HISTORY AND DEVELOPMENT OF

BANKING SECTOR
History: Just after liberation
After liberation, all the existing banks were
nationalized to form six commercial banks.
2 Specialized Banks and 3 Foreign Banks were
also operative.
These state-owned banks failed to perform
satisfactorily and were not enough to help
economic growth. (Siddique and Islam, 2001)
Establishment of Central Bank
Dhaka branch of the State Bank of Pakistan
was reorganized to form Bangladesh Bank (BB)
after liberation.
Established on the basis of Bangladesh Bank
Order, 1972 (P.O. No. 127 of 1972) with effect
from 16th December, 1971.
History: 1980-1990
In 1982, financial sector were reformed and
Private commercial banks were allowed to
enter in early 1980s.
2 State-owned bank were transferred to
private ownership and 1 was made public
limited company in mid 1980s.
In 1987-88, two more specialized banks were
established.

History: 1990-1995
The financial sector reform program (FSRP) was
launched under Financial Sector Adjustment Credit
(FSAC) of the World Bank in 1990
Objectives
Gradual deregulations of the interest rate structure with a
view to improving the allocative efficiency
Providing market oriented incentives for priority sector
lending
Making subsidies in the priority sectors more transparent
Adoption of appropriate monetary policy
Improvement in debt recovery environment
Strengthening of the capital markets.
History: 1996 - 2002
In order to fix the problem unveiled by FSRP, the
government formed a Banking Reform
Committee (BRC) in October 1996.
In May 1997, the government also undertook a
Commercial Bank Restructuring Project (CBRP)
funded by the World Bank.
Removal of the floor rates of deposits in 1997.
In August 1999, elimination of interest band on
agriculture and small and medium enterprises
(SMEs) loans.
History: 2003-onwards
ATM services (introduced in 2003), Debit/Credit Card
Services, Mobile Banking, and Internet Banking
Bangladesh Electronic Funds Transfer Network (BEFTN) in
2011 and National Payment Switch (NPS) in 2012
Online and real-time services
Establishment of Bangladesh Automated Clearing House
and Bangladesh Automated Cheque Processing Systems
(BACPS) in 2009
Shift from regular cheque to MICR cheques in 2010
Basel II has been successfully implemented (2010)
SME, Green banking, Mobile Financial Services and
Corporate Social Responsibility have also got a great deal of
importance
Banking Sector
Two Broad Types
1. Scheduled Banks (56 up to 2013)
2. Non-Scheduled Banks (4 up to 2013)
Scheduled Banks are classified into four
categories:
1. State Owned Commercial Banks (SOCBs)
2. Private Commercial Banks (PCBs)
3. Foreign Commercial Banks (FCBs)
4. Specialized Banks (SDBs)
Non-Scheduled Banks
Ansar VDP Unnayan Bank
Karmashangosthan Bank
Probashi Kollyan Bank
Jubilee Bank
Changes in Number of Banks
0
10
20
30
40
50
60
1980 1990 2000 2010 2012 2013
Total number of banks State-owned banks Specialized banks Private banks Foreign banks
Distribution of Branches
42%
17%
40%
1%
State-owned banks
Specialized banks
Private banks
Foreign banks
Distribution of total assets
26%
6%
62%
6%
State-owned banks
Specialized banks
Private banks
Foreign banks
Distribution of deposits
25%
5%
64%
6%
State-owned banks
Specialized banks
Private banks
Foreign banks
Profitability of different types of banks
Category ROA ROE Net Interest Income*
State-owned banks -0.6 -11.9 14.9
Specialized banks 0.1 -1.1 4.7
Private banks 0.9 10.2 114.7
Foreign banks 3.3 17.3 19.6
Total 0.6 8.2 153.8
* Figures are in Billion Taka
Source: Annual reports of Bangladesh Bank 2012-13
Contribution of different types of
banks
Category
Number
of Banks
Number of
Branches
Total
Assets*
Percentage
of Industry
Assets
Deposits*
Percentage
of Deposits
State-owned banks 4 3478 1831.9 26.0 1377.9 25.5
Specialized banks 4 1440 385.5 5.5 260.4 4.8
Private banks 30 3339 4371.5 62.2 3430.7 63.6
Foreign banks 9 65 441.8 6.3 327.0 6.1
Total 47 8322 7030.7 100 5396.0 100
* Figures are in Billion Taka
Source: Annual reports of Bangladesh Bank 2012-13
Regulation
Bank Company Act, 1991 (Amended in 2013)
Bank Deposit Insurance Act, 2000
Bangladesh Bank Order, 1972
Company Act, 1994
Money Laundering Prevention Act,2012
Money Loan Court Act, 2003
Foreign Exchange Regulations Act, 1947
The Negotiable Instruments Act, 1881

Further guidelines
Guidelines to establish a banking company in
Bangladesh
Guidelines for Islamic banking
Prudential Regulations for Banks
Guidelines for establishment of NRB bank
Guidelines on risk based capital adequacy
Guidelines on subordinated debt
Risk Management Guidelines for Banks, 2012
Guidance notes on Prevention of Money
Laundering for Banks and others.
Circular, Notes and Orders
Bangladesh Bank and Bangladesh Securities
and Exchange Commission impose other rules
in different times.
BB issues circular and notes to regulate banks.
Bank Company Act, 1991