customers.
5.43 During FY20, Department of Banking
Inspection-1 (DBI-1) conducted a total number
of 609 inspections on 30 banks, among which
comprehensive inspections were 304 and
special inspections were 305. Head offices/
country offices (FCBs) of the banks as well
as some selected branches have been taken
under the purview of the core risk inspection.
Moreover, to review the accuracy of the
statement of ICAAP of banks, the department
carried out inspections in this regard. The
department also arranged meeting of
Supervision Committee of Bangladesh Bank on
bi-monthly basis presided over by the Deputy
Governor, in charge of major supervision
departments. Different policies and operational
issues covering supervision were discussed in
the meeting.
5.44 Department of Banking Inspection-2
(DBI-2) conducts inspections on 06 state-owned
commercial banks (SCBs) [Sonali Bank Limited,
Janata Bank Limited, Agrani Bank Limited,
Rupali Bank Limited, Basic Bank Limited, and
Bangladesh Development Bank Limited] and 01
State-owned Financial Institution [Investment
Chapter-5 Banking Sector Performance, Regulation and Bank Supervision
Corporation of Bangladesh]. During FY20,
DBI-2 conducted a total number of 166
inspections on the SCBs/FIs’ head offices
and branches. The department conducted
comprehensive inspections on 6 head offices
and 115 branches which included 66 large
branches and 49 small branches of SCBs. It
also conducted 43 special inspections and 2
core risk inspections on the SCBs. Besides,
the department conducted comprehensive
inspection on the head office and 5 branches of
Investment Corporation of Bangladesh during
the period.
5.45 DBI-3 has to conduct comprehensive
inspection on specialized banks, namely
Bangladesh Krishi Bank (BKB), Rajshahi Krishi
Unnayan Bank (RAKUB), Ansar-VDP Unnayan
Bank, Karmasangsthan Bank, Grameen Bank,
Probashi Kallyan Bank, Palli Sanchay Bank
and SME activities of all banks and NBFIs.
During FY20, DBI-3 conducted comprehensive
inspections on 294 bank branches which
included 06 head offices, 28 large branches,
260 small branches including 85 SME service
centers and SME/Agriculture branches. This
department also conducted 08 risk based
inspections during the period.
5.46 DBI-4 conducts inspection on 08
Shariah-based Islami banks, 03 NRB banks
(established by non-resident Bangladeshis)
and 09 foreign commercial banks with special
emphasis on regulatory and supervisory
compliances. During FY20, DBI-4 conducted a
total number of 355 inspections on banks' head/
country offices and branches. During the period,
DBI-4 conducted comprehensive inspections
on 105 branches and on 20 head/country
offices of the banks. Within this time-frame,
the department carried out inspections on Core
50
Risks of 20 branches and 20 head/country
offices to review the implementation progress of
Core Risk Management Guidelines. Moreover,
to review the accuracy of the statement of
ICAAP of the banks, the department carried out
inspections in this regard.
5.47 Department of Foreign Exchange
Inspection (DFEI) conducts inspection on
foreign trade financing, treasury functions
and foreign exchange risk management of
banks, foreign exchange transactions of banks
and money changers. Regular and special
inspection on both onsite and off-site basis
are conducted by the department. DFEI mainly
focuses on quarterly comprehensive inspection
on authorized dealer branches of banks, yearly
FX risk management inspection on head office
of banks, yearly inspection on money changers
and special inspection on authorized dealer
branches of banks, offshore banking and money
changers. In FY20, the department conducted a
total number of 165 inspections out of which 82
were comprehensive inspections on authorized
dealer branches of banks, 57 were inspections
on foreign exchange risk management, 07 were
special inspections on money changers and 19
were special inspections on foreign trade and
foreign exchange related irregularities.
5.48 Bangladesh Bank, as the regulatory
authority of banks and financial institutions,
closely monitors the standardization of customer
services along with maintenance of stability in
the financial sector. With a view to achieving
this objective, Financial Integrity and Customer
Services Department (FICSD) has been
proving its efficiency since its inception. This
department has been working relentlessly to
settle the customers’ complaints against banking
and financial services. As a part of customer
Banking Sector Performance, Regulation and Bank Supervision
awareness program and to protect the interest
of the customers, the department has taken
initiative to increase publicity through the print
and electronic media. FICSD has conducted
special inspections on general banking, credit
and foreign exchange transaction in various
banks throughout the year and several actions
were taken accordingly. During FY20, a total
number of 3,570 complaints were received by
the department through the dedicated hot-line
numbers (16236), mobile-apps, e-mails, letters
from which a total number of 3,539 complaints
(99.13 percent) were resolved.
5.49 FICSD also conducts special on-site
inspections if necessary. Vigilance and Anti-
fraud division of FICSD is always prepared to
conduct such inspections throughout the year
to detect fraud and irregularities with a view
to minimizing corruption. Most of the special
inspections are carried out on the basis of
complaints received from various sources,
while some are carried out pro-actively or on the
instruction of the senior management. During
FY20, the highest number of special inspections
was carried out on private commercial banks
(PCBs) which are 38 out of total 62 inspections.
The number of inspections conducted on state-
owned commercial banks (SCBs), specialized
development banks (SBs), and NBFIs were 12,
01 and 11 respectively.
5.50 FICSD has developed an awareness
culture among the customers and bankers
regarding complaint management by circulating
and amending the “Guideline on Customer
Services and Complaints Management”
from time to time. FICSD monitors the
implementation status of the guidelines by the
banks regularly. An institutional framework
has also been developed for the banks/FIs
51
Chapter-5
regarding complaint management. Moreover, to
commemorate the centennial birth of the father
of the nation ‘‘Bangabandhu Sheikh Mujibur
Rahman” FICSD arranged a meeting with
banks and FIs to develop hype and grievance
free financial system. Thus, FICSD is not only
providing quality services to settle customer
complaints, but also working to increase
financial literacy and awareness among public
so that their confidence in the financial system
remains strong.
Financial Stability and Macro Prudential
Supervision
5.51 A resilient, robust and well-supervised
financial system is indispensable for stable
economic growth and development of a
country. To build a strong and resilient financial
system, Financial Stability Department (FSD) is
working relentlessly since its inception in 2012.
In its effort, plausible risks and vulnerabilities
of the financial system are identified, assessed
and measured to evaluate their outlook through
model-based risk identification and monitoring
toolkits. The department has also developed
a number of macro-prudential supervisory
tools and accomplishes some research works
on globally recognized contemporary stability
issues. Outcomes of the risk assessment
tools and research works are shared with
concerned departments of BB to provide them
with necessary inputs towards enhancing the
resilience of the financial sector.
5.52 FSD publishes Financial Stability Report
(FSR) annually analysing the strength and
weakness of banks and FIs as well as the
financial system, with an aim of raising risk
awareness among the stakeholders of the
financial system. The department also publishes
Chapter-5 Banking Sector Performance, Regulation and Bank Supervision
Quarterly Financial Stability Assessment
Reports (QFSAR) to disclose the key trends,
risks and fragilities to the relevant stakeholders.
With a view to assessing resilience of banks
against plausible adverse shocks, quarterly
stress tests are conducted on individual banks
and system-wide basis. Critical findings are
shared with the concerned departments of
BB for letting them take necessary measures.
Besides, to mitigate the identified risks,
based on the outcomes of stress tests, banks
are advised to take necessary measures
accordingly.
5.53 FSD forecasts the performance of the
banks semi-annually using Financial Projection
Model (FPM). The projection is performed for
subsequent three years using both static and
dynamic hypothetical scenarios. In formulating
assumptions and stressed scenarios, historical
micro data along with current and expected
financial sector and macroeconomic conditions
are taken into consideration. Besides, the
department prepares quarterly report on
Interbank Transaction Matrix (ITM) that facilitates
monitoring liquidity management practices of
banks and unearths plausible liquidity stress.
The department also analyzes the health of the
banks semi-annually by using a dynamic tool,
namely Bank Health Index (BHI) and HEAT map
that helps to monitor every single bank in time
and cross-sectional dimensions.
5.54 To avoid substantial disruption to
the domestic financial system resulted from
failure of Domestic Systemically Important
Banks (D-SIBs), FSD identifies D-SIBs semi-
annually since the failure (if any) of a D-SIB is
significantly greater than that of a non-systemic
bank. To oversee the D-SIBs, a framework for
additional supervision mechanism has also
52
been developed. Furthermore, risk associated
with Non Financial Corporates (NFCs) are
analyzed quarterly using the 'Central Database
for Large Credit (CDLC)' to circumvent large
credit concentration and identify assets in
advance that may cause financial distress.
5.55 In order to reveal the risks and
vulnerabilities in the macro-financial system of
Bangladesh, a risk dashboard titled “Bangladesh
Systemic Risk Dashboard (BSRD)” has been
developed which is composed of a set of
qualitative and quantitative indicators related
to macro risk, credit risk, funding and liquidity
risk, market risk, profitability and solvency risk
together with inter-linkages amongst them in
the context of Bangladesh financial system.
The BSRD is being released in the website of
Bangladesh Bank on a half-yearly basis.
5.56 To measure overall stability of the
Bangladesh Financial System, FSD prepares a
Composite Financial Stability Index (CFSI) on
semi-annual basis. CFSI integrates eighteen
indicators under three sub-indices [(Banking
Soundness Index (BSI), Financial Vulnerability
Index (FVI) and Regional Economic Climate
Index (RECI)]. The indicators enfold the key
soundness aspects of the banking sector,
financial sector, real sector and external sector
to form a single composite indicator, which
indicates the stability condition of the financial
system.
5.57 To provide technical support to
the Coordination Committee of Financial
Sector Regulators (BSEC, RJSC, IDRA,
MRA), a Coordination Council Technical
Group (CCTG) has been formed under the
framework titled 'Coordinated Supervision
framework for Bangladesh Financial System'.
Banking Sector Performance, Regulation and Bank Supervision
The CCTG met three times during FY20 with
a view to exchanging ideas and information,
and promoting cooperation among various
regulators of the financial system.
5.58 FSD has introduced a Financial
Stability Map (FSM) containing analyses on
probable stress in the Bangladesh macro-
financial system taking into account eight
different components (external economy,
domestic economy, households, non-financial
corporations, fiscal condition, financial market
condition, capital and profitability, and funding
and liquidity) and other 37 indicators. FSM
provides a snapshot of the stability condition
of Bangladesh macro-financial system and
its coverage is much wider than the already
existing tool (CFSI) used in FSD. Most recent
FSM has been published in the annual Financial
Stability Report 2019.
Banking Sector Infrastructure for Financial
Stability and Customer Protection
Deposit Insurance Systems in Bangladesh
5.59 Deposit Insurance System (DIS) is a
measure to protect bank depositors, especially
the small depositors from losses caused by
a bank's inability to pay its debts when it is
due. The purpose of DIS is to maintain market
discipline and provide safety nets to the public
at the minimum cost in the event of a bank’s
failure. The direct role for deposit insurance
is customer protection. So it appears to be an
essential component of a sound/ stable modern
banking system.
5.60 In Bangladesh, Deposit Insurance
System was first introduced in August, 1984
in the name of "The Bank Deposit Insurance
Ordinance 1984". In July 2000, the ordinance
53
Chapter-5
was replaced by an Act called “Bank Amanat
Bima Ain- 2000”. Deposit Insurance Systems in
Bangladesh are now being administered by the
said Act. In accordance with the Act, Bangladesh
Bank (BB) is authorized to bring up a fund called
Deposit Insurance Trust Fund (DITF) and the
Board of Directors of BB acts as the Trustee
Board of the DITF. The DITF is now being
administered and managed under the guidance
of the Trustee Board. In addition, Bangladesh
Bank is one of the members of International
Association of Deposit Insurers (IADI). The
recent position of DITF is shown in Table 5.13.
5.61 The deposit insurance system in
Bangladesh is limited to a pay-box function. In
accordance with the “Bank Amanat Bima Ain-
2000” - the main functions of DIS are: collecting
premium from all scheduled banks on half-
yearly basis (30 June/31 December), investing
the fund in the Bangladesh Government
Treasury Bond (5 Years/10 Years), interbank
repo and Bangladesh Bank Bill and the income
derived from such investments is also credited
to the DITF account for further investment. In
case of winding up of an insured bank, BB will
pay to each depositor of that bank an amount
equal to his/her deposits not exceeding BDT
01(one) hundred thousand, as per the provision
of “Bank Amanat Bima Ain, 2000”.
5.62 Moreover, BB has recently taken
initiative for the amendment of “Bank Amanat
Bima Ain- 2000” to “Amanat Surakkha Ain-
2020”. After several discussion and meeting, the
latest draft of the proposed “Amanat Surakkha
Ain-2020” has been sent to Ministry of Finance
(MoF) which is now under active consideration
for finalization. In the proposed “Amanat
Surakkha Ain-2020” BB has suggested to bring
the NBFIs under the umbrella of DIS as well
Chapter-5 Banking Sector Performance, Regulation and Bank Supervision

as to increase the deposit insurance coverage Table 5.13 The Recent Position of DITF
limit. Apart from these, all information on DIS Unaudited
Premium Coverage
Particulars figure (as on 31
is available in the Bangladesh Bank website. December 2019)
rate* Amount

Anyone, who is interested about DIS can Total fund 87.47 billion BDT --- Up to BDT
100 thousand
easily access to the website and be informed Total time and demand 13102.78 billion ---
(Per bank Per
liabilities BDT
Depositor)
about the benefits and limitations of the DIS of Insurable deposit to total 77.66% ---
demand and time liabilities
Bangladesh.
Covered deposit of total 23.10% ---
insurable deposit
Activities of Credit Information Bureau
Fully insured deposit 92.17% ---
Sound bank categories --- 0.08%
5.63 Credit Information Bureau (CIB) was
Early warning bank --- 0.09%
set up in Bangladesh Bank (BB) on 18 August categories
1992 with the objective of minimizing the Problem bank categories --- 0.10%
* Effective from 2013
extent of default loans. CIB has been providing Source: Deposit Insurance Department, BB.
its online services since 19 July, 2011. The
new CIB online solution developed by BB's
sub-articles in the chapter IV and by amending
internal resources started its live operation on
some sub-articles of the chapter IV. The draft
01 October, 2015. With the adoption of highly
was sent to the Ministry of Finance for taking
sophisticated ICT facilities the performance of
necessary actions in order to enact it as law.
the CIB services has been improved significantly
in terms of efficiency and quality. The online 6.65 Moreover, with the approval of
system of CIB is playing an important role to Governor, CIB has started to develop a Collateral
facilitate a risk free lending procedure in the Information System in order to prepare a
banking industry. collateral database of immovable assets (land/
building, flat, and capital machineries). In this
5.64 CIB has taken several initiatives with a
database system, information on collateral
view to increasing the score of 'Depth of Credit
that is mortgaged by borrowers against
Information Index' which is a part of 'Getting
sanctioned loans/advances of banking/non-
Credit' of Doing Business Report prepared by
banking financial institutions will be stored. The
World Bank for achieving higher ranking position
main purpose of developing this system is to
by Bangladesh among all other countries in the
prevent fraud/forgery arises from mortgaging
world. To this end, CIB has already fulfilled
unlawfully the same property against new loans
the World Bank’s condition with regard to the
sanctioned by banks/FIs. Another initiative has
CIB data coverage by resetting the reporting
been taken to establish Credit Information
threshold of data submission at BDT 1(one)
Bureau for Micro Finance Institutions (MF-
and increased credit history of a CIB report from
CIB) by signing an MoU between Microcredit
12 months to 24 months. Besides, in order to
Regulatory Authority (MRA) and Bangladesh
allow the borrowers’ access (individuals as
Bank. Now, development of MF-CIB system is
well as firms) to the CIB online database, a
under process.
draft of chapter IV of Bangladesh Bank Order
1972 has been prepared by incorporating some 5.66 The CIB database consists of detailed

54
Banking Sector Performance, Regulation and Bank Supervision
credit information in respect of borrowers, co-
borrowers and guarantors having outstanding
amount of BDT 01 and above. The total number
of borrowers stood at 33, 98,371 at the end of
June, 2020 while it was 25,80,949 in June 2019
showing an increase of around 32 percent. The
total number of classified borrowers in banks/
FIs was 3,80,635 at the end of June, 2020
which was around 21 percent higher than that
(313,494) of the last year. The total outstanding
55
Chapter-5
amount of loans and advances of the banking
and non-banking financial institutions stood at
BDT 11,92,479 crore (including BLW amount)
in June, 2020 which showed an increase of
around 11 percent compared to BDT 10,75,904
crore in June 2019. Furthermore, the total
amount of classified loans was BDT 1,56,575
crore in June, 2020 while it was BDT 1,71,304
crore in June, 2019 showing a decrease of
around 9 percent over the period.
Chapter-6

Sustainable and Inclusive Banking

6.1 The concern for environmental broad categories–green banking, corporate

sustainability and inclusive growth has given
mass recognition to the concept of corporate
social responsibility and inclusive finance. The
potential benefits of the concept has gained the
interest of the regulatory authorities, society,
NGOs, employees, customers as well as the
international bodies to the issue. In this regard,
the concern for environmental sustainability and
inclusive growth by the banks has given rise
to the concept of Green Banking, Sustainable
Finance and Financial Inclusion. In an emerging
economy like Bangladesh, environmental
management needs to be the key focus area
of the business fraternity and especially the
banking industry being the major intermediary.
Addressing environmental and social risks
associated with financing activities by banks/FIs
is a ‘must do’ step in credit approval, monitoring
and evaluation. Accordingly, Bangladesh
Bank has also integrated issues of socially
responsible initiatives and financial inclusion
along with core banking activities of banks/FIs
driving towards sustainable banking practices.
Sustainable banking mainly focuses on three
social responsibility and financial inclusion.
Green Banking
6.2 Green banking initiatives of Bangladesh
Bank (BB) has broadly categorized into the
following aspects: effective policy initiatives,
stricter monitoring of green banking activities
of banks and NBFIs, refinance support from
BB in diverse green products/sectors/green
projects/initiatives and BB's own initiatives for
environmental management.
Policy Initiatives
6.3 Bangladesh Bank addressed
Environmental Risk Management for the first
time in 2011 and Policy Guidelines for Green
Banking for Banks in the same year. In 2013,
Financial Institutions (FIs) were brought
under green banking activities. Meanwhile
government’s development plans including
National Sustainable Development Strategy
(NSDS) 2010-2021, Perspective Plan of
Bangladesh: 2010 – 2021, 7th Five Year Plan,
globally adopted Sustainable Development

Table 6.1 Green Finance in FY20

(million BDT)
Category of Green Finance
Types of Renewable Energy Alternative Waste Recycling & Green Brick Green Misc. Total
Bank/FI Energy Efficiency Energy Management Recyclable Manufacturing Establishment
Product
SOCBs (06) 7.48 0.00 0.00 660.05 290.85 363.25 579.85 7.43 1,908.91
DFIs (02) 8.33 0.00 0.00 0.01 0.00 0.00 0.00 1.49 9.83
PCBs (40) 1,979.41 6,398.37 10.08 8,878.87 8,298.55 8,402.90 3,2737.93 2,962.65 69,668.75
FCBs (09) 608.60 327.70 0.00 283.80 4.60 0.00 33,072.40 35.59 34,332.69
Bank's Total 2,603.83 6,726.07 10.08 9,822.72 8,594.00 8,766.15 66,390.18 3,007.16 1,05,920.18
FIs (33) 942.36 2,819.03 6.00 240.00 272.69 432.13 350.00 233.00 5,295.20
Grand Total 3,546.19 9,545.09 16.08 10,062.72 8,866.69 9,198.28 66,740.18 3,240.16 1,11,215.39
Source: SFD, BB.

56
Sustainable and Inclusive Banking Chapter-6

Chart 6.1 Policy Initiatives for Green Banking

1) Guidelines for Banks and financial

1) BRPD Circular Institutions (FIs) was issued to assess

SFD Circular No. 01

No. 01 2011 environmental risk in their credit
2) BRPD Circular
No. 02 2) Policy Guidelines for Green Banking 2019
for Banks

** BRPD Circular A uniform reporting format was introduced

No. 07 2012 for reporting green banking activities in a
structured manner for banks Investment by scheduled banks and FIs in
any impact fund which is registered under
Minimum target of direct green finance the BSEC (Alternative Investment) Rules,
GBCSRD Circular was set at 5% of the total funded loan 2015 and formed for environment friendly
2014
No. 04 disbursement/investment from January sectors/purposes having scopes of
2016 onwards for all banks and FIs resource and energy efficiency, renewable
energy, waste management and treatment,
Banks and Fls were instructed to form climate friendly transportation, women and
**SFD Circular Sustainable Finance Unit and Sustainable child right protection etc. will be
2016 considered as green finance
No. 02 Finance Committee abolishing both Green
Banking and CSR units

GBCSRD Circular
te Risk F
1) Guidelines on Environmental and Social ma

No. 04/2015
Risks Management (ESRM) for Banks and

Cli

un
d
Financial Institutions in Bangladesh along with 10% of
1) ** SFD Circular CSR
an Excel-based Risk Rating Model was issued Budget
No. 02
2017 to evaluate Environmental and Social Risks in us i

ty
tain a bl
S
2) ** SFD Circular
the process of Credit Risk Management
No. 04
2) A comprehensive list of product/
initiatives of Green Finance has been
Banks and FIs were instructed to form
circulated for banks and FIs
Climate Risk Fund and allocate at least
10% of their Corporate Social
A new uniform reporting format of Quarterly Responsibility budget for this fund. This
Review Report on Green Banking Activities funding can be done in both ways-by
**** SFD Circular
2018 had been circulated for Banks & FIs to providing grants or financing at reduced
No. 01
monitor green banking policy & other rate of interest
regulations and to ensure the quality &
uniformity of data provided by Banks & FIs

Goals (SDGs), Combating Covid-19 have
been considered during policy formulation and
monitoring of green banking activities by banks
and NBFIs. Chart 6.1 depicts green banking
policy initiatives.
Green Finance
6.4 The total amount of disbursement
as green finance during FY20 has been BDT
105.9 billion by Banks and BDT 5.3 billion by
NBFIs. Category-wise amount of green finance
by banks and FIs are given in Table 6.1 and the
percentage in Chart 6.2 respectively. Chart 6.3
shows the trend in total green finance (directly
disbursed) by Banks and NBFIs during last 5
years and a significant upward trend from FY17.
Chart 6.4 shows the trend in the percentage of
green finance of total funded loan disbursed
during last 5 years and a gradual upward trend
from FY17.
Environmental and Social Risk Management
6.5 Environmental and Social Risk Rating
(ESRR) is obligatory above the threshold as
mentioned in guidelines on ESRM for banks
and NBFIs. The number of projects rated

57
Chapter-6 Sustainable and Inclusive Banking

by Environmental and Social Due Diligence Chart 6.2 Share of Category-wise Green
(ESDD) checklist during the year is 63,267. Finance in FY20
Total amount of BDT 2,104.11 billion disbursed Renewable
Energy
Energy
Misc. Efficiency Alternative
3%
in 55,825 rated projects in FY20. Chart 6.5
3% 9% Energy
0% Waste
Green Management
shows the trend in ESRR by banks and NBFIs Establishment
60%
9%

during last 5 years. Recycling &

Recyclable
Product
8%

Climate Risk Fund

Green Brick
6.6 Total amount of BDT 476.8 million has Manufacturing
8%

been utilized from climate risk fund by banks

Source: SFD, BB.
and NBFIs in FY20. This amount of Taka has
been utilized as grant and no concessional Table 6.2 Disbursement trend of BB
loan. Refinance Scheme for Green
Product/Initiatives
Online Banking and Energy Efficiency (million BDT )
Product FY16 FY17 FY18 FY19 FY20
6.7 Green banking policy has pursued the Bio Gas 84.8 46.6 10.5 4.56 1.24
Solar Home System 114.7 35.3 0 0.19 0.45
banks to establish online branches and bring Solar Irrigation Pump 0.6 0 0 0 0
the branches powered by solar energy. The Solar Assembly Plant 16.3 0 0 0 0
Solar Mini Grid 10 0 0 0 0
number of branches powered by solar energy
Effluent Treatment Plant 58 179.6 60 108.44 132.5
was 610 at the end of FY20. HHK Technology In Brick Kiln 177.8 10 0 5 100
Vermicompost 1.6 1.3 0 0.79 1.26
BB’s In-house Environmental Management Green Industry 400 0 500 152.33 198.7
Safe working Environment 35.7 55.3 81.97 39.96 88.1
6.8 BB has taken a number of rigorous Organic Manure From Slurry 0.2 0.1 0 0 0
initiatives to make its in house operational Paper Waste Recycling 20 20 0 0 0
Energy Efficient Technology 0 0.6 13 10 46.29
activities more environment friendly, energy Total 919.7 348.8 665.47 321.27 568.54
efficient and technologically advanced ones. Source: SFD, BB.

Chart 6.6 exhibits the significant steps taken

towards in house green practices by BB.
BB’s Refinance Schemes for Green
Products/Initiatives
6.9 A revolving refinance scheme of BDT
2.0 billion was established in 2009 with a view
to broadening finance for green products or
initiatives at lower cost of fund which increased
to 4.0 billion subsequently. Initially, 6 green
products or initiatives were identified to extend
the refinance facility under this scheme. Later
on, considering the market demand and
expert opinions from the technical advisory
committee, time to time experts and stake
holders’ consultations, Bangladesh Bank has
enhanced the eligible green products/initiatives
for refinance under the scheme from 6 to 55
(Table 6.3) till FY20.
6.10 Participatory Banks/ Financial
Institutions (PFI) are allowed to charge
maximum interest rate of 7.0-8.0 Percent on
financing in green products/initiatives under
the scheme. However, due to the consideration
of Government's priority to agriculture sector
"Solar Irrigation Pumping System" has been
given priority over the conventional diesel

58
Sustainable and Inclusive Banking
and electricity run pumps. In accordance with
the Government’s policy, Bangladesh Bank
has set maximum interest rate at 7.0 percent
for financing of Participatory Banks/Financial
Institution (PFI) in ‘Solar Irrigation Pumping
System’ under the refinance scheme.
6.11 The cumulative amount refinanced
under the scheme up to June, 2020 stood at
BDT 4,687.1 million. In FY20, total disbursement
under the BB's refinance was BDT 568.5
million. The disbursement trend from FY16 to
FY20 and product wise disbursement figure
are presented in Table 6.2 and Chart 6.7
respectively.
Financing Brick Kiln Efficiency Improvement
Project Supported by the Asian Development
Bank (ADB)
6.12 Asian Development Bank (ADB)
supported revolving relending facility –
”Financing Brick Kiln Efficiency Improvement
Project” – was established in Bangladesh Bank
(BB) in June 2012 with a view to improving the
brick sector especially environment friendly
brick kilns through efficient use of technology
and energy resulting in reduced Green House
Gas (GHG) and Suspended Particulate Matter
(SPM). The total amount of this relending facility
is USD 50.0 million. The project has two parts
– Part-A: USD 30.00 million is for conversion
of Fixed Chimney Kiln (FCK) to Improved
Zigzag Kiln and Part-B: USD 20.0 million is
for establishment of new Vertical Shaft Brick
Kiln (VSBK), Hybrid Hoffman Kiln (HHK) and
Tunnel Kiln. Total USD 50.00 million equivalent
to BDT 4039.7 million relending facility has
been disbursed to 19 subprojects through
19 Participating Financial Institutions (PFIs)
till December 2019. The tenure of the project
ended in December 2019 with full disbursement.
59
Chapter-6
Table 6.3 List of Eligible Green Products/
Initiatives under “Refinance Scheme
for Green Products/ Initiatives”
Sl. No Green Product/Initiatives
1 Solar Home System
2 Solar Pico Grid
3 Solar Nano Grid
4 Solar Micro Grid
5 Solar Mini Grid
6 Solar Park
7 Net Metering Rooftop Solar System
8 Solar Irrigation Pumping System
9 Solar Pump for Drinking Water
10 Solar Photovoltaic (PV) Assembly/Manufacturing Plant
11 Solar Cooker Assembly/Manufacturing Plant
12 Solar Water Heater Assembly/Manufacturing Plant
13 Solar Air Heater & Cooling System Assembly/Manufacturing Plant
14 Solar Powered Cold Storage
15 Solar Home System
16 Solar Pico Grid
17 Solar Nano Grid
18 Solar Micro Grid
19 Solar Mini Grid
20 Solar Park
21 Net Metering Rooftop Solar System
22 Solar Irrigation Pumping System
23 Solar Pump for Drinking Water
24 Solar Photovoltaic (PV) Assembly/Manufacturing Plant
25 Solar Cooker Assembly/Manufacturing Plant
26 Solar Water Heater Assembly/Manufacturing Plant
27 Solar Air Heater & Cooling System Assembly/Manufacturing Plant
28 Solar Powered Cold Storage
29 Solar Home System
30 Solar Pico Grid
31 Solar Nano Grid
32 Solar Micro Grid
33 Solar Mini Grid
34 Solar Park
35 Net Metering Rooftop Solar System
36 Solar Irrigation Pumping System
37 Solar Pump for Drinking Water
38 Solar Photovoltaic (PV) Assembly/Manufacturing Plant
39 Solar Cooker Assembly/Manufacturing Plant
40 Solar Water Heater Assembly/Manufacturing Plant
41 Solar Air Heater & Cooling System Assembly/Manufacturing Plant
42 Solar Powered Cold Storage
43 Solar Home System
44 Solar Pico Grid
45 Solar Nano Grid
46 Solar Micro Grid
47 Solar Mini Grid
48 Solar Park
49 Net Metering Rooftop Solar System
50 Solar Irrigation Pumping System
51 Solar Pump for Drinking Water
52 Solar Photovoltaic (PV) Assembly/Manufacturing Plant
53 Solar Cooker Assembly/Manufacturing Plant
54 Solar Water Heater Assembly/Manufacturing Plant
55 Solar Air Heater & Cooling System Assembly/Manufacturing Plant
Source: SFD, BB.
Chapter-6 Sustainable and Inclusive Banking

Green Transformation Fund (GTF) Chart 6.3 Trends in Total Green Finance
6.13 The latest step of Bangladesh bank in 120
fostering sustainable finance is to create Green 100

in billion BDT
80
Transformation Fund. In February 2016, BB
60
has announced its intention to create a new 40
longer term refinancing window of USD 200 20

million naming Green Transformation Fund 0

FY 16 FY 17 FY 18 FY 19 FY 20
(GTF). Though initially the fund was available
only for export oriented textile, leather and Source: SFD, BB.

jute sectors, it became available for all export

Chart 6.4 Trends in Share of Green Finance
oriented sectors in June, 2019 to ensure
in Total Funded Loan Disbursed
sustainable export growth of the country and
for transforming to a greener economy. It is 1.6
1.4
intended to facilitate access to financing in 1.2

foreign exchange by all manufacturer- exporters 1.0

In percent

0.8
in export oriented sectors to import capital 0.6
machinery and accessories for implementing 0.4
0.2
environment-friendly initiatives. The initiatives 0.0
FY16 FY17 FY18 FY19 FY20
include Water use efficiency in wet processing,
Water conservation and management, Waste Source: SFD, BB.
management, Resource efficiency and
recycling, Renewable energy and Energy Chart 6.5 Trends in ESRR by Banks and
efficiency, Heat and temperature management, NBFIs
Air ventilation and circulation efficiency and 80000
77017 77,428
68,235
Work environment improvement initiatives 60175 63267
60000 68446
(FE Circular No. 02/2016). In April, 2020 Euro 66,930
Number

57,780 55825
200.0 million along-with the existing USD 200.0 52776
40000
was introduced in GTF. The disbursement from
GTF up to FY20 is USD 410.3 lac in 7 projects. 20000
FY 16 FY 17 FY 18 FY 19 FY 20
Disbursements from the Euro part of GTF are
Number of Projects Rated
expected very soon. Number of Rated Projects Financed

Source: SFD, BB.

Refinance Scheme for Islamic Banks and
Financial Institutions for Investment in
Green Products/Initiatives
6.14 In September 2014, Bangladesh Bank
introduced an “Islamic Refinance Fund” with
the surplus liquidity of SLR of shariah based
Islamic banks. To encourage the further
involvement of the shariah based banks and
NBFIs in green finance, Bangladesh Bank
launched a refinance scheme for Islamic banks
and FIs operated by “Islamic Refinance Fund”.
Over time, considering the modification in
the country’s economic structural conditions,
advanced technology, gradually rising demand
for the eco-friendly products/initiatives,

60
Sustainable and Inclusive Banking Chapter-6

Bangladesh Bank has issued an integrated and Chart 6.6 BB’s In-house Green Practice
comprehensive SFD “master circular” on April
05, 2018. According to this circular, the scheme Rooftop Solar Power Carbon Footprint
has been renamed as “Refinance Scheme System & Chillar Based
Air Conditioning
Measurement &
E-recruitment
for Islamic Banks and Financial Institutions
for Investment in Green Products/Initiatives”. Online Documentation & Enterprise Resource
Leave Management Planning (ERP) & Online
BB enhanced the product range under this System Account Statement

scheme from 50 to 51 and segregated these

Online Office Order & LAN/WAN Computer
products into 8 categories which include Electronic Pass for Network among all BB
Visitors Officies
renewable energy, energy-efficient and
energy-savings technology, alternative Bangladesh Automated
Enterprise Data
Cheque Processing System
energy, waste management, recycling and Warehouse (EDW) System
(BACPS)
recyclable product, environment friendly brick
production, environment friendly installations Bangladesh Electronic
Credit Information Bureau
Fund Transfer Network
(CIB)
and miscellaneous. The cumulative amount of (BEFTN)

refinance under the scheme up to June 2020 Source: SFD, BB.

stood at BDT 489.62 million. Total disbursement

under this scheme during FY20 was BDT 71.62 Chart 6.7 Product-wise Refinance
million. Disbursement in FY20
Energy
Others Effluent
Efficient
Corporate Social Responsibility Safe working Technology
Environment
1% Treatment
Plant
8%
15% 23%

6.15 BB issued CSR policies and guidelines

on June 2008 and December 2014 for
mainstreaming CSR in banks and NBFIs in
Bangladesh and for end use monitoring of
Green HHK
CSR engagements of the financial sector. Industry Technology
In Brick Kiln
35%
These policies and guidelines clearly state the 18%

requirement of administrative setup, budgetary Source: SFD, BB.

allocation, expected range/coverage of CSR

Table 6.4 CSR Expenditure of Banks and
activities and end use monitoring process of
NBFIs in FY20
CSR expenditures and activities. Besides that, (million BDT)
Banks NBFIs
on June, 2015 BB issued reporting format for Sectoral Sectoral
Sectors
monitoring CSR activities of banks and FIs. Amount Share Amount Share
(percent) (percent)
Education 1809.4 19.5 9.3 6.4
CSR Activities of Banks and NBFIs Health 1457.0 15.7 73.0 50.5
Humanitarian & disaster relief 2624.2 28.4 46.6 32.2
6.16 Total amount of CSR expenditure Environment 435.4 4.7 0.7 0.5
Cultural welfare 1042.2 11.3 3.3 2.3
by banks and NBFIs in FY20 was BDT Infrastructural development 66.0 0.7 1.9 1.3
9399.67 million while the amount was BDT Income generating activities 00.9 0.0 3.4 2.3
Others 1820.0 19.7 6.4 4.4
5203.47 million in FY19. The sector-wise CSR Total 9255.1 100.0 144.6 100.0
expenditure scenario of banks and FIs are Source: SFD, BB.

61
Chapter-6 Sustainable and Inclusive Banking

stated in Table 6.4. Bank's total CSR Chart 6.8 Share of Sector-wise CSR
expenditure in FY20 is BDT 9255.1 million. Expenditure of Banks in FY20
Banks contributed 28.4, 19.7, 19.6 and Income
generating Others Education
15.8 percent to humanitarian and disaster activities
0%
20% 19%

relief, others, education and health sectors Infrastructural

development
respectively of the total CSR activities. 1%

Expenditure on cultural welfare and

environment in underprivileged area are 11.3
Cultural welfare
and 4.7 percent respectively. Besides, only 0.7 11%
Health
16%

percent of total CSR expenditure contributed Environment

Humanitarian &
disaster relief
5% 28%
to infrastructural development. Banks’ CSR
Source: SFD, BB.
expenditure in income generating activities is
insignificant during FY20. Share of expenditure
Chart 6.9 Share of Sector wise CSR
in CSR programs of banks in FY20 are shown Expenditure of NBFIs in FY20
in Chart 6.8. Infrastructural Income Others
development generating 4%
1% activities
6.17 NBFIs reported direct CSR expenditure 2% Education
7%

of BDT 144.57 million in FY20. NBFIs major Cultural welfare

2%

shares of CSR expenditure contributed to Environment

1%
health and humanitarian and disaster relief
sectors 50.46 and 32.25 percent respectively.
Humanitarian &
However, they spent 6.45, 4.42, 2.34, 2.28 disaster relief
32% Health
and 1.33 percent in Education, Others, 51%

Income generating activities, Cultural welfare Source: SFD, BB.

and Infrastructure development sectors
respectively. Only 0.47 percent of total CSR Table 6.5 Sector-wise Expenditure of
expenditure contributed to Environment sector BB’s CSR Fund in FY20
Amount Sectoral
Sectors
in FY20. Share of expenditure in CSR programs (In million BDT) Share (percent)
Education 18.02 36.41
of NBFIs in FY20 are shown in Chart 6.9. Health 10.44 21.09
Research 8.37 16.90
BB's Own CSR Activities Human Resources Development/ 0.90 1.82
Capacity Building
6.18 BB has established "Bangladesh Bank Disaster Management 0.14 0.29
Infrastructure Development 11.06 22.35
Disaster Management and Social Responsibility Culture 0.18 0.36
Fund'' by transferring taka 50 million from its Others 0.38 0.78
Total 49.49 100.00
annual profit each year to conduct its own CSR Source: SFD, BB.
activities in different areas such as education,
health, environment, empowerment, human FY15. BB has sanctioned BDT 49.5 million in
resources development, etc. with a view to FY20 which was BDT 41.8 million (contribution
developing the backward sectors of Bangladesh from BB’s profit and bank interest) in FY19 from
and ensuring its sustainable development. Later the fund. The sector wise allocation of CSR
the fund was extended to BDT 100.0 million in expenditure in FY20 is shown in table 6.5.

62
Sustainable and Inclusive Banking
Financial Inclusion Activities in Bangladesh
6.19 Financial inclusion has emerged
as one of the most effective policies to
achieve inclusive and sustainable economic
development. In line with this policy objective,
Bangladesh Bank (BB) has been engaged
in the exploration of innovative initiatives to
bring the financially excluded people under the
umbrella of formal financial services. As part of
these initiatives, BB has been promoting multi-
faceted and affordable alternative delivery
channels including the digital services to
make formal financial services available at the
doorsteps of the mass people.
6.20 As per the responsibilities conferred
upon vide various statues, acts including
the parent law ‘The Bangladesh Bank Order,
1972’, Bangladesh Bank has been committed
to promote financial inclusion activities to
facilitate the best use of economic resources.
As a part of this mission, BB has taken different
initiatives to improve the access to credit and
other financial services especially for the
unbanked and poor populace of the country
who generally left out of the financial services.
6.21 Bangladesh Bank has committed
for a greater financial inclusion of under-
served productive sectors and brought new
dimensions in financial markets for rapid
poverty eradication, inclusive economic
and social progress. In order to meet the
commitments and targets within the stipulated
time and to monitor the self-progress, BB has
started outlying it’s commitments to the nation
through publishing ‘Strategic Plan’ since 2010.
In the latest Strategic Plan for 2020-2024,
Bangladesh Bank has set several action plans
which have been coupled with the indicators for
deepening financial inclusion in Bangladesh.
63
Chapter-6
On implementation of those action plans, it is
expected that financial services will be reached
out to all including the underprivileged people,
gender gap will be reduced, and finally the
usage of financial services will be increased to
the expected level.
6.22 In addition to the institutional goals,
Bangladesh Bank has played an instrumental
role in preparing the country’s first financial
inclusion strategy, the National Financial
Inclusion Strategy (NFIS). The draft of NFIS has
been finalized and awaited approval from the
Cabinet. In the finalized draft, the commitment
for financial inclusion of all citizens by 2024 has
been reaffirmed.
Early Stages of Financial Inclusion in
Bangladesh
6.23 The nationalization of the banks in
1972 facilitated in reaching out to more remote
places and diversifying banking services for a
greater population. Another important step was
the establishment of Bangladesh Krishi Bank (a
specialized bank for financing the agricultural
sector) in 1973, which facilitated access to
agricultural finance to a large portion of the
rural population. Meanwhile, microfinance
institutions also found their ground to grow
their operation as aide delivery channel and
operating microcredit at the rural level.
6.24 As the time evolved, in 1982,
Bangladesh Bank started licensing of private
commercial banks in Bangladesh that
increased financial access points and thus
helped more people to be on-boarded in the
financial system. With the emergence of mobile
and internet, Digital Financial Services (DFS)
boosted the financial inclusion in Bangladesh
further, especially in the last decade. Among
Chapter-6 Sustainable and Inclusive Banking

the available DFS, Mobile banking has gained Chart 6.10 Trends in Agent Banking
much popularity and helped more unbanked Activities
people to use financial services. 14000 300000
12000 250000
6.25 In FY20, Bangladesh Bank with

In million BDT
In numbers
10000
200000
its various initiatives, remained focused 8000
150000
on reaching out to more unbanked and 6000
100000
underprivileged people, exploring new areas 4000
2000 50000
and ensuring quality and affordable financial
0 0
services. June '16 June '17 June '18 June '19 June '20

Outlets Accounts (Thousands)

Financial Inclusion through Conventional
Channels
Expansion of Branch Network of the Banks
6.26 The conventional and comprehensive
way of extending banking services to the areas
where there is a need for those services as well
as business prospect for the banks is the full-
fledged branch banking. Earlier, banks were
permitted to maintain a ratio of 4:1 for setting
new branches in the urban and rural areas
till 2011. With a view to reaching more rural
areas with banking services, Bangladesh Bank
issued a circular on bank-branch expansion in
2011 and re-fixed the rural urban branch ratio to
1:1. In FY20, a total of 192 new bank branches
were opened. The number of bank branches as
on 30 June 2020 stood at 10,588.
Sub-branches and Bank Booths
6.27 In 2012, Bangladesh Bank allowed
banks to establish Small and Medium
Enterprise (SME) branches, Agri-branches,
collection booths and business development
centers. These new channels are bringing more
unbanked and underprivileged people under
the formal banking network. Such branches are
providing limited scale banking services and
operating within a limited expenditure under the
supervision of a nearby full-fledged branch of
Lending (Million) Deposits (RHS)
Remittance (RHS)
Source: FID, BB.
the bank.
Financial Inclusion through Alternative
Channels
Agent Banking
6.28 Bangladesh Bank allowed scheduled
banks to extend banking services through
agents in 2013. Agents of a bank can offer
limited-scale banking and financial services
under a valid agency agreement. Through
this system banks can extend their services to
the remote areas without setting up a branch
or employing their own officials to the remote
location. This new system is cost efficient
for the banks as well as suitable for a local
entrepreneur to act for a bank in their locality.
As a result, Agent Banking is gaining much
popularity in the remote areas.
6.29 Financial inclusion has gained a pace
through Agent Banking in the rural areas
creating endless possibilities for both banks and
their customers. Agent banking is helping banks
in mobilizing deposits, disbursing credit and
most importantly distributing inbound foreign
remittances. Even in the time of spreading
COVID-19, when every other business and

64
Sustainable and Inclusive Banking
banking activities saw a downturn, the Agent
Banking has still made a significant progress.
6.30 As of June 2020, 28 banks have been
licensed for Agent Banking and 23 of them
are actively engaged. A total of 8,764 agents
have been engaged with 12,449 outlets, which
is 45.75 and 43.57 percent higher than the
previous fiscal year respectively. Total number
of accounts up to 30 June 2020 is 7,358,190 and
total balance of these accounts is BDT 102.20
billion. The distribution of foreign remittance
through agent banking in the FY20 was Tk.
173.02 billion which was 196.52 percent higher
than BDT58.35 billion in FY19. Trends in agent
banking activities are shown in chart 6.10.
Introduction of Automated Teller Machine
(ATM)
6.31 Worldwide, ATMs are making
significant contribution towards creating
branchless banking. Considering the comfort
and convenience of the customers, Bangladesh
Bank encourages banks to introduce ATMs for
their customers. This avenue allowed banks
to provide allied services such as debit card,
credit card, POS/online transactions, etc.
The first ATM in Bangladesh was introduced
in 1993. As on 30 June 2020, the number of
ATMs in Bangladesh is 11,047.
Electronic Payment Services
6.32 The popularization of POS and
e-Commerce services helped customers to
make domestic and overseas payments with
ease and convenience. Specially, with the
evolvement of technology, these services
helped to financially include the tech-savvy
young generation. Bangladesh Bank also
introduced Bangladesh Automated Cheque
65
Chapter-6
Processing Systems (BACPS) in 2010,
Bangladesh Electronic Funds Transfer Network
(BEFTN) in 2011, National Payment Switch
Bangladesh (NPSB) in 2012 and Real Time
Gross Settlement System (RTGS) in 2015.
These technical moves increased the speed
of money and thus reduced time required for
making interbank transactions significantly. As
the usage of these services increases, the cost
reduces and induces financial inclusion.
Mobile Financial Services
6.33 Bangladesh Bank has introduced
Mobile Financial Services (MFS) in 2011.
Initially MFS was used as a mode of payment
instrument, but later MFS is being used as a
medium of deposit mobilization also. MFS
has experienced a rapid growth since the
mobile phone network is omnipresent all
over in Bangladesh. Bangladesh Bank has
also introduced a tiered KYC and electronic
documentation for opening an MFS account
which further accelerated financial inclusion.
6.34 At the early stage, MFS transactions
were limited to Cash-in/Cash-out (CICO),
but now all mode of transactions including
Person to Person (P2P), Person to Business
(P2B), Business to Person (B2P), Person to
Government (P2G) and Government to Person
(G2P) are allowed and popularly used.
6.35 MFS has grown exponentially since the
inception and the growth continued in FY20. In
a recent move, in line with the Government’s
decision, Bangladesh Bank has instructed
all MFS companies to open accounts of the
garment workers, receivers of government
subsidies, stipend, scholarship, etc. and allow
them withdrawal of their hard-earned money
with subsidized cash-out fee. The number of
Chapter-6 Sustainable and Inclusive Banking

registered and active MFS clients increased Chart 6.11 Trends in No-frill Accounts
by 22.47 and 18.83 percent respectively during
24,000 25000
this fiscal year. The transaction number and 23000
22,000
21000
volume were also increased by 28.35 and 20,000 19000

In thousands
41.38 percent respectively. 17000

In million
18,000
15000
16,000 13000
Licensing of PSPs and PSOs
14,000 11000
9000
6.36 As a part of financial inclusion and 12,000
7000
deepening financial services, Bangladesh 10,000 5000
June June June June June
Bank has been providing licenses for Payment '16 '17 '18 '19 '20

Services Providers (PSP) and Payment System Accounts Deposits (RHS)

Operators (PSO) under the "Bangladesh Payment Source: FID, BB.

and Settlement Systems Regulation-2014
(BPSSR-2014)". PSPs are facilitating
payment(s) or payment processes directly to the
customers and settling their transactions through
a scheduled bank or financial institution, such as
e-Wallet, Mobile Wallet, etc. PSOs are engaging
as fintech companies who operate as settlement
systems for payment activities between/
among participants, such as payment gateway,
payment aggregator, etc. As of June 2020, a
total of 7 PSPs and PSOs are in operation and
their activities are helping financial inclusion in
Bangladesh.
Initiatives for Marginal and Specialised
Segments
No-Frill Accounts
6.37 The focus of financial inclusion in
Bangladesh rests mainly on low-income groups.
Since the financial service is regarded as an
important prerequisite for poverty alleviation and
improving living standard, Bangladesh Bank
issued a set of directives to the commercial
and specialized banks to onboard the poor,
marginalized and special segment of population
to the formal banking system and to retain them
in the system through opening a special type of
bank accounts with zero or nominal charges and
free of unnecessary fees or frills. Those accounts
are commonly known as No-Frill Accounts (NFA).
NFAs require simplified Know-Your-Customer
requirement and documentation. Bangladesh
Bank guided commercial banks for opening
NFAs for farmers, recipients of the social security
programs, freedom fighters, small life insurance
policyholders, garment workers, cleaning
workers of the city corporations, footwear and
leather goods makers, small-scale factory
workers, physically-challenged persons, street
urchins, dwellers of the former enclaves, flood
affected marginal people, small businessmen,
etc. In addition, Banks were instructed to offer
higher interest rate against the deposits of those
accounts. NFAs have been playing a pivotal role
in respect to financial inclusion over the years.
6.38 As of June 2020, a total number of
2,20,70,630 NFAs have been opened under the
financial inclusion program. The number was
1,94,98,045 in June 2019 indicating an annual
growth of 13.19 pecent. The total amount of
deposits in the NFAs reached BDT 23,867.4
million in June 2020 compared to BDT 19,301.9
million in June 2019 indicating 23.65 percent of
annual growth during last year. Trends in NFAs
are shown in chart 6.11.

66
Sustainable and Inclusive Banking Chapter-6

School Banking Chart 6.12 Trends in School Banking

Activities
6.39 One of the most significant milestones
3000 20000
in the financial inclusion initiatives of Bangladesh
18000
Bank is the introduction of School Banking. To 2500
16000
develop savings habit at a very early age, the 2000

In thousands
14000

In million
program introduces banking services and modern 1500 12000
10000
banking technology to students of age less than 1000
8000
18 years. Bangladesh Bank issued directives 500
6000
for the banks to introduce school banking in 0 4000
June June June June June
November 2010, later framed a comprehensive '16 '17 '18 '19 '20
policy in October 2013. These policies have Accounts Deposits (RHS)
preceded the directive to convert school banking
Source: FID, BB.
accounts to general savings accounts once the
students reach the age of 18 years (subject to open accounts in the banks with the help of
the consent of the account holder). the registered Non-Government Organizations
(NGOs). The NGOs involved in this process
6.40 In light of these policies, banks can
are fully responsible for the account operation
open student accounts with a minimum deposit
and for the welfare of the account holders. No
of BDT 100 and no service charges. Moreover,
fees are charged on these accounts.
these accounts offer attractive interest rates,
debit card facility and school-centric financial 6.42 Up to June 2020, 19 banks have
education programs. 55 banks out of 60 banks opened 10,029 street urchin and working
operating in Bangladesh have so far offered children accounts through the help of 23 NGOs.
school banking. Total number of students The total amount of deposits in these accounts
accounts under school banking initiatives has is BDT 3.87million. The number of accounts for
increased to 24,31,602 in June 2020 with a street urchin and working children has been
total deposit of BDT 17,628.2 million. The increased by 4,882 in June 2020 compared
number of accounts and amount of deposit to that of June 2019, indicating 94.85 percent
have increased by 4,35,572 (or 21.82 percent) increase over the last year.
and BDT 2684.2 million (or 17.96 percent)
Introduction of Refinance Packages
respectively in June 2020 from June 2019.
Chart 6.12 shows the picture of school banking BDT 2.0 Billion Refinance Scheme for BDT
accounts in Bangladesh. 10 Account Holders

Banking for the Working Children 6.43 In 2014, a revolving refinance fund
of BDT 2.0 billion has been created from
6.41 Bangladesh Bank has directed banks
Bangladesh Bank's own source to facilitate
to provide financial services to street urchin
the rural economic activities by expanding the
and working children to secure their hard-
income-generating activities of the low-income
earned money and help them to grow a saving
marginal/small traders affected by natural
attitude. Children who do not have parents can

67
Chapter-6
disasters as well as small/marginal farmers with
accounts of BDT 10 to provide access to credit
to the financial services-strapped people under
institutional financial services. The scheme
has been used to refinance loans provided
by banks directly and also through Micro-
Financial Institutions (MFI) linkage. Under this
scheme, the banks under contract can lend up
to BDT 50,000 to the accountholders of BDT
10 for one-year period without any collateral.
In contrast to the disbursement of these loans,
Bangladesh Bank provides refinance facility to
banks at bank rate. The maximum interest rate
of this loan is 9.5 percent, which is calculated in
reducing balance method. Besides, banks also
get a rebate incentive at a rate of 3.5 percent
against successful reclaiming of disbursed
loans under this fund.
Refinance Scheme of BDT 30.0 Billion for
COVID-19 Affected Marginal People
6.44 In order to tackle the adverse impact
of COVID-19 on marginal people, Bangladesh
Bank announced a BDT 30.0 billion refinance
scheme on 20 April 2020. The objective
of the scheme is to provide the poor and
marginal people with access to credit through
Microfinance Institutions (MFI). The maximum
limit for the loan is BDT 75,000 for individual and
BDT 3,00,000 for a group of people. In case of
a small enterprise, the maximum limit of loan is
BDT 10,00,000 and a group of small enterprise
are eligible to get maximum BDT 30,00,000. All
credits under this scheme are to be given only
to the members of MFIs for the period of one
year for an individual and maximum 02 years
for micro-enterprises. 42 scheduled banks
have already agreed upon a contract with
Bangladesh Bank to disburse the fund under
the scheme to the MFIs who are given eligibility
68
Sustainable and Inclusive Banking
certificate by Microcredit Regulatory Authority
(MRA). Banks will be charged only 1.0 percent
per annum by Bangladesh Bank and they will
lend to MFIs at 3.5 percent per annum. The
end-users who are affected by the COVID-19,
are eligible to get the fund at maximum rate of
9.0 percent per annum. It is mentionable that
remittance-providing workers who are returning
from abroad due to COVID-19 situation, are
also eligible to get credits under the scheme.
Thus, this refinance scheme opened a great
scope for the marginal people to carry on their
livelihoods amidst the corona crisis.
Financial Literacy and Consumer
Empowerment
6.45 Financial literacy of the citizen is a
prerequisite to make a sustainable financial
inclusion. With a view to making financial
inclusion initiatives more successful,
Bangladesh Bank has taken numerous
initiatives. An interactive web portal for
financial literacy has been hosted on the
official website of BB. The portal contains
basic financial literacy documents, cartoons,
story books, games, audio-visuals, calculator,
etc. on different financial issues and financial
services. Several television commercials, radio
broadcasting commercials, advertisements
in the newspaper, flyers, pamphlets, leaflets,
video documentary have been made and
released for building public awareness on
financial literacy.
6.46 Bangladesh Bank has identified
'Strengthen financial education & financial
literacy initiatives' as an important core objective
in the Strategic Plan for 2020-2024. With a view
to increase public awareness, formulate financial
literacy and financial education policy, Bangladesh
Sustainable and Inclusive Banking
Bank has designed a special programme named
‘School Banking Conference’ in 2014. School
Banking Conferences are arranged at the district-
level of Bangladesh. Students from different
educational institutions, parents, teachers,
government officials, journalists of that locality
participate, learn and share financial knowledge
through various activities. Considering financial
literacy as a foundational learning for the future
citizen, Bangladesh Bank has been working to
include a special chapter on financial literacy in
the national curriculum for the secondary level
education.
6.47 In addition to the above-mentioned
programs and initiatives, Bangladesh Bank
arranges different financial awareness
campaign such as open credit disbursement
program, awareness raising campaign under
different schemes and projects, special fairs
such as Banking Fair, SME Fair, Women
Entrepreneur Fair, etc.
International Collaboration and Knowledge
Sharing
6.48 Bangladesh Bank has built partnership
with some international strategic alliances and
become member of international organizations
to boost financial inclusion, financial deepening
and also to ensure an enabling and inclusive
financial environment in Bangladesh.
6.49 Governor of Bangladesh Bank was the
Chair of the Board of Directors of Alliance for
Financial Inclusion (AFI) till September 2019.
AFI (https://www.afi-global.org) is a global
knowledge exchange platform of 99 regulators
from 88 countries for financial inclusion.
6.50 The Maya Declaration, a member
institution’s self-commitment regarding
financial inclusion has been introduced by AFI
69
Chapter-6
in September 2011 at the AFI Global Policy
Forum in Riveria Maya, Mexico. Bangladesh
Bank signed the Maya Declaration and made
46 commitments of which 37 commitments
have successfully been achieved till June 2020.
6.51 Bangladesh Bank has also been
made Vice-chair of the Financial Inclusion
Working Group of the Organization of Islamic
Cooperation (OIC). This working group of the
central banks of the Islamic countries is working
for the promotion of financial inclusion as well
as for improving access to finance, financial
education and consumer protection.
6.52 It is well-mentionable that due to
significant progress in financial inclusion,
Bangladesh Bank has been awarded with the
AFI Policy Award in 2014, The Child and Youth
Finance International (CYFI)’s Global Inclusion
Award for 2016 and 2017, AFI Gender Inclusive
Ambassador award in 2018.
Other Financial Inclusion Initiatives
Introduction of e-KYC and Simplified
Account Opening Form
6.53 Bangladesh Bank is committed to
ensure affordable and faster financial services
for the citizen to promote financial inclusion and
to achieve several national objectives including
sustainable development goals (SDGs). As the
modern financial ecosystem require customer
identification and due diligence with minimum
possible time, Bangladesh Bank took initiative
to introduce electronic know-your-customer
(e-KYC) in 2016. Since the digitalization enable
easy access of customer, even from the remote
location, into the financial services, this may
pose some underlying risks. Furthermore,
the verification of identity is an integral part
Chapter-6
to complete the Know Your Customer (KYC)
processes necessary for compliance with Anti-
Money Laundering and Counter Financing of
Terrorism (AML/CFT) regulation.
6.54 The inability of financial institutions to
properly verify prospective clients will lead to
financial exclusion. Considering the pros and
cons and a trustworthy identification mechanism
through e-KYC, Bangladesh Bank issued a
guideline in January 2020. Banks are instructed
to implement e-KYC by December 2020.
6.55 In order to promote financial
inclusion, Bangladesh Bank reviewed the
account opening form used by the Banks and
introduced a simplified form in February 2020.
The simplified form is designed to offload
the burden of the marginalized clients from
submission of many documents based on their
risk exposure. Bangladesh Bank also asked
all banks introduce simplified forms by 30 June
2020 replacing the existing and long account
opening forms burdened with information.
6.56 The account opening forms were
updated to make account opening more
customer-friendly in accordance with the
evolvement of information technology,
improvement of financial infrastructure and
to facilitate faster information flow with the
assistance of technology. Apart from the
requirements of the simplified forms, the
banks have been allowed to seek additional
information from customers if they deem it
necessary.
Deepening of Access to Finance through
Agricultural Credit Programme
6.57 Bangladesh Bank has been pursuing
annual agricultural credit policy to increase
financial inclusion and access to finance in the
70
Sustainable and Inclusive Banking
rural areas. The policy also aims at reaching
every corner to rejuvenate rural economy
each year. In addition to financial inclusion,
agricultural credit policy helps employment
generation, increases agricultural production
and ensures food safety for the country.
6.58 Short-term agricultural credits are
generally disbursed to the farmers for the
production of crops and those are repayable
within a calendar year. So, agricultural credit
supply needs to be continued through policy
initiatives to retain them in the financial systems.
In FY20, a total of BDT 227.51 billion has been
disbursed to 3.1 million borrowers of which 1.5
million were women.
Narrowing the Gender Gap
6.59 As per the Global Findex, 2017
published by the World Bank, the prevailing
gender gap in accessing financial services in
Bangladesh is 29 percent. In order to reduce
the gap and to increase the pie for the female
counterpart, Bangladesh Bank has taken
different initiatives which help increasing
financing inclusion through widen the access
to finance. Banks are instructed to extend
fresh credit facilities in favor of at least 3
Women Entrepreneurs per branch annually.
Furthermore, to encourage the women's
participation in getting credit, banks are
instructed to setup a dedicated desk in each
branch and to form a Women Entrepreneur
Development Unit at their head office to help
and monitor the women entrepreneurship and
allied activities. The policy measures taken by
Bangladesh Bank already impacted positively
on the share of women in financial services.
1 Agricultural & Rural Credit Policy and Programme for
the FY21.
Sustainable and Inclusive Banking
Enhancing Eligible Collateral Base for
Greater Access to Finance
6.60 Sufficient collateral is one of the
important prerequisites to avail loan from any
bank or financial institution in Bangladesh.
Among the collaterals, immovable fixed assets
are most widely acceptable. Hence, financing to
escalate the cottage, micro, small and medium
enterprise (CMSME) industry hinders due to
lack of adequate immovable collateral. Movable
assets can be considered as alternative source
of collateral for the CMSME loans. A project
named ‘Secured lending and movable collateral
reform in Bangladesh’ has been undertaken
jointly by Bangladesh Bank, Ministry of Finance
and International Finance Corporation (IFC) of
World Bank Group. The objective of this project
is to generate the acceptability of transferable or
movable assets through reformation of eligible
collateral. Consequently, widen the periphery
of eligible assets considered as collateral and
to ease financing intricacy for the CMSME
entrepreneurs.
Regulatory Changes in Financial Inclusion
in FY20
Issuance of e-KYC Guidelines
6.61 Bangladesh Financial Intelligence Unit
issued the e-KYC guidelines for the financial
institutions including banks, non-bank financial
institutions, insurance companies, capital
market intermediaries, MFS, DFS and the
other companies licensed by the Bangladesh
Bank. Every financial institution is expected
to implement this Guideline by December
2020. This e-KYC guideline contains a set
of instructions for the financial institutions to
enable them to conduct customer due diligence
in a digital means based on the national ID
71
Chapter-6
(NID) card and the bio-metrics data stored
against each NID card. The key objective of
promoting e-KYC is to enable quick onboarding
of customer by verifying customer identity
through digital means which can leverage
saving of time and provide ease both for the
client and service providers.
Regulatory Responses due to COVID-19
6.62 Bangladesh Bank has taken several
steps in Covid-19 pandemic situation, including
the following:
• Uninterrupted digital financial services
in different sectors by enhancing
transaction limit and waivers of fees;
• Disbursement of Salary, Wages and
Government Social Safety Net benefit
through the workers’/customers bank
account or mobile wallets;
• Disbursement of Government
allowance of distressed population
affected by providing cash assistance
to 5 million poor families who have lost
their profession during the corona virus
pandemic through Mobile Financial
Services (MFS) and BDT10 account;
• Formed a Revolving Refinance
Scheme with an initial fund of BDT30
billion for providing credit facilities to
ensure inclusive growth;
• Developed financial assistance
package of BDT 200 billion for capital
loan/ investment facility for Cottage,
Micro, Small and Medium Enterprises
(CMSME) and BDT 100 billion
Refinance Scheme for CMSME sector
to provide working capital facility.
Chapter-7

Performance, Regulation and Supervision of NBFIs

7.1 Non-Bank Financial Institutions (NBFIs) Table 7.1 Trends in Structure of NBFIs
have been playing a crucial role by providing 2014 2015 2016 2017 2018 2019 2020*
No. of NBFIs 31 32 33 34 34 34 35
additional financial services that cannot be
Government-owned 3 3 3 3 3 3 3
usually provided by the banks. The NBFIs, with Joint-venture 10 10 11 12 12 12 13
more multifaceted products and services have Private 18 18 19 19 19 19 19
New branches 20 15 14 30 8 11 3
taken their place in the competitive financial Total branches 195 210 224 254 262 273 276
market to satisfy the changing demands of the * As of 30 June 2020.
Source: DFIM, BB.
customers. NBFIs also play an important role
in the capital market as well as in real estate 7.3 NBFIs may access public funds, either
sector of Bangladesh. Like the banks, most of directly or indirectly through term deposits
the NBFIs have separate subsidiaries to operate (minimum 3 months duration), commercial
merchant banking activities. The NBFIs are papers (CPs), bonds and debentures.
regulated and supervised by Bangladesh Bank Depositors of NBFIs are not covered under the
under two core departments: (a) Department of Deposit Insurance Scheme by the Bangladesh
Financial Institutions and Markets (DFIM) and Bank. NBFIs are not allowed to deal with gold
(b) Financial Institutions Inspection Department and foreign exchange. Nonetheless, they
(FIID). DFIM basically formulates the regulations, may obtain foreign currency loan from abroad
policies and guidelines, and conducts Off-site subject to prior approval of the Bangladesh
supervision on NBFIs. On the other hand, FIID Bank. NBFIs are subject to some prudential
basically performs On-site supervision and guidelines/limits in terms of income recognition,
handle customer complaints regarding NBFIs. asset classification and provisioning norms;
single and group borrower limits; capital market
License and Regulations
exposures; classification and valuation for the
7.2 The authority of granting licenses to investment portfolio; CRR/SLR requirements;
NBFIs and their regulations and control are accounting and disclosure and supervisory
vested in Bangladesh Bank by the Financial reporting requirements.
Institution Act, 1993. Under the Act, Financial
7.4 At present, there are 35 NBFIs
Institution Regulation 1994 was issued with the
operating in Bangladesh (including Peoples
approval of the government. Besides, there are
Leasing & Financial Services Limited, which is
prudential regulations and guidelines for NBFIs
under liquidation). Bangladesh Bank has issued
issued by BB under section 18 (Chha) of FI Act
license to a new financial institution named
1993. According to Circular no. 5 dated 24 July
'Strategic Finance and Investment Limited' in
2011 minimum paid up capital requirement for
the year 2020. Among the NBFIs, three are
an ongoing FI is BDT 1.0 billion. However paid
government-owned, 13 are joint ventures with
up capital and reserves cannot be less than
foreign participation, and the rest 19 are private-
minimum ratio of Risk Weighted Asset as set
sector companies. The number of branches of
by Bangladesh Bank.

72
Performance, Regulation and Supervision of NBFIs Chapter-7

NBFIs stood at 276 as on 30 June 2020. Among Table 7.2 Trends in Assets, Liabilities and
the branches, 94 are set up in the district of Deposits of NBFIs
(billion BDT)
Dhaka and the rest 182 are located in 36 districts
2013 2014 2015 2016 2017 2018 2019 2020*
across the country. The ownership structure of Total assets 436.3 520.1 611.0 713.9 839.9 851.6 871.5 860.3
the NBFIs and their branch expansion related Total liabilities 350.4 424.2 509.0 606.5 726.0 739.6 753.1 768.7

data are shown in Table 7.1. Liabilities-assets

ratio 80.3 81.5 83.3 85.0 86.4 86.8 86.4 89.3
Total deposit 198.3 238.5 318.1 382.4 468.0 466.2 451.9 441.2
Assets
Deposit as % of
total liabilities 56.6 56.2 62.5 63.1 64.4 63.0 60.0 57.4
7.5 Total asset of NBFIs at the end of June
* As of 30 June 2020.
2020 was BDT 860.33 billion, which was BDT Source: DFIM, BB.

871.50 billion at the end of 2019.

Chart 7.1 Trends in Assets, Liabilities of
Investment NBFIs and their Ratios
1000 92
7.6 NBFIs are investing in different sectors 90
800
of the economy, but their investments are 88
86
In billion BDT

mostly concentrated in industrial sector. Sector

In percent
600
84
82
wise composition of NBFIs' investment at the 400
80
end of June 2020 was as follows: industry 200 78
76
46.45 percent, real estate 19.41 percent, 0 74
2013 2014 2015 2016 2017 2018 2019 2020*
margin loan 2.22 percent, trade and commerce
Total assets Total liabilities Liabilities-assets ratio (RHS)
13.84 percent, merchant banking 3.34 percent,
* As of 30 June 2020.
agriculture 2.30 percent and others 12.44 Source: DFIM, BB.
percent (Chart 7.2).
Chart 7.2 Investment Pattern of NBFIs
7.7 NBFIs are allowed to invest in the as of 30 June 2020
capital market up to 25 percent of their paid Others
12.44%
up capital and reserve as per section 16 of Agriculture
2.30%

Financial Institutions Act, 1993. At the end of Merchant

banking Industry
3.34%
December 2019, all NBFIs' total investment in 46.45%

capital market was BDT 18.83 billion compared Trade and

commerce
to BDT 17.74 billion in December 2018. As of 13.84%

30 June 2020, NBFIs total investment in capital Margin loan

2.22%

market stood at BDT 17.98 billion which is Real estate

19.41%

accounted for 2.09 percent of the total assets
of all NBFIs.
Deposits
7.8 Total deposits of the NBFIs at the end
of December 2019 went down to BDT 451.93
billion (60.00 percent of total liabilities) from
Source: DFIM, BB.
BDT 466.26 billion (63.03 percent of total
liabilities) at the end of 2018 showing an overall
decrease of 3.07 percent. At the end of June
2020, total deposit of NBFIs stood at BDT
441.17 billion (Table 7.2 and Chart 7.1).

73
Chapter-7 Performance, Regulation and Supervision of NBFIs

Other Liabilities and Equity Table 7.3 Trends in Total Loan/Lease and
7.9 Total liability of the industry increased Classified Loan/Lease
(billion BDT)
to BDT 753.12 billion at the end of December 2014 2015 2016 2017 2018 2019 2020
2019 from BDT 739.69 billion that of December Loan/lease 372.8 448.5 530.7 580.4 641.9 678.1 669.54
Classified loan/lease 19.7 40.0 38.7 52.1 59.2 80.4 70.34
2018. At the end of June 2020, total liability and
Classified loan/ lease 5.3 8.9 7.3 8.9 9.2 11.9 10.51
equity stood at BDT 768.71 billion and BDT as % of total
91.62 billion respectively. * As of 30 June 2020.
Source: DFIM, BB.
Bond and Securitisation Activity
Chart 7.3 Trends in NBFIs’ Total, Classified
7.10 NBFIs play a significant role for the
Loan/Lease and their Ratios
development of bond market through issuing
800 14
different types of Bonds. By taking NOC from 700 12
the Department of Financial Institutions and 600
10
Markets (DFIM) of BB, eleven instruments of 500

In billion BDT
8

In percent
bond with nominal value of BDT. 23.50 billion 400
6
300
have been floated in the market up to June, 4
200
2020. 100 2

Performance and Rating of NBFIs 0

2014 2015 2016 2017 2018 2019 2020*
0

7.11 Like banks, the performance of NBFIs Loan/lease

Classified loan/lease
is also evaluated through the CAMELS rating Classified loan/ lease as % of total loan/lease (RHS)

which involves analysis and evaluation of the *As of 30 June 2020.

six crucial dimensions. The six indicators used Source: DFIM, BB.

in the rating system are capital adequacy, asset

quality, management efficiency, earnings,
liquidity and sensitivity to market risk.
Capital Adequacy
7.12 Capital adequacy focuses on the
total position of NBFIs’ capital and protects
the depositors from the potential shocks of
losses that a FI might incur. It helps absorbing
major financial risks related to credit, market,
interest rate, etc. NBFIs in Bangladesh have
been instructed under the Basel III Accord to
maintain Capital Adequacy Ratio (CAR) of not
less than 10.0 percent with at least 5.0 percent
in core capital.
Asset Quality
7.13 Non Performing Loan (NPL) ratio is
an indicator of asset quality. This is the ratio of
gross non-performing loan/lease to total loan/
lease. At the end of June 2020, the NPL for
NBFIs was 13.29% percent. In the total asset
composition of all NBFIs, the amount of loans,
lease and advances was 77.82 percent during
the said period. The trends of the ratio of gross
non-performing loan/lease to total loan/lease is
shown at table 7.3.
Earnings and Profitability
7.14 Earnings and profitability of an FI reflects
its efficiency in managing resources and its long
term sustainability. Among various measures of
earnings and profitability, the best and widely
used indicator is the return on assets (ROA) which
is supplemented by return on equity (ROE). ROA

74
Performance, Regulation and Supervision of NBFIs
and ROE of all the NBFIs in June 2020 were 0.24
and 2.21 respectively (Table 7.4).
Liquidity
7.15 Term liabilities are subject to a
statutory liquidity requirement (SLR) of 5.0
percent inclusive of average 2.5 percent (at
least 2.0 percent in each day) cash reserve
ratio (CRR) on bi-weekly basis. The SLR for the
NBFIs operating without taking term deposit is
2.5 percent. Note that, at the end of FY 20,
in order to mitigate the impacts of COVID-19
on financial institutions and their clients, the
Cash Reserve Requirement (CRR) lowered
from 2.50 percent to 1.50 percent on bi-weekly
basis and from 2.00 percent to 1.00 percent on
daily basis to increase the money supply at the
Financial institutions end.
Sensitivity to Market Risk
7.16 The sensitivity to market risk reflects
the degree to which changes in interest rates
or equity prices can adversely affect an FI's
asset-liability position, earnings and capital.
When evaluating this sensitivity component,
consideration should be given to management's
ability to identify, measure, and control market
risk via the implementation of effective Core
Risk Management System. Vulnerability of the
FI in a stressed situation emanated from either
an interest rate or equity price shock (or both)
should be taken under consideration to evaluate
sensitivity. For many NBFIs, the primary source
of market risk arises from non-trading positions
and their sensitivity to changes in interest rates.
Composite CAMELS Rating
7.17 At the end of June 2019, out of 34
NBFIs, the composite CAMELS rating of 14
were "2 or Satisfactory", 10 were "3 or Fair”,
75
Chapter-7
Table 7.4 Trends in Profitability of NBFIs
(percent)
2012 2013 2014 2015 2016 2017 2018 2019 2020*
Return on equity 10.4 7.5 9.9 9.9 6.9 8.3 7.45 7.64 2.21
(ROE)
Return on asset 1.9 1.5 1.8 1.8 1 1.14 0.98 1.04 0.24
(ROA)
* As of 30 June 2020.
Source: DFIM, BB.
7 were "4 or Marginal" and 1 were "5 or
Unsatisfactory”. One FI is yet to come under
this rating and another one is on liquidation
process.
Legal Reform and Prudential Regulations
7.18 As part of the ongoing initiative,
Bangladesh Bank emphasizes the improvement
in financial strength and transparency of NBFIs
and undertakes some legal and regulatory
policy measures."Guidelines on Commercial
Paper for Financial Institutions” has been
revised to introduce some best practices and
to set standards that will facilitate financial
institutions to perform efficiently regarding CP
in a more organized way.
Capital Adequacy and Progress of BASEL
Accord Implementation in NBFIs
7.19 Basel-II norms was implemented in
the NBFIs from 1 January 2012. Prudential
guidelines on capital adequacy and market
discipline (CAMD) have been issued to
promote international best practices and to
make the capital of NBFIs more risk sensitive
as well as more shock resilient. NBFIs have to
follow the guidelines as statutory compliance.
Under Basel-II, NBFIs operating in Bangladesh
are instructed to maintain the Minimum Capital
Requirement (MCR) at 10.0 percent of the Risk
Weighted Assets (RWA) or BDT 1.0 billion
whichever is higher.
Chapter-7 Performance, Regulation and Supervision of NBFIs
Corporate Governance in NBFIs
7.20 BB has taken some policy measures in
order to put in place good corporate governance
framework for NBFIs. BB has clearly specified
the authority, responsibility and functions of
the Board of Directors, Executive Committee,
Audit Committee, Management and Chief
Executive Officer of NBFIs. The required
number of Directors in the Board ranges from 9
to 11. The Board sets and approves the vision/
mission, annual strategic business plan, key
performance indicators, core risk management
guidelines, etc. The Managing Director/Chief
Executive Officer (CEO) is responsible to
conduct day to day functions and materialization
of the strategic business plan.
Asset Classification and Provisioning
7.21 NBFIs are required to maintain provision
for expected losses on loans, advances, leases,
investments considering some objective
criteria as well as qualitative judgment. Assets
are classified as standard, special mention
accounts, sub-standards, doubtful and bad/
losses, requiring the NBFIs to keep provision
by 1 percent, 5 percent, 20 percent, 50 percent
and 100 percent respectively. At the end of
June 2020, the total outstanding of loan/lease
was BDT 670.21 billion of which NPL was BDT
89.05 billion (13.29 percent of total loan/lease,
table 7.3).
Loan Rescheduling Policy
7.22 Loans/Lease rescheduling is an
arrangement to accommodate the borrower in
financial difficulty, to avoid a default situation.
For the purpose of rescheduling of loans/
leases, NBFIs must receive down payments
from clients as specified in relevant DFIM
(Department of Financial Institutions & Market)
76
circular. NBFIs will take minimum of 15 percent,
30 percent, 50 percent of overdue amount or 10
percent, 20 percent, 30 percent of outstanding
amount, whichever is lower, as down payment
in cash for first time, second time and third time
rescheduling respectively.
Core Risk Management
7.23 Guidelines on five core risk areas,
namely, credit risk management, internal control
and compliance, asset-liability management,
prevention of money laundering and terrorist
financing, and information and communication
technology (ICT) security have been issued for
NBFIs. Besides these, with a view to address
and manage all the risks in a more prudent and
organized way the 'Integrated Risk Management
Guidelines for Financial Institutions' have also
been issued to adopt improved policies and
procedures in line with internationally best
practices for their risk management framework.
The Guidelines encompass all the probable
risks that include credit risk, market risk, liquidity
risk, operational risk, compliance risk, strategic
risk, reputational risk, environmental risk, and
money laundering risk.
Stress Testing
7.24 Stress testing is a simulation technique
used to test the resilience of different Financial
Institutions under a set of exceptional, but
plausible assumptions through a series of
tests. Stress testing alerts FI management to
adverse unexpected outcomes related to a
variety of risks (Interest rate, Credit, Equity and
liquidity). Stress Test rating scale of 1 to 5 and
zonal positioning through Weighted Average
Resilience-Weighted Insolvency Ratio (WAR-
WIR) Matrix have been introduced to develop
auto-generated Recommended Action Plan.
Performance, Regulation and Supervision of NBFIs
NBFIs are conducting stress testing on
quarterly basis.
Non-Bank Financial Institutions Inspection
7.25 During FY19, Financial Institutions
Inspection Department (FIID) conducted total
42 comprehensive inspections on Head offices
and branches of financial institutions. Details
of inspections conducted by the department
are shown in table 7.5. This department also
monitors implementation status/progress of the
recommendations made in the inspection reports.
Consumer Protection Regulations
Schedule of Charges
7.26 BB has rationalized the charges
of some services to ensure the interest of
depositors/investors/customers and advised
all NBFIs to display the complete schedule of
charges in suitable places in their branches
and head offices so that the clients can easily
notice them. They are also advised to post the
same information in their websites. BB monitors
these issues and NBFIs are required to submit
semi-annual statements in these regard. No
charge/commission like commitment fee,
supervision fee and cheque dishonor fee can
be charged.
Guidelines on Products and Services, and
Commercial Paper of Financial Institutions
in Bangladesh
7.27 Along with the banks, the financial
institutions with their customized products and
services have emerged as the competitive
financial intermediaries to meet the growing
and changing demands of customers. The
“Guidelines on Products and Services of
Financial Institutions in Bangladesh” has
77
Chapter-7
Table 7.5 Inspections Conducted by FIID
Name of Inspection Number
Head office comprehensive inspection of NBFIs 16
Branch comprehensive inspection 0
Core Risk Inspection (off-site) 0
FICL Inspection (Quick Summary Report) 33
Special Inspection (on request) 05
Source: FIID, BB.
outlined the different characteristics of products
and services offered by NBFIs which helps
financial institutions to adapt with the changing
environment also to promote sound risk
management system and bring discipline in
launching new products and services.
7.28 In order to set some regulations
regarding commercial papers 'Guidelines on
Commercial Papers for Financial Institutions'
have been introduced. This allowed Financial
Institutions to get involved in commercial
papers as investor, issuer, guarantor, and
Issuing and paying agent by fulfilling the terms
and conditions as mentioned in the guidelines.
The existing guidelines have been revised by
DFIM circular letter no-02 dated on February
27, 2020 to ensure best practices and to set
standards that will facilitate financial institutions
to perform efficiently regarding commercial
papers in a more organized way.
Cost of Funds Index for NBFIs
7.29 NBFIs are regularly submitting their
monthly statements of base rate and cost of
funds to BB as per guideline published in 2013.
On the basis of these statements, BB prepares
an aggregate cost of funds index, uploads that
in the BB website and updates on a monthly
basis. The cost of funds index is used as an
acceptable reference rate. The base rate
Chapter-7 Performance, Regulation and Supervision of NBFIs
system facilitates the interest rate determining
process and ensures more transparency and
accountability in the NBFIs. The cost of fund of
FI's in December 2019 was 9.20 percent which
decreased to 8.74 percent in June 2020.
Regulations on CMMS (Corporate Memory
Management System) for Financial Institutions
7.30 As part of formulation and
implementation of National Integrity Strategy
(NIS), a circular has been issued for
preservation and use of information of the
Penalized Employees of Financial Institutions
through CMMS.
Measures To Mitigate Covid-19 Impact on
Financial Institutions
7.31 Like elsewhere across the globe, the
COVID-19 pandemic has brought uncertainties
78
in financial and economic sector in Bangladesh.
Bangladesh Bank has taken several policy
measures to mitigate the impacts of COVID-19
on financial institutions and their clients. Some of
those policies are: keeping classification status
of loan/lease/advance unchanged from January
to September 2020, lowering the Cash Reserve
Requirement (CRR) from 2.5 percent to 1.5
percent on bi-weekly basis and from 2.0 percent
to 1.0 percent on daily basis, restructuring and
revolving loan renewal facilities on easy terms
and conditions. Moreover, Bangladesh Bank
facilitates interest rate subsidy and refinance
scheme for pandemic affected clients of
Financial Institutions and Banks under the
government stimulus packages for lending
working capital in industries and service sector,
and CMSME (Cottage, Micro, Small, and
Medium Enterprises) sector.