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Messages - shahanasumi35

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BBA Discussion Forum / Re: BB issues directives on 9% lending from April
« on: February 26, 2020, 06:09:37 PM »
Nice post.

BBA Discussion Forum / BB increases loan limit of export development fund
« on: February 26, 2020, 06:08:18 PM »
The Bangladesh Bank has increased the loan limit of its Export Development Fund (EDF) to $20 million from $15 million.

“It has now been decided to enhance the limit of $15.00 million to $20.00 million for member mills of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA),” said the central bank through circular recently, reports BSS.

Other instructions contained in the circular shall remain unchanged, the circular added.

BBA Discussion Forum / Another new bank gets licence
« on: February 26, 2020, 06:06:37 PM »
The number of scheduled banks reached 60 as the central bank issued licence to Bengal Commercial Bank Ltd on Sunday.

"We've issued licence to Bengal Commercial Bank in line with the decision taken by our board of directors," a senior official of the Bangladesh Bank (BB) told the FE.

Earlier on February 09, the BB board of directors gave its final approval to the proposed Bengal Commercial Bank, asking the lender to increase its paid-up capital to Tk 5.0 billion within two years.

The new private commercial bank (PCB) has now been empowered to take preparations to start their business, according to the central banker.

"The PCB will have to take another licence for establishing its branches," he said while replying to a query.

The central bank issued a notification in this regard on Sunday with inclusion of the name of Bengal Commercial Bank Ltd as a scheduled bank.

The sponsors are now trying to start operations of the PCB as early as possible, banking sector insiders said.

"We expect that our bank will start operations formally by June, 2020," Jasim Uddin, chairman of Bengal Commercial Bank, told the FE.

Mr. Jasim, also vice chairman of Bengal Group of Industries, said appointment of top executives including managing director will be discussed in the first board of directors meeting scheduled to be held by the end of this month.

After Awami League formed the government in 2009, nine banks were given the green light on 'political consideration' despite opposition from different quarters.

Shimanto Bank Limited, owned by BGB Welfare Trust, was offered the licence in 2016.

Two years later, the BB board gave the final approval to Community Bank Bangladesh Limited.

Currently, there are 60 banks in Bangladesh, of which 42 are local private banks, nine are foreign, and nine are state-owned lenders.

BBA Discussion Forum / BB sets 9.0 pc interest rate on all loans
« on: February 26, 2020, 06:05:04 PM »
The central bank has instructed banks to fix a maximum 9.0 per cent interest rate on all loans except credit cards as part of the government initiative to bring down the lending rate to a single digit.

The new instruction will come into effect from April 01, 2020, according to a notification, issued by the Bangladesh Bank (BB) on Sunday night.

Borrowers will have to pay an additional 2.0 per cent as panel interest along with the new rate if they become defaulters despite getting the facility, it added.

The BB, however, kept unchanged the interest rate at 7.0 per cent for exporters.

From the current year, banks will not be allowed to disburse loans to the industrial sectors less than their average outstanding credit in the last three years.

The circular said the present high bank interest rates are impeding the growth of the country’s small, medium and large business, and services sector.

Such high lending rates are not only pushing their cost of production, but also affecting the country’s competitive advantage in the global market, it added.

As a result, the businesses, sometimes, are unable to repay their bank loan on time, which affects the discipline of the bank loans and hampers the country’s overall economic development, the BB added.

On December 30 last year, finance minister AHM Mustafa Kamal told reporters that the single digit interest rate on all loans, excepting credit cards, will take effect from April 01.

Earlier on the day, he sat with chairmen and managing directors of private commercial banks to discuss the matter.

Besides, the seven-member committee, led by the BB Deputy Governor S M Moniruzzaman, was formed on December 01 to find ways to cut down ending rates to single-digit from the existing level to facilitate achieving higher economic growth.

BBA Discussion Forum / Re: Economic toll of Coronavirus
« on: February 26, 2020, 05:40:29 PM »
Informative post.Thanks for sharing.

Shahana Kabir
Assistant Professor

Informative post.Thanks for sharing.

Shahana Kabir
Assistant Professor

Financial Accounting / Re: Environmental accounting
« on: February 23, 2020, 06:43:50 PM »
Informative post.Thanks for sharing.

Shahana Kabir
Assistant Professor
Department of Business Administration

Financial Accounting / Re: How an AIS Works In Real Life
« on: February 23, 2020, 06:40:56 PM »
Informative post.Thanks for sharing.

Shahana Kabir
Assistant Professor
Department of Business Administration

Informative post.Thanks for sharing.

Shahana Kabir
Assistant Professor
Business Administration

BBA Discussion Forum / Re: Conflict Management Techniques
« on: February 20, 2020, 05:53:22 PM »
Informative post.Thanks for sharing.

Shahana Kabir
Assistant Professor
Business Administration


Financial inclusivity and the banking sector
From progress to regress

Zahid Hussain
Financial reforms have been on a reverse gear in Bangladesh. The latest being the announcement to return to a regime of interest rate repression. Following the easing of loan classification and write-off standards and announcing generous rescheduling facility to the defaulters last year, this is yet another attempt to return to a financial regulation regime that we successfully got out of several decades ago.

A story of reforms

The financial sector turned around following a series of reform programmes in the 1990s. Legal, policy, and institutional reforms improved the regulatory and governance environment and enhanced the ability of bank owners, management and regulators, and the markets themselves to provide for better governance and regulation. The domination of the banking system by the State-owned Commercial Banks (SCB) declined while Private Commercial Banks (PCB) and Foreign Commercial Banks (FCB) gained market share, increasing competition in the banking industry. The private sector banks have consistently outperformed specialised banks and SCBs in terms of growth in deposits, bank advances and other banking services.

Banks were heavily burdened by high levels of nonperforming loans (NPLs) accumulated over many years due to weak management of the SCBs. Priority lending to loss-making state-owned enterprises, a deficient legal and debt recovery framework, weaknesses in loan screening and supervision, lack of accountability of bank officials, and a weak credit culture undermined good management. The share of NPLs rose steadily from 1972 onwards with the gross NPL ratio to total loans in the banking system peaking at 41.1 percent in 1999. The SCBs and Development Financial Institutions (DFI) recorded the highest NPL ratios. Directed lending programmes led to a massive build-up of poor-quality loans in the 70s and the 80s. Banks were reluctant to write off the long-lasting bad loans mainly due to sub-standard underlying collateral and fear of probable legal complications.

The government adopted several measures, dating back to the 1980s, to ensure better policy framework for managing NPLs. Administrative and judicial measures for solving problem loans of SCBs and DFIs suggested by the National Commission on Money Exchange and Credit, formed in 1986, were heeded to. The Financial Sector Reform Project in 1990 supported enactment of different laws and regulations to expedite settlement processes. A concrete loan recovery policy for SCBs was put in place based on recommendations from the Banking Reform Commission in 1996. The Structural Adjustment Performance Review Initiative in 2000 concentrated on better loan screening and monitoring standards of individual banks while the Credit Risk Grading Manual in 2005 made the Credit Risk Grading system mandatory for analysing credit risk. SCBs were corporatised in 2007 and the minimum capital adequacy ratio was increased from 9 to 10.  Measures were adopted for tightening loan classification and establishing provisions more in line with international practices. Key provisions in the Bank Companies Act were amended in 2013 to provide the BB full regulatory and supervisory control over the SCBs. The financial reporting of bank branches was automated in 2014. Banks implemented Risk Based Capital Adequacy guideline formulated in line with Basel-II and started adopting Basel-III.

NPL reduction was achieved through provisioning and write-offs and by a sharp reduction in new NPLs. Enhanced legal powers of the banks to collect problem loans and better screening of new loans improved the NPL ratio. NPL recoveries improved significantly after 1999, leading to steady decrease in the NPL ratio to 6.1 percent in 2011. Greater legal powers of the banks to recover problem loans through the money loan courts and better screening of new loans by the Credit Information Bureau contributed.

The slide back

Bangladesh's financial system deepened notably in the past decade, with private sector credit increased from 30.9 percent of GDP in 2009 to 39.8 percent of GDP in 2019. The improvements came mainly from banks, driven by better access and improved operating efficiency. Good access reflects a relatively wide network of ATMs and bank branches per 100,000 adults. Bangladesh's strong economic performance has been historically supported by rapid private sector credit growth. However, the correlation between the change in the private credit to GDP ratio and real activity is diminishing. The degree of co-movement of financial and real variables has weakened while the credit intensity of growth is on the rise. NPLs rebounded to 10 percent in 2012 and further to 12 percent in September 2019. This indicates growing resource misallocation. The deterioration of credit quality, with NPLs significantly increasing in recent years in the context of weakly capitalised banks, raises concerns about the capacity of the financial sector to continue supporting economic growth.

Increased regulatory forbearance of the kind seen recently in Bangladesh compounded the problem of NPLs. The fundamental causes of resurgence of NPLs include weak corporate governance practices, risk management systems and regulatory failures. Country experiences have shown that moral hazard thrive where the owners of undercapitalised banks have little shareholder capital to lose from risky investments. Weakening asset quality has undermined the intermediary role of banks. So far, the regulator's strategy for resolving the NPLs problem has been to allow the defaulters an exit route by relaxing the application of regulatory codes and repeated rounds of re-capitalisation of public sector banks. Neither strategy has paid any dividend yet. Almost all of the loans rescheduled in 2015 defaulted one year after they were rescheduled. Similarly, indiscriminate re-capitalisation of public sector banks without a credible commitment to improve governance and disinvest over time, created a vicious cycle of moral hazard and weak micro-prudential regulation. Although re-capitalisation plans have been linked to performance targets of the state-owned banks in theory, the links have not been enforced due to various intervening forces.

Two amendments of a dubious nature were made to the Banking Company Act in 2018 undermining the cause of good governance. The tenure of banks' board of directors increased from six years to nine years, while up to four family members were allowed to be on the board, instead of two. Repeated violations of bank policies have led to their current dilapidated state.

In the context of a remarkable history of reform success, how do we make sense of the reform reversals seen in recent years? These reversals demonstrated the key vulnerabilities of the financial sector and the regulatory architecture governing it with the government invoking both formal and informal mechanisms to issue directions to the BB. We know that elites have a disproportionate influence on any reform process and associated outcomes. The elites are also not a homogenous group. The functioning of the financial sector affects different elites differently. Some benefit directly from blocking financial sector inclusion. However, the elites controlling financial institutions have a direct interest in expanding their activities.

Similarly, large manufacturing firms need significant external finance and thus a developed financial sector. When the banking system is in part controlled by the State, elites can use it as a powerful economic lever in their political competition. The bureaucracy plays their part in determining who gives and receives credit, and at what price, offering various rationales for maintaining such a system. What is in the interest of one class of elites is not necessarily in the interest of others.

What determines which group wins the battle of the elites? Raghuram G Rajan and Luigi Zingales (2005) observe from their extensive research that in intermediate regimes of partial democracy, the balance of power tilts towards some economic elites who are able to "capture" the government with greater ease and adopt policies that simply maximise the interests of the same elites. Acemoglu and Robinson (2008) defined these regimes as "captured democracy". Such privileged elites may block reforms in specific areas, while reforms can still proceed in areas where they have no strong vested interests or where they in fact gain from reforms.

What makes elite control a problem?

If accountability of institutions is weak, elite capture can happen even under limited government where the authority of public officials is constrained. Such institutions can be subject to elite capture and favour connected interests. Connected individuals inevitably use it to obtain preferential access to capital, in particular from, but not limited to, the state-owned banks. The consequent weak financial regulation and enforcement limit access to finance for less established competitors.

The financial sector contains a number of very large institutions organised into powerful banking associations. They can afford lobbying through well-prepared participation in public debate on regulatory measures. Finance is necessarily characterised by asymmetric information between banks and their clients, and by systemic effects. Risk is an inherent feature of the industry. Confidence effects among banks and between banks and their creditors create various forms of externality. Other externalities arise because of competition. The competitive behaviour of banks varies depending upon their financial condition. Sound banks have lower funding costs and weak banks compete more aggressively. The regulations favoured by the key players may promote financial stability and largely coincide with what would promote overall efficiency if they perceive such regulation is in their self-interest. Often, they are not so perceived.

Politicisation of entry and excessive forbearance of risky lending lead to inefficiency and stability risks. Political influence led to allowing new banks without extensive scrutiny in recent years. Several of these fourth-generation banks suffered a severe liquidity and capital adequacy crisis. These had to be bailed out by the government. The costs are borne largely by a subset of institutions whose interests diverge from the users of financial services and those seeking financing who have less ability to exercise influence over regulators. The ability of just a few business interests to capture the regulator may be enough to undermine the public's confidence in the competence of the banking regulator.

When people lose trust in formal financial systems, they keep their savings in un-regulated or under-regulated investment avenues, making them more vulnerable to fraud. Anecdotal evidence suggests a number of weak PCBs are plagued by insider lending and other owner abuses.

The political capture of the regulatory entity prevents proper resolution of failing banks. While there is an explicit deposit insurance scheme, it has never been used. BB has de facto extended an implicit guarantee to all banks. Over the past years, no domestic bank has been allowed to fail. Weak banks are referred to the Problem Bank Monitoring Department within BB where they are subject to special supervisory oversight, certain regulatory restrictions and regulatory forbearance. These produce systemic inefficiencies. Larger loan loss provisions of weak banks drive up the spread between lending and deposit rates, allowing other healthy banks to enjoy rents in the form of higher profits.

The drift towards extractive institutions

In their "Why Nations Fail: The Origins of Power, Prosperity and Poverty", Daron Acemoglu and James Robinson, suggest that countries can be bedevilled by economic institutions "structured to extract resources from the many by the few and that fail to protect property rights or provide incentives for economic activity." The banking sector has historically been a target for extractive elites in many economies. The wealth of the financial industry gives them enormous lobbying power, including as contributors to political campaigns or to ruling parties. A narrow elite seizes control of bank regulation to prevent broad based financial inclusion.

Sustained economic reform requires a framework of long-term policy to which the government can credibly commit itself. But the backsliding in the reform process is eroding most of the structures of institutional insulation of long-run economic management decisions against the wheeling-dealing of day-to-day politics. There are very few assurances that commitments made by the government will be kept even by itself under pressure. The pressure comes from insiders who have a strong incentive to block or reverse financial reform as financial development improves the conditions for entry of new players, thus challenging rents of the insiders through increased competition.

Can we still hope?

Bangladesh's financial sector development lags those of peer economies. Dealing with symptoms of a financial crisis before the crisis becomes full blown requires swift action to maintain stability and confidence in the banking system. Within Bangladesh's political elites, the leadership at the top plays a decisive role in shaping the policy. A leadership committed to reforms faces resistance from three quarters: opponents within and among the supporters of the government, those in the opposition, and the vested interests that expect to lose from the policy change. A determined leadership can often overcome resistance from all three sources.

The focus on regulation and corporate governance of banks is important given the prevailing dominant role of banking institutions as a source of finance for the corporate sector and the SMEs. Improved board structures, administrative procedures and disclosure requirements could result in better governed banks, which are more likely to allocate capital efficiently. The evolving discourse on financial regulatory reforms recognises that the motivation for state intervention in finance must be guided by an understanding of the sources of market and regulatory failures. The government has been taking on a very active role in the financial system to enhance savings mobilisation, direct credit to priority sectors, and make financial services affordable to larger parts of the population. Through interest rate controls the government is hoping to reduce lending costs for borrowers, while credit quotas are reportedly under consideration to guarantee that financial resources flow to priority and underserved sectors.

Government solutions to overcome market failures have not worked. Bureaucrats have limited expertise to run financial institutions and they are subject to political and regulatory capture. Bureaucrats as bankers have failed almost everywhere, but especially in developing countries. Being owner, borrower and regulator of an institution at the same time, the Financial Institutions Division under the Ministry of Finance face obvious conflicts of interest.

Experience in Bangladesh has shown once again that government-owned banks are often used by politicians to finance commercially unviable government projects or state-owned enterprises. Present approach to financial regulatory reform has been limited to addressing the symptoms. This approach relies on the government to enable and develop markets.

The role of government has to be redefined to make Bangladesh's financial system more efficient and investment friendly. Beyond ensuring macroeconomic stability and providing an effective and reliable contractual and informational framework, the government should move from the role of an operator and arbiter in the financial system to the role of enabling and creating markets.

Yes, the financial sector suffers from the general governance problems in the economy and the society at large. This actually strengthens the case for putting financial sector reform at the centre of governance reform, since it is here that the money and thus the temptation is. The depoliticisation of financial sector regulation and supervision can send an important signal to the rest of the economy and society and be an important catalyst for governance reforms in other areas.

Source:Daily Star

BBA Discussion Forum / Beyond wage digitization in RMG sector
« on: February 20, 2020, 05:48:37 PM »
Nearly a billion women around the world are economically excluded. They lack access to formal financial services, like bank accounts. They are unlikely to have their own formal identification, meaning they cannot own property or land, or a mobile phone.  They struggle to own businesses, or secure the credit and insurance they need to run them. They are more likely than men to be poor and have no job, and are often one economic shock, and not always a big one, away from economic disaster.

Research suggests that global growth rates are 1.1 per cent slower because women are not economically empowered. This is in part because women are great consumers – they purchase household items, education and healthcare products for their children and wider families. McKinsey suggests that $28 trillion in GDP growth is being left on the table worldwide because women are not reaching their full potential.

This is why the work being done by the government of Bangladesh in wage digitization is so important for women. The government's goal is to digitize wage distributions to around 90 per cent of the population by 2021 as part of a push towards a cashless society. A large and significant group that will benefit from this are garment sector workers, most of whom are women.

However, there are challenges. Despite 50 per cent growth of financial inclusion in Bangladesh, the gender gap has widened – the gap in financial account ownership between men and women has grown by nearly 4 per cent, meaning that while more people overall are being financial included in Bangladesh, the benefit is being felt by men, not women. All tides are not lifting all boats equally.

This is because men and women have different financial lives and therefore different financial needs. Additionally, women have a steeper technology adoption curve then men, and digital wallets can be difficult to navigate, and rely on sometimes sporadic data or network availability – it is not a good moment when you send money on your mobile and the internet crashes.

Wage digitisation can help with financial inclusion as it provides women with greater security and control.

However, giving women access to digital financial services is only half the issue. Once customers have a wallet or an account, it is important to ensure that they use it, which is why Women's World Banking worked with Dutch-Bangla Bank on an extensive pilot to test how to best serve women garment workers with digital financial services. We delivered the results in a round table in Dhaka in early January this year to see how wage digitization can be delivered in the most effective way for women workers.

Challenges of wage digitization and solutions

We discovered that, while wage digitization was an important step towards financial inclusion, we need to look beyond that and focus on usage if we are to achieve real results in financial inclusion for women garment workers. Although workers' wages were paid into their digital wallets every month, they were often unaware of the functionality on offer, and resorted to cashing out as quickly as possible so that they had physical cash to use, however, they needed. They were not aware, for example, that they could use their mobile device to send money home immediately and more cheaply than over the counter options. They also have usability concerns since the phone menus were in English.

All of this is solvable. Education and training play a large role. We found that peer learning was the most effective approach to this and interestingly, it worked for both men and women. Furthermore, we found that women were effective teachers, both for other women, but also for men. We also found signs that, as women became more confident using basic services, they were more open to trying additional services, which becomes an opportunity for financial service providers to up sell.

At a policy level, inseparability requirements, supported with central bank mandates, help to ensure that no wallet corners the market and consumers have choice.

There is huge potential in wage digitization, but we must look beyond that to realise the benefits for women in Bangladesh. There are opportunities for all ecosystem players if we invest a bit more effort in not only connecting women with financial products, but making sure they have the confidence to use them. Our experiences with our pilot showed us that increasing both the financial and digital capabilities of women in the garment sector together has real benefits and can become a solid platform for further acquisition of financial services over a mobile platform. And everyone benefits from that.


The writer is the global head of advocacy of the Women's World Banking.

Informative post. Thanks for sharing.

Shahana Kabir

Informative post. Thanks for sharing.

Shahana Kabir

Informative post. Thanks for sharing.

Shahana Kabir

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