The banking industry in Bangladesh has flourished over the years, making double-digit profit, sustaining growth and surviving cut-throat competition while ploughing back attractive returns to shareholders. However, the greed for more without a befitting platform and fundamentals in place brings its own challenges and questions in people's minds.
News about bank directors and chairmen's involvement in politics and underhand deals using banks' goodwill raises question about the banks' independence in running their operations. It also makes you think whether all the disclosures in the annual reports and other regulatory paperwork are only the glowing shell over a cavernous hole.
The image of the banking industry has many times been tarnished by several stories regarding the owners in recent media releases. Despite the considerable progress made in recent times, our banking industry still remains susceptible.
Though someone may differ, competition in Bangladesh seems to be the deadliest of all. It not only brings in positive developments but also encourages malpractices. There is competition not only from other banks but also from non-bank financial institutions (NBFI) and micro finance institutions (MFI).
Competition in the banking industry has also been hit by the capital market, with the corporate bodies increasingly going to the equity market to raise funds. This not only hits the banks in the belly by affecting their core business but also indirectly affects their contribution to market cap which dropped from 59 per cent in 2007 to less than 25 per cent in June 2010. More importantly it forces them to risk their position by overexposing them to volatile capital market through proprietary trading in order to maintain profitability.
The new offering in the market which has got all banks running are the requirements of BASEL II and Automated Clearing House. The major challenge with the change in regulation is that often the regulators are in a hurry to implement a sudden decision, rolling out action plans without proper research or understanding the broad implications and capabilities of the banks to comply with it. The outcome is delay in implementation, confusion among stakeholders and new techniques to bypass these regulations.
All of us feel that the banking industry badly needs skilled human resources which will not only service old products but also create and help launch new innovative products. Educating the market remains the first requirement towards creating new products and developing skilled human resources. Besides people and product issues, you need to be ever vigilant about the ever-changing technology and regulatory requirements. The regulators and the legal system thus have to be strong enough.
