Financial Management of Public & Private Sector Enterprise

CONTENT
1. DISCUSS GOALS & OBJECTIVES OF FINANCIAL MANAGEMENT OF PUBLIC & PRIVATE
SECTOR ENTERPRISE.

2. DISCUSS ABOUT THE FINANCIAL MANAGEMENT PRACTICE OF PUBLIC & PRIVATE

SECTOR IN BANGLADESH.

3. WHAT ARE THE TECHNIQUES OF PUBLIC FINANCIAL MANAGEMENT? DESCRIBE IN

DETAILS.

4. DESCRIBE ORGANIZATIONS & MANAGEMENT STRUCTURES.

5. DISCUSS ABOUT CONTROL MEASURES OF FINANCIAL MANAGEMENT.

6. WHAT ARE THE PROBLEMS & PROSPECTS OF FINANCIAL MANAGEMENT PRACTICE

IN BANGLADESH?

1.DISCUSS GOALS & OBJECTIVES OF FINANCIAL MANAGEMENT OF PUBLIC &

PRIVATE SECTOR ENTERPRISE.

DEFINITION OF PUBLIC SECTOR ENTERPRISE

Public enterprises are autonomous or semi-autonomous corporations and companies
established, owned and controlled by the state and engaged in industrial and commercial
activities. Example: Bangladesh Bank, Janata Bank, Agrani Bank, Krishi Bank, Bangladesh
Railway Corporation etc.

DEFINITION OF PRIVATE SECTOR ENTERPRISE

Private enterprise is industry and business which is owned by individual people or commercial
companies, and not by the government or an official organization. Example: Square company,
Uniliver, GSK, Grameenphone, Airtel etc.

DEFINITION OF FINANCIAL MANAGEMENT

The process of managing sources & investment of fund in order to maximize the profit. In broad
sense, the process of financial planning, collecting & investing the fund, financial controlling &
ensuring production against outsider’s fund & distributing the income in order to maximize the
shareholder’s wealth. In other word, the process of planning & controlling the financial resource
in order to maximize the profit or shareholder’s wealth.
GOALS OF FINANCIAL MANAGEMENT OF PUBLIC SECTOR ENTERPRISE
Public sector enterprise has an ongoing obligation to build the relationship with Public Bodies to
ensure full compliance with the Public Bodies. Every effort is made to ensure the public bodies
are structured and supported in its goals and objectives through ongoing pursuit of higher
service standards, mutual respect, accountability and transparency.

GOAL 1: Strengthen Public Bodies governance and regulatory frameworks.

GOAL 2: Enhance the profitability, compliance, financial sustainability and service delivery of
Public Trading Bodies.

GOAL 3: Enhance the compliance, financial sustainability and service delivery of Public
Beneficial and Mutual Bodies.

GOAL 4: Effective identification, implementation and monitoring of PPP and Privatization

programs.

GOAL 5: Efficient institutional support services.

OBJECTIVES OF FINANCIAL MANAGEMENT OF PUBLIC SECTOR ENTERPRISE

The general objectives of public sector are:

(a) To provide required investment and promotion of industrial activity by way of indirect public
investment either by supplying financial assistance to private sector or to supply infrastructural
and basic activities;

(b) To supply socio-economic developmental opportunities which should not be transferred to

private sector undertakings;

(c) To nationalize those companies which are foreign dominated,

(d) To supply activities relating to import-substituting and export-promoting which are essential
for the development of the country;

(e) To develop savings by mobilizing resources with the help of proper public sector prices more
quick than others;

(f) To introduce certain activities to take the benefit of foreign aid and co-operation in the public
sector;

(g) To make a balanced regional development by establishing regional promotional

undertakings in less developed regions, e.g., D V. C (Damodar Vally Corporation);
(h) To protect the interest of small farmers by transferring all private licences to the corporations
of agricultural reforms;

(i) To control the concentration of economic power and wealth as well;

(j) To make a social control on long term capital by supplying the necessary financial assistance
through public financial institutions which are quite justified;

(k) To supply necessary finance for various development programmes which are essential for
the development of the country;

(l) To make opportunities for employment and to form a rational society which is absolutely
desired;

(m) To re-distribute incomes either by raising wage levels and checking higher salary level or by
supply outputs at a concessional rate to the poor etc.

(n) To generate surplus resources for future growth and development; and

(o) To use human resources and material resources in a better way.

GOALS OF FINANCIAL MANAGEMENT OF PRIVATE SECTOR ENTERPRISE

Goal 1: To ensure profitability in the market.

Goal 2: To protect equity financing & debt financing.
Goal 3: To provide the information and tools to maximize competitiveness and enable economic
growth for Bangladeshi private industries, workers, and customers.
Goal 4: Foster science and technological leadership by protecting intellectual property,
enhancing technical standards, and advancing measurement science.
Goal 5: Observe, protect, and manage the Earth’s resources to promote environmental
stewardship.

OBJECTIVES OF FINANCIAL MANAGEMENT OF PRIVATE SECTOR ENTERPRISE

(a) To earn high profit.

(b) To maximize the wealth of shareholders.
(c) Growth.
(d) To fulfill needs and wants of the people ;

Examples:
Multinational companies
Big corporations
2. DISCUSS ABOUT THE FINANCIAL MANAGEMENT PRACTICE OF PUBLIC & PRIVATE
SECTOR IN BANGLADESH.
FINANCIAL MANAGEMENT OF PUBLIC BANK IN BANGLADESH
There are eight public banks in our country. These are: Agrani Bank Limited,
Janata Bank Limited, Rupali Bank Limited, Sonali Bank Limited, Bangladesh Development
Bank, BASIC Bank Limited, Bangladesh Krishi Bank, Rajshahi Krishi Unnayan Bank.

FINANCIAL MANAGEMENT OF THESE PUBLIC BANKS ARE SHOWN BELOW:

Trade Financing:
Public banks extend multiple credit facilities to boost up trade, commerce and industry. The
credit packages and interest rates are as under:Credit Packages
Interest Rate (Floating)
1.Credit to Trade and Commerce 14%
2.Credit for Power Driven Vehicle/ Water Transport 14%
3.Overdraft Against:
Fixed Deposits 13%
SDPS Accounts
Five years period 12%
Ten years period 14%
Insurance Policy/ Shares and Debenture of Public Ltd. Co. 14%
Work order of Govt./ Semi Govt. Corp 14%
Wage Earners Dev. Bond 13%
4.Housing Loan
Residential 13.5%
Commercial 14%
5.Small Loan 14%
6.Consumers credit 14%
7.Loans To Public Sector Enterprise 14%
8.Cash Credit Facilities for Small Business enterprises 14%
9.Cash Credit Facilities against Bricks Manufacturing 14%
Investment Banking:
Central Accounts & Fund Management Division at Head Office maintains Investment Portfolio of
the Bank. With a view to implementing Government policies & decisions and accelerating the
growth of the capital market of the country, surplus funds of Pulic Bank are utilized in the
following areas:
A) Short Term:
1. Call loans: An overnight investment to other Banks & Financial Institutions.
2. Treasury Bills: Investment made to the Government through Treasury bills.
B) Long Term:
1. Government/ Public Bonds: Sonali Bank Limited purchases bonds issued by the Govt. of
Bangladesh and other Public Bodies.
2. Shares/ Equity Participation: Sonali Bank Limited participate in the IPO and extend bridge
finance to the equity of public limited companies, institutions and public bodies.
3. Debentures: Sonali Bank Limited purchases debentures issued by the public bodies and
financial institutions under Government.

NATURE OF BUSINESS
The Principle activities of the bank include providing of all kinds of commercial banking services
to its customers. The activities can be classified in the following ways: Corporate Banking,
Project Financing, SME Finance, Consumer Credit, International Trade, Trade Finance, Loan
Syndication, Foreign Exchange Dealing, Rural and Micro Credit, NGO- Linkage Loan,
Investment, Government Treasury Function, Money Market Operation, Capital Market
Operation, Remittance.

FINANCIAL MANAGEMENT OF BANGLADESH BIMAN

Biman was established with a slogan “Your Home in the Sky” and it started operations in
February 1972. After successfully completing a few domestic flights, on 10 February 1972, this
aircraft crashed while on a test-flight. Soon after, one Boeing 707 and two Fokker F27 friendship
aircrafts were included in the fleet, allowing Biman to begin international flights.
Biman incurred losses of Tk 249.51 crore and Tk 836.25 crore in the fiscal years 2004-05 and
2005-06 respectively. Biman is lacking it capital base and eventually also does not get sufficient
finance from the Government to fill the deficit. Being an airline with a very narrow capital base,
Biman was forced to borrow externally. These borrowings resulted in payment of huge amount
of interest every year, draining a substantial portion of its income. Biman incurred losses from its
inception to till to date about Tk 1,900 crore and its debt burden is over Tk 2,100 crore, payable
to different organizations and now become unable for debt servicing and it cannot manage its
spending without help from the government.

FINANCIAL MANAGEMENT OF BANGLADESH RAILWAY

A comprehensive valuation exercise was carried out by Price water house Coopers (PwC)
which has resulted in an asset register as of June 30, 2013. The below opening balances will
need to be posted into the new accounting system as at June 30, 2013.

Asset category Original cost Valuation as on June 30,2013

Land 2,587,344 2,587,344
Structural
Engineering 50,636,558 30,003,500
works
Equipment 51,278,530 4,720,210
Rolling Stock 23,723,176 8,994,091
Total assets 128,225,609 46,305,147
Revenue and expenditure are being recorded in the system from July 2013 on wards,
separately for 16 remote accounting units. A consolidated position of expenditure for the 16
units is given for July and August 2013 below. Annual financial statements from the new system
will be available from FY 2014 onwards.

FINANCIAL MANAGEMENT OF PRIVATE BANKS IN BANGLADESH

There are 32 conventional commercial Banks, 8 Islamic Shariah based Commercial Banks, 9
foreign commercial Banks, 6 Non-scheduled Banks, 35 Non-Bank financial institutes in our
country. A table has been stated below to describe the finance scenario in our country.
Financial report of financing in different sectors (2009).

Name Percentage
Trade financing 14.68 %
Import financing 13.59 %
Export financing 3.33 %

Financial report of financing in different sectors (2015)

Name Percentage
Trade financing 40.91 %
Import financing 11.44 %
Export financing 4.69 %

Importer / entrepreneurs opened both foreign and local L/C for industrial raw material, industrial
goods, essential item and other item in different banks. Consolidated data on L/C collected from
40 commercial bank shows that outstanding foreign L/C increased to BTD 1537.14 billion in
2013(up to September) from BTD 1163.90 in 2009. Trend in L/C opening is given in Chart 1
which shows that about 85 percent (on average) L/C is foreign.3.

WHAT ARE THE TECHNIQUES OF PUBLIC FINANCIAL MANAGEMENT? DESCRIBE IN

DETAILS.

TECHNIQUES OF PUBLIC FINANCIAL MANAGEMENT

WORKING IN PUBLIC FINANCIAL MANAGEMENT REQUIRES A STRONG

UNDERSTANDING OF FINANCIAL ANALYSIS TECHNIQUES, INCLUDING:
(a) Trend and ratio analysis.
(b) Growth rate.
(c) Time value of money.
(d) Inflation adjustments.
(e) Forecasting techniques.
(f) Cash debt.
(g) Investments.
Trend and ratio analysis:
The analysis of a financial ratio by comparing it to the same ratio in previous years. For
example, a person may compare earnings in November 2009 to earnings in November 2008,
November 2007 and November 2006. This helps analyze whether a company's financial state is
becoming more or less healthy over time.

Growth rates:
Growth rates refer to the percentage change of a specific variable within a specific time period,
given a certain context. For investors, growth rates typically represent the compounded
annualized rate of growth of a company's revenues, earnings, dividends and even macro
concepts such as GDP and the economy as a whole..
PR = 280,000−250,0002,50,000𝑥 10010
PR = 30,0002,50,000𝑥10010
PR = 1210
PR = 1.2%

Time value of money:

The time value of money (TVM) is the idea that money available at the present time is worth
more than the same amount in the future due to its potential earning capacity. This core
principle of finance holds that, provided money can earn interest, any amount of money is worth
more the sooner it is received. TVM is also referred to as present discounted value.
Basic Time Value of Money Formula and Example Depending on the exact situation in question,
the TVM formula may change slightly. For example, in the case of annuity or perpetuity
payments, the generalized formula has additional or less factors. But in general, the most
fundamental TVM formula takes into account the following variables: FV = Future value of
money PV = Present value of money i = interest rate n = number of compounding periods per
year t = number of years Based on these variables, the formula for TVM is: FV = PV x (1 + (i /
n)) ^ (n x t) For example, assume a sum of $10,000 is invested for one year at 10% interest. The
future value of that money is: FV = $10,000 x (1 + (10% / 1) ^ (1 x 1) = $11,000 The formula can
also be rearranged to find the value of the future sum in present day dollars. For example, the
value of $5,000 one year from today, compounded at 7% interest, is: PV = $5,000 / (1 + (7% / 1)
^ (1 x 1) = $4,673

Inflation adjustment:
INFLATION ADJUSTMENT is whenever any figure is adjusted for inflation/deflation. It simply
means that all fluctuations in price (upward or downward) that are directly attributable to
inflation/deflation are reflected into that figure through either adding or subtracting the amount
that is directly caused by inflation/deflation.

Forecasting techniques:
Primary forecasting techniques help organizations plan for the future. Some are based on
subjective criteria and often amount to little more than wild guesses or wishful thinking. Others
are based on measurable, historical quantitative data and are given more credence by outside
parties, such as analysts and potential investors. While no forecasting tool can predict the future
with complete certainty, they remain essential in estimating an organization's forward prospects.

Delphi Technique:
The RAND Corporation developed the Delphi Technique in the late 1960s. In the Delphi
Technique, a group of experts responds to a series of questionnaires. The experts are kept
apart and unaware of each other. The results of the first questionnaire are compiled, and a
second questionnaire based on the results of the first is presented to the experts, who are
asked to reevaluate their responses to the first questionnaire. This questioning, compilation and
requestioning continues until the researchers have a narrow range of opinions.

Scenario writing:
In Scenario Writing, the forecaster generates different outcomes based on different starting
criteria. The decision-maker then decides on the most likely outcome from the numerous
scenarios presented. Scenario writing typically yields best, worst and middle options.

Subjective approach:
Subjective forecasting allows forecasters to predict outcomes based on their subjective thoughts
and feelings. Subjective forecasting uses brainstorming sessions to generate ideas and to solve
problems casually, free from criticism and peer pressure. They are often used when time
constraints prohibit objective forecasts. Subjective forecasts are subject to biases and should be
viewed skeptically by decision-makers.

Time-Series forecasting:
Time-series forecasting is a quantitative forecasting technique. It measures data gathered over
time to identify trends. The data may be taken over any interval: hourly; daily; weekly; monthly;
yearly; or longer. Trend, cyclical, seasonal and irregular components make up the time series.
The trend component refers to the data's gradual shifting over time. It is often shown as an
upward- or downward-sloping line to represent increasing or decreasing trends, respectively.
Cyclical components lie above or below the trend line and repeat for a year or longer. The
business cycle illustrates a cyclical component. Seasonal components are similar to cyclicals in
their repetitive nature, but they occur in one-year periods. The annual increase in gas prices
during the summer driving season and the corresponding decrease during the winter months is
an example of a seasonal event. Irregular components happen randomly and cannot be
predicted.

Cash debt:
A higher current cash debt coverage ratio indicates a better liquidity position. Generally a ratio
of
1 : 1 is considered very comfortable because having a ratio of 1 : 1 means the business is able
to pay all of its current liabilities from the cash flow of its own operations.
Investment:
An investment is an asset or item that is purchased with the hope that it will generate income or
will appreciate in the future. In an economic sense, an investment is the purchase of goods that
are not consumed today but are used in the future to create wealth. In finance, an investment is
a monetary asset purchased with the idea that the asset will provide income in the future or will
be sold at a higher price for a profit.

4. DESCRIBE ORGANIZATIONS & MANAGEMENT STRUCTURES.

THERE ARE DIFFERENT TYPEES OF ORGANIZATIONAL STRUCTURE IN MANAGEMENT.

FOLLOWINGS ARE SOME OF THEM:

Flat Organizational Structure:

Many small companies use a flat organizational structure, where very few levels of management
separate executives from analysts, secretaries and lower-level employees. Flat organizations
work best when a company has less than 20 employees, especially if the company employs one
or two employees per department. One advantage of using a flat organizational structure for
management is that decisions can be made relatively quickly. The flat organizational lacks the
typical bureaucracy of taller organizational structures--those with many levels of management.

Functional Organizational Structure:

A functional organizational structure is centered on job functions, such as marketing, research
and development and finance. Small companies should use a functional organization when they
want to arrange their organizational structure by department. For example, a small company
may have a director, two managers and two analysts in the marketing department. The director
would likely report to the Chief Executive Officer, or CEO, and both managers would report to
the director. In addition, each manager may have an analyst reporting to them. A functional
organizational structure works well when small companies are heavily project-focused. Directors
can assign certain projects to managers, who can then divvy up tasks with their analysts. The
department can then more effectively meet their project deadlines.

Product Organizational Structure:

A product organizational structure has managers reporting to the president or head of the
company by product type. Product organizational structures are primarily used by retail
companies that have stores in various cities. However, stores in each city may still need a local
human resources or marketing department to carry out functions locally. For example, a small
department store company may have a vice president of sporting goods, housewares and
general merchandise at the corporate office. One manager may report to each vice president.
However, each manager may oversee the work of one or more field marketing employees who
travel and handle local marketing stores in several states. These field marketing employees
may work for the sporting goods manager one week in League City, Texas, then do
merchandising for the housewares manager another week in the Sugarland, Texas, market.
Geographical Organizational Structure:
The Small Business Administration is responsible for defining small businesses in different
industries. For example, in manufacturing, the SBA usually considers a company with 500 or
fewer employees a small business. Point is, small businesses are still large enough to use a
geographical organizational structure. A geographical organizational structure is when
companies decentralize the functional areas. For example, unlike the product organizational
structure, there may be a local marketing, finance, accounting and research development
person based in each region. For example, a small consumer products food company may be
large enough to place a marketing research manager and analyst in each of six different
regions. This can be important because consumers in various areas have different tastes.
Hence, a geographical structure will enable the company to better serve the local market.
5. DISCUSS ABOUT CONTROL MEASURES OF FINANCIAL MANAGEMENT.

MEANING OF FINANCIAL CONTROL MEASURES

Financial control measures are those measures that is put in place to ensure that financial
related assets or properties of an organization are safeguarded, either from externals or
employees of an organization from any threat whatsoever, whether by theft, loss or
misappropriation (intentional or otherwise). Simply put, as those policies, procedures practices
and organizational structures which are implemented to reduce financial risk to the organization.
They are developed to provide reasonable assurance to management that the organization
business objectives will be achieved and risk prevented, or detected and corrected.

Class
Function Example

Preventive ➢ Detect problems ➢ Employ only qualified

before they arise
➢ Monitor both operation
and input
➢ Attempt to predict
potential problems
➢ Prevent an error,
omission or malicious
act from occurring.
staff
➢ Segregate duties
(deterrent factor)
➢ Control access to
physical facilities before
they occur and make
adjustments
➢ Duplicate checking of
calculations

Detective ➢ Use controls that ➢ Internal audit functions

detect and report the
occurrence of an error,
omission or malicious
act
Corrective ➢ Minimize the impact of
threat
➢ Remedy problems
discovered
➢ Identify the cause of a
problem
➢ .Past due account reports
➢ Contingency planning
➢ Backup by detective
control
➢ Correct errors arising
from a problem.
FINANCIAL CONTROL MEASURES
Before any control measure can be put in place, an organization must ensure that a friendly
environment for its implementation is created. This could be through:

* The development of good attitude to the controls envisaged by both management and
employees. Creation of a good organisational structure i.e. having a good reporting structure.

* Segregating of at least the following function: •Initiation of transaction •Custody of the

underlying asset •Recording of transaction.

EXAMPLES OF FINANCIAL CONTROL MEASURES

Financial control can be applied in virtually all aspect of any business. These following are
examples of areas where financial control could be applied: Bank account (Bank reconciliation
statement preparation) Sales Purchases Cash and cheques Fixed Assets Payroll – Salaries and
wages Stock , amongst others.

Bank account (Bank reconciliation statement preparation): This serves as a means of carrying
out a periodical check on the activities carried out for the particular period. This is done by
comparing the monthly bank statement sent by the bank to the organization with the similar
record maintained by the company for the same period. Any discrepancy is reconciliated so as
to have the same balance in both record. These discrepancies may be caused by any of the
party.

6. WHAT ARE THE PROBLEMS & PROSPECTS OF FINANCIAL MANAGEMENT PRACTICE

IN BANGLADESH?

i. Bureaucratic management: The organizations are run by bureaucrats who may not have
knowledge of running an enterprise or knowledge of the industry trends and practices.

ii. Lack of autonomy: These enterprises lack freedom and flexibility. They are subject to the
control of the politicians and bureaucrats. Due to this, their performance is affected.

iii. Delayed decisions: Decisions are delayed due to red-tapism and bureaucratic procedures. A
file may have to pass through many officials for approval before a decision can be taken. By the
time a decision is taken, the business environment might have undergone considerable
changes.

iv. Unplanned production: Many of the public sector enterprises produce products which are not
in tune with the market demand. The needs of consumers are not taken into account while
planning production. The result is poor sales and the organization is left with huge unsold stocks
which are then disposed off at a discount.
V. No clear-cut price policy: There is no clear cut price policy. Certain organization follow a cost
plus price policy, some administered pricing, a few dual pricing followed by those adopting
association pricing. There is no clarity with regard to the price policy.

vi. Delays and cost overruns: Due to poor planning, lack of funds, mismanagement etc. many
projects face delays and the consequent cost overruns. It is common to find new projects being
announced without earlier projects being completed.

vii. High overheads: Many of these organizations incur high overheads. There is very little focus
on cost control and cost reduction. Wastage of resources are rampant. Many organizations
even maintain entire townships and incur high costs.

viii. Over-staffing: The salary costs and pension costs of many of these organizations are high. It
is because government considers these organizations as generators of employment and many
of them are overstaffed.

ix. Poor productivity: Due to reliance on outdated technology, lack of upgradation and
inefficiencies, low levels of employee motivation and poor work culture, the productivity of many
of these enterprises is quite low.

x. Lack of proper planning: Planning is poor and in some cases even absent. Projects are
commenced without detailed analysis and planning. This results in losses and delays.

xi. Low capacity utilization: Capacity utilization is very low because of inefficiencies in
management, inefficiencies in processes and procedures and low employee efficiency.

xii. Poor profitability: The profitability of the enterprises is quite low due to several inefficiencies
in the way in which they are managed. Many enterprises incur heavy losses and the
government regularly infuses capital to run them.

xiii. Poor labour management relations: The industrial climate in many of the enterprises is
strained. This results in poor employee productivity. Unions are strong and strikes, go-slow
tactics and agitations are common. This results in low morale and motivation levels and as a
consequence, low output, poor quality of products and services are common.

xiv. High employee turnover: There is no incentive for improved performance, very little freedom
to implement innovative ideas and practices, promotions are based on seniority and not on
performance, chance of work in new technologies is very less with salary levels very low when
compared to the private sector. Therefore many talented employees leave the organization and
the rate of employee turnover is high.
xv. Nepotism and Corruption: Many of these enterprises function according to the dictates of
politicians. There are many instances of corruption and undue favors being extended to select
group of people who enjoy political patronage.
xvi. Poor work ethic: Employees of the public sector enterprises, enjoy job security. In many
enterprises there are strong labor unions with political affiliations to protect employee interests.
Due to these factors, employees do not feel the need to work in a dedicated manner and
contribute to the growth of the organization. Low productivity, poor quality of work, absenteeism
etc are common in these enterprises.

xvii. Low quality of output: The output of public enterprises, whether it is a product or a service,
is not of high quality. This is due to lack of investment in technology, low employee morale,
inferior quality of raw materials, poor work culture and lack of quality focus. Therefore they are
not able to compete with the superior quality products and services offered by the private sector.

xviii. Uncertain financial allocation: These units are dependent on the government for funding
and the quantum of funds allocation is uncertain. Therefore they are not in a position to plan for
long term investment needs in an efficient manner.

PROSPECTS OF PUBLIC & PRIVATE ENTERPRISE IN BANGLADESH

Recently Bangladesh Bank approved nine new banks in addition to the existing 47 in
Bangladesh. This approval created ambivalent reaction in many corners of the society. Some
called it a bane to our economy while other justified it as an apt decision. The country's financial
sector has been facing severe problems such as liquidity crisis, unhealthy competition for
deposit collection and lack of efficient human resources for the last one year. Thus it is safely
assumed that these nine new banks will add new challenges for our economy. However, the
central bank explained the economic context and rationale behind issuing new bank licenses.
The economy has grown and the banking system has become more competitive while 45 per
cent of the population still remains unbanked in Bangladesh. Moreover, BB expects that the
entrance of the new banks will add to the aggregate capital base of the existing syndications,
allowing for larger loans to be granted for productive investment and job-creation. But the
economic reasons propounded by Bangladesh Bank for licensing new banks are not cogent
enough because the country is facing a downturn as a result of second round effect of global
recession. Moreover, in a situation of stagflation, the banking sector is now suffering from
deposit shortage and investment fallout. New banks mean paid up capital amounting Tk 36
billion and to be deposited in those banks would be withdrawn from existing banks. This may
lead to further deteriorations of the stringent situation prevailing in the banking sector.