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  • Industry Analysis: 3.1 Banking System in Bangladesh

    Enviado por

    Taisir Mahmud
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    1 Banking System in Bangladesh Banking system in Bangladesh is made up of 48 banks, which includes four state owned commercial Banks (SCBs), thirty private commercial banks (PCBs), nine foreign commercial banks (FCBs) and five government owned specialized banks (SB). The four SCBs accounted for 33% of the banking system assets at the end́ of 2007. Although the SCBs are still the most dominant, they are fast losing market share to private banks (52%) and to a lesser extent foreign banks (8%). Although banking system in Bangladesh is less developed it does have a Credit Information Bureau (CIB) but prudential regulations governing banks have generally improved over the last few years. It can be said that there is further scope for alignment of these regulations with regional norms, especially with regard to asset classification standards. While parallel computation of Basel II commenced in January 2009, its implementation is scheduled for January 2010, with the standardized approach for credit and market risks and the basic indicator approach for operational risk, which may put more stress on an already undercapitalized banking system. 3.2 Overview and Structure of the Financial System The financial system of Bangladesh is composed of scheduled banks (which include commercial banks and specialized development banks), non-bank financial institutions, microfinance institutions, cooperative banks and other institutions such as merchant banks, mutual fund operators and insurance companies. Share of Banking System Assets (%) are: Type of Banks 2004 2005 2006 2007 State-owned Commercial Banks (SCBs) 42% 39% 33% 33% Specialized Development Banks (SDBs) 8% 7% 7% 7% Private Commercial Banks (PCBs) 42% 44% 48% 52% Foreign Commercial Banks (FSBs) 8% 10% 12% 8% Total 100% 100% 100% 100% Source: Website of Bangladesh Bank Table 3.1: Overview of the financial structure of Bangladesh 3.2.1 Commercial Banks The commercial banks are at the core of the financial system and account for more than 80% of all financial system assets. They could be subdivided based on ownership as SCBs, private commercial banks (PCBs) and foreign commercial banks (FCBs). At present there are 43 commercial banks in Bangladesh, comprising four SCBs, thirty PCBs and nine FCBs. Although the influence of the SCBs has gradually been waning, they nevertheless still exert significant influence over the broader banking system, accounting for 33% of banking system assets in 2007 compared with nearly 68% in 1997 . 3.2.2 Specialized Banks The specialized banks are development oriented financial institutions formed to meet specific credit needs in sectors such as agriculture and industry. There are currently five of them in Bangladesh. Like the SCBs, they have very weak financial profiles characterized by weak asset quality, low capitalization and poor profitability, which require significant restructuring to ensure viability. 3.2.3 Non Bank Financial Institutions3 Compared with the commercial banks, the non bank financial institutions (NBFIs) have a rather limited role in the financial system, accounting for less than 5% of financial system assets. The NBFIs are mainly engaged in the provision of financial and operational leases (about 40% of assets), term lending (about 21% of assets), working capital financing (16% of assets), housing finance (about 14% of assets), merchant banking and venture capital financing. NBFIs also face competition from commercial banks that have started to offer the same products as them, especially leasing. NBFIs, however, appear to have managed to handle asset quality better than the commercial banks, as reflected by an NPL ratio of 8.2% at end June 2008. That said, it should be no

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    Chapter 3 - Industry Analysis1 Banking System in Bangladesh Banking system in Bangladesh is made up of 48 banks, which includes four state owned commercial Banks (SCBs), thirty private commercial banks (PCBs), nine foreign commercial banks (FCBs) and five government owned specialized banks (SB). The four SCBs accounted for 33% of the banking system assets at the end́ of 2007. Although the SCBs are still the most dominant, they are fast losing market share to private banks (52%) and to a lesser extent foreign banks (8%). Although banking system in Bangladesh is less developed it does have a Credit Information Bureau (CIB) but prudential regulations governing banks have generally improved over the last few years. It can be said that there is further scope for alignment of these regulations with regional norms, especially with regard to asset classification standards. While parallel computation of Basel II commenced in Janu

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    1 Banking System in Bangladesh Banking system in Bangladesh is made up of 48 banks, which includes four state owned commercial Banks (SCBs), thirty private commercial banks (PCBs), nine foreign commercial banks (FCBs) and five government owned specialized banks (SB). The four SCBs accounted for 33% of the banking system assets at the end́ of 2007. Although the SCBs are still the most dominant, they are fast losing market share to private banks (52%) and to a lesser extent foreign banks (8%). Although banking system in Bangladesh is less developed it does have a Credit Information Bureau (CIB) but prudential regulations governing banks have generally improved over the last few years. It can be said that there is further scope for alignment of these regulations with regional norms, especially with regard to asset classification standards. While parallel computation of Basel II commenced in January 2009, its implementation is scheduled for January 2010, with the standardized approach for credit and market risks and the basic indicator approach for operational risk, which may put more stress on an already undercapitalized banking system. 3.2 Overview and Structure of the Financial System The financial system of Bangladesh is composed of scheduled banks (which include commercial banks and specialized development banks), non-bank financial institutions, microfinance institutions, cooperative banks and other institutions such as merchant banks, mutual fund operators and insurance companies. Share of Banking System Assets (%) are: Type of Banks 2004 2005 2006 2007 State-owned Commercial Banks (SCBs) 42% 39% 33% 33% Specialized Development Banks (SDBs) 8% 7% 7% 7% Private Commercial Banks (PCBs) 42% 44% 48% 52% Foreign Commercial Banks (FSBs) 8% 10% 12% 8% Total 100% 100% 100% 100% Source: Website of Bangladesh Bank Table 3.1: Overview of the financial structure of Bangladesh 3.2.1 Commercial Banks The commercial banks are at the core of the financial system and account for more than 80% of all financial system assets. They could be subdivided based on ownership as SCBs, private commercial banks (PCBs) and foreign commercial banks (FCBs). At present there are 43 commercial banks in Bangladesh, comprising four SCBs, thirty PCBs and nine FCBs. Although the influence of the SCBs has gradually been waning, they nevertheless still exert significant influence over the broader banking system, accounting for 33% of banking system assets in 2007 compared with nearly 68% in 1997 . 3.2.2 Specialized Banks The specialized banks are development oriented financial institutions formed to meet specific credit needs in sectors such as agriculture and industry. There are currently five of them in Bangladesh. Like the SCBs, they have very weak financial profiles characterized by weak asset quality, low capitalization and poor profitability, which require significant restructuring to ensure viability. 3.2.3 Non Bank Financial Institutions3 Compared with the commercial banks, the non bank financial institutions (NBFIs) have a rather limited role in the financial system, accounting for less than 5% of financial system assets. The NBFIs are mainly engaged in the provision of financial and operational leases (about 40% of assets), term lending (about 21% of assets), working capital financing (16% of assets), housing finance (about 14% of assets), merchant banking and venture capital financing. NBFIs also face competition from commercial banks that have started to offer the same products as them, especially leasing. NBFIs, however, appear to have managed to handle asset quality better than the commercial banks, as reflected by an NPL ratio of 8.2% at end June 2008. That said, it should be no

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    Industry Analysis: 3.1 Banking System in Bangladesh

    Enviado por

    Taisir Mahmud
    1 Banking System in Bangladesh Banking system in Bangladesh is made up of 48 banks, which includes four state owned commercial Banks (SCBs), thirty private commercial banks (PCBs), nine foreign commercial banks (FCBs) and five government owned specialized banks (SB). The four SCBs accounted for 33% of the banking system assets at the end́ of 2007. Although the SCBs are still the most dominant, they are fast losing market share to private banks (52%) and to a lesser extent foreign banks (8%). Although banking system in Bangladesh is less developed it does have a Credit Information Bureau (CIB) but prudential regulations governing banks have generally improved over the last few years. It can be said that there is further scope for alignment of these regulations with regional norms, especially with regard to asset classification standards. While parallel computation of Basel II commenced in January 2009, its implementation is scheduled for January 2010, with the standardized approach for credit and market risks and the basic indicator approach for operational risk, which may put more stress on an already undercapitalized banking system. 3.2 Overview and Structure of the Financial System The financial system of Bangladesh is composed of scheduled banks (which include commercial banks and specialized development banks), non-bank financial institutions, microfinance institutions, cooperative banks and other institutions such as merchant banks, mutual fund operators and insurance companies. Share of Banking System Assets (%) are: Type of Banks 2004 2005 2006 2007 State-owned Commercial Banks (SCBs) 42% 39% 33% 33% Specialized Development Banks (SDBs) 8% 7% 7% 7% Private Commercial Banks (PCBs) 42% 44% 48% 52% Foreign Commercial Banks (FSBs) 8% 10% 12% 8% Total 100% 100% 100% 100% Source: Website of Bangladesh Bank Table 3.1: Overview of the financial structure of Bangladesh 3.2.1 Commercial Banks The commercial banks are at the core of the financial system and account for more than 80% of all financial system assets. They could be subdivided based on ownership as SCBs, private commercial banks (PCBs) and foreign commercial banks (FCBs). At present there are 43 commercial banks in Bangladesh, comprising four SCBs, thirty PCBs and nine FCBs. Although the influence of the SCBs has gradually been waning, they nevertheless still exert significant influence over the broader banking system, accounting for 33% of banking system assets in 2007 compared with nearly 68% in 1997 . 3.2.2 Specialized Banks The specialized banks are development oriented financial institutions formed to meet specific credit needs in sectors such as agriculture and industry. There are currently five of them in Bangladesh. Like the SCBs, they have very weak financial profiles characterized by weak asset quality, low capitalization and poor profitability, which require significant restructuring to ensure viability. 3.2.3 Non Bank Financial Institutions3 Compared with the commercial banks, the non bank financial institutions (NBFIs) have a rather limited role in the financial system, accounting for less than 5% of financial system assets. The NBFIs are mainly engaged in the provision of financial and operational leases (about 40% of assets), term lending (about 21% of assets), working capital financing (16% of assets), housing finance (about 14% of assets), merchant banking and venture capital financing. NBFIs also face competition from commercial banks that have started to offer the same products as them, especially leasing. NBFIs, however, appear to have managed to handle asset quality better than the commercial banks, as reflected by an NPL ratio of 8.2% at end June 2008. That said, it should be no

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    de 16

    Financial Performance Analysis and

    Operations of International Division of AB Bank Limited


    Chapter 3
    Industry Analysis
    3.1 Banking System in Bangladesh
    Banking system in Bangladesh is made up of 48 anks! "hich includes four state o"ned commercial
    Banks #$%Bs&! thirty private commercial anks #P%Bs&! nine foreign commercial anks #F%Bs& and five
    government o"ned speciali'ed anks #$B&( )he four $%Bs accounted for **+ of the anking
    system assets at the end, of -../( Although the $%Bs are still the most dominant! they are fast
    losing market share to private anks #0-+& and to a lesser e1tent foreign anks #8+&(
    2
    Although
    anking system in Bangladesh is less developed it does have a %redit Information Bureau #%IB& ut
    prudential regulations governing anks have generally improved over the last fe" years( It can e said
    that there is further scope for alignment of these regulations "ith regional norms! especially "ith
    regard to asset classification standards( 3hile parallel computation of Basel II commenced in 4anuary
    -..5! its implementation is scheduled for 4anuary -.2.! "ith the standardi'ed approach for credit and
    market risks and the asic indicator approach for operational risk! "hich may put more stress on an
    already undercapitali'ed anking system(
    -
    3.2 Overview and Structure of the Financial System
    )he financial system of Bangladesh is composed of scheduled anks #"hich include commercial
    anks and speciali'ed development anks&! non6ank financial institutions! microfinance institutions!
    cooperative anks and other institutions such as merchant anks! mutual fund operators and
    insurance companies( $hare of Banking $ystem Assets #+& are7

    ype of Banks 2!!" 2!!# 2!!$ 2!!%
    State&owned Commercial Banks 'SCBs( 4-+ *5+ **+ **+
    Speciali)ed *evelopment Banks 'S*Bs( 8+ /+ /+ /+
    +rivate Commercial Banks '+CBs(
    4-+ 44+ 48+ 0-+
    Foreign Commercial Banks 'FSBs(
    8+ 2.+ 2-+ 8+
    otal 2..+ 2..+ 2..+ 2..+
    Source: Website of Bangladesh Bank
    a,le 3.1- Overview of the financial structure of Bangladesh
    3.2.1 Commercial Banks
    1
    www.bangladesh-bank.org
    2
    Anadakumar, J., Khan, A. and Srivastava, A., !""#$ %&he Bangladesh Banking S'stem(, Bangladesh )ountr' *e+ort +ublished in
    www.fitchratings.com
    Page 8 12
    Financial Performance Analysis and
    Operations of International Division of AB Bank Limited
    )he commercial anks are at the core of the financial system and account for more than 8.+ of all
    financial system assets( )hey could e sudivided ased on o"nership as $%Bs! private commercial
    anks #P%Bs& and foreign commercial anks #F%Bs&( At present there are 4* commercial anks in
    Bangladesh! comprising four $%Bs! thirty P%Bs and nine F%Bs( Although the influence of the
    $%Bs has gradually een "aning! they nevertheless still e1ert significant influence over the roader
    anking system! accounting for **+ of anking system assets in -../ compared "ith nearly 98+ in
    255/
    *
    (
    3.2.2 Speciali)ed Banks
    )he speciali'ed anks are development oriented financial institutions formed to meet specific credit needs
    in sectors such as agriculture and industry( )here are currently five of them in Bangladesh( Like the
    $%Bs! they have very "eak financial profiles characteri'ed y "eak asset :uality! lo"
    capitali'ation and poor profitaility! "hich re:uire significant restructuring to ensure viaility(
    3.2.3 .on Bank Financial /nstitutions
    3
    %ompared "ith the commercial anks! the non ank financial institutions #;BFIs& have a rather
    limited role in the financial system! accounting for less than 0+ of financial system assets( )he
    ;BFIs are mainly engaged in the provision of financial and operational leases #aout 4.+ of
    assets&! term lending #aout -2+ of assets&! "orking capital financing #29+ of assets&! housing finance
    #aout 24+ of assets&! merchant anking and venture capital financing( ;BFIs also face competition from
    commercial anks that have started to offer the same products as them! especially leasing(
    ;BFIs! ho"ever! appear to have managed to handle asset :uality etter than the commercial anks!
    as reflected y an ;PL ratio of 8(-+ at end 4une -..8( )hat said! it should e noted that this
    ratio could e understated due to the relatively la1 asset :uality regulations for ;BFIs compared
    "ith anks( %urrently! there are -5 ;BFIs! of "hich 2* are <oint ventures "ith foreign participation( )he
    ;BFIs are licensed and regulated under the Financial Institution Act! 255*! y Bangladesh Bank(
    3.2." 0icrofinance /nstitutions
    "
    =icro Finance institutions #=FIs& in Bangladesh play an important role in providing access to
    finance for segments of Bangladeshi society that "ould other"ise not have access to any form of
    financing( It is estimated that nearly 2/+ of the Bangladeshi population have orro"ed from the
    microfinance system( 3hile there are more than 2!... =FIs in Bangladesh! the four largest #including the
    3
    www.bangladesh-bank.org
    4
    ,icrocredit *egulator' Authorit'
    Page 8 13
    Financial Performance Analysis and
    Operations of International Division of AB Bank Limited
    >rameen Bank& account for /.+ of outstanding =FI loans( In addition to speciali'ed government
    organi'ations and non governmental organi'ations! microcredit programs are also implemented y
    various formal financial institutions such as $%Bs and speciali'ed anks( )he =icro %redit ?egulatory
    Authority #=%?A&! "hich "as incorporated y an act of parliament in -..9! is responsile for the
    supervision of =FIs( A certificate of registration from the =%?A is re:uired to set up an =FI(
    3.2.# /slamic Banking in Bangladesh
    Islamic anking in Bangladesh "as introduced in 258* and is conducted through si1 fully fledged Islamic
    anks and Islamic anking counters@ranches operated y 2. conventional anks( At the end of 4une
    -..8! Islamic anking deposits #in fully fledged Islamic anks and Islamic anking outlets of convent ional
    anks& collectively accounted for 29(2+ of anking sector deposits! "hile Islamic anking investments
    #akin to advances in conventional anks& accounted or 5(*+ of anking sector advances
    0
    ( Bangladesh
    Bank regulates and supervises conventional and Islamic anks roadly under the same frame"ork( )he
    regulator has e1tended certain preferential treatment for Islamic anks to promote their development!
    such as a lo"er statutory li:uidity re:uirement( A notale development "as the issue of a =udaraa
    Bond! the ABangladesh >overnment Islamic Investment BondA in -..4 to enale Islamic financial
    institutions to invest their funds( )his ond is also considered a li:uid asset in the calculation of the
    statutory li:uid assets ratio(
    3.2.$ Capital 0arkets
    Bangladesh has t"o stock e1changes 6Dhaka $tock B1change #D$B& and %hittagong $tock B1change
    #%$B&( )he D$B #estalished in 2504& and the %$B #estalished in 2550&! list e:uities of companies as
    "ell as mutual funds and deentures( )he D$B is the larger of the t"o and has 4*2 listed issues
    #including deentures and mutual funds&( 3hile capital markets have generally elicited investor interest!
    overall market capitali'ation remains lo" at around 25(/4+ of >DP as on 4une 24! -..5( )he anking
    sector accounted for */(95+ of the market capitali'ation on the D$B as on April *.! -..5! "hile the
    sector accounted for a further 0-+ of market capitali'ation on that April *.! .5
    9
    ( )he sectoral market
    capitali'ation and market turnover as on April! -..5 of the listed companies are sho"n in figure *(2 and
    figure *(- respectively( )he anking sector turnover on April *.! -..5 "as 42+ of the total turnover "hich
    "as *-(80+ on =arch! -..5( )he "hole anking sector "ent through turmoil in last year "hich also
    affected the "hole market capitali'ation( Despite of the recent up"ard trend of the anking shares their
    market share according to the market capitali'ation did not rise to the level it "as in last year same time(
    5
    -slami Bank Bangladesh .imited
    6
    Websites of /S0 and Bangladesh Bank
    Page 8 1"
    Financial Performance Analysis and
    Operations of International Division of AB Bank Limited
    Source: Website of /S0
    Figure 3.1- 0arket share of the *S1 listed companies according to market capitali)ation.
    Source: Website of /S0
    Figure 3.2- 0arket share of the *S1 listed companies according to market turnover.
    Bank financing seems to e the preferred source of raising capital( For instance! in FC.8! the
    capital raised through the stock e1change "as BD) /(4n
    /
    ! as opposed to BD) -.2(0 n
    disursed y anks and financial institutions as industrial term loans( )his reflect s the rather
    undeveloped nature of BangladeshDs capital markets and other constraints in accessing capital
    7
    ,onthl' review of /haka Stock 01change, Januar' !""#
    Page 8 1#
    Financial Performance Analysis and
    Operations of International Division of AB Bank Limited
    from the market( )he $ecurities and B1change %ommission of Bangladesh regulates capital markets
    activities in Bangladesh under the $ecurities and B1change %ommission Act(
    a,le 3.2- Capital 0arket performance in last si2 years.
    3.3 /nterest 3ate Spread
    )he interest rate spread #I?$& is "idely used as a parameter of ank profitaility! intermediation cost! and
    the degree of efficiency of the anking sector( )he I?$ sho"s the additional cost of orro"ing that ank
    takes on to perform intermediation activities et"een orro"ers and fund lenders( )he market structure
    plays an important role in determining I?$( From a ankEs perspective! I?$ is a premium for the risk that
    the ank undertakes( Besides! it compensates for loan default! ut also for the risk related to cost of
    funding( Banks usually orro" short term funds from depositors and invest in long term loans( )herefore!
    I?$ for anks covers oth spot and future cost of funds( It may change depending on prediction of future
    short term interest rate( )he countryFs anking structure is segmented "ith $%Bs and P%Bs holding **(2
    percent and 02(4 percent of total assets respectively( 3ithin the structure! high I?$ resulted from a
    numer of factors including state control of lending! asence of risk management practices! accumulation
    of ad loans due to political interference on commercial lending decisions! and limited technical skills
    particularly in the arena of risk management(
    Page 8 1$
    4ear
    *S1 5eneral
    /nde2
    'at 6une 3!(
    0arket
    Capitali)ation
    B* B.
    urnover
    B* B.
    2!!" 2!*25(.. 24-(4. -4(8.
    2!!# 2!/2*(.. -2*(.. /4(2.
    2!!$ 2!**5(.. -.0(*. 49(..
    2!!% -!245(.. 42-(-. 294(/.
    2!!7 *!..2(.. 5*2(.* 04*(-5
    2!!8 *!.2.(.. 2!-42(*4 85*(/5
    Source: Website of /S0
    Financial Performance Analysis and
    Operations of International Division of AB Bank Limited
    Source: 2inancial Sector *eview 3olume -3, 4umber 5$, Bangladesh Bank, Januar' !""#
    Figure 3.3- 9ending and *eposit 3ates and /3S.
    Figure *(* sho"s the "eighted average deposit #3AD?& and lending #3AL?& rates and the spread #I?$&
    of all anks from end 4une -..2 to end $eptemer -..8( )he I?$! as measured y the difference
    et"een "eighted average lending and deposit rates of commercial anks! sho"s a generally declining
    trend since 4une -..2 e1cept for fe" deviations( )he spread et"een lending and deposits rate declined
    y 2(9 percentage points "hile deposit rates increased y .(2 percentage points and lending rates
    decreased y 2(4 percentage points respectively et"een 4une -..2 to $eptemer -..8 resulting from
    persistent efforts of BB to encourage the anks to reduce I?$ to reasonale level to facilitate investment
    and gro"th( From the graphical representation "e can see that the anks usually maintain an I?$ on an
    average of 9 percent(
    3." 1arnings and +rofita,ility
    Interest Income and Assets
    A comparison of total interest income and total assets y ank groups sho"s that P%Bs have highest
    interest income6asset ratio follo"ed y F%Bs( Go"ever! total interest income and total assets of $Bs and
    $%Bs fluctuated et"een periods #Figure *(4a&(
    Interest Expenditure and Assets
    A similar picture is seen for interest e1penses of the anks( In Decemer -..8! interest e1penditure6asset
    ratio of P%Bs "as highest follo"ed y F%Bs! $%Bs and $Bs #Figure *(4&( At the end of 4une -..8! the
    ratio "as highest for $Bs( )he ma<or e1penditure category of anks is e1penditure on deposits(
    Page 8 1%
    Financial Performance Analysis and
    Operations of International Division of AB Bank Limited
    Source: 2inancial Sector *eview volume -3, 4umber 5$, Bangladesh Bank, Januar' !""#
    Figure 3."- 'a( otal /nterest /ncome:otal ;ssets and
    ',( otal /nterest 12penditure:otal ;ssets 'percent(
    Non interest Income and Assets
    )he ank group "ise scenario of non6interest income as a share of total assets is given in figure *(0( In
    Decemer -..8! the ratio "as highest for F%Bs compared "ith other groups sho"ing greater importance
    of non6interest income as income source for F%Bs( )he ratio "as also higher for P%Bs than for $%Bs and
    $Bs(
    Source: /e+artment of 6ff-site Su+ervision, Bangladesh Bank
    Figure 3.#- 3atio of .on&/nterest /ncome and otal ;ssets 'percent(.
    Page 8 17
    Financial Performance Analysis and
    Operations of International Division of AB Bank Limited
    Non interest Expenditure and Assets
    In the case of non6interest e1penditure to total asset ratio! F%Bs and P%Bs had the highest ratio in
    Decemer -..8 sho"n in figure *(9( In 4une -..8! the ratio "as highest for $Bs follo"ed y F%Bs!
    P%Bs! and $%Bs.
    Source: /e+artment of 6ff-site Su+ervision, Bangladesh Bank
    Figure 3.$- 3atio of .on&/nterest 12penditure and otal ;ssets 'percent(
    Return on Equity (ROE)
    It is important for the shareholders to kno" the return on their invested e:uity in a ank( A useful summery
    of this information is provided y net after ta1 profit per unit of ank e:uity capital kno"n as return on
    e:uity #?OB&( During Decemer -..8! ?OB for $%Bs "as highest follo"ed y F%Bs and P%Bs! "hile it
    "as negative for $Bs. It can e seen from figure *(/ that that $%Bs reported 'ero figures for oth ?OB for
    -../ set administratively despite huge provision shortfall( Go"ever! the figures ecame positive for ?OB
    follo"ing signing of =oH and issuing of shares in favor of the government(
    Page 8 18
    Financial Performance Analysis and
    Operations of International Division of AB Bank Limited
    Source: /e+artment of 6ff-site Su+ervision, Bangladesh Bank
    Figure 3.%- 3eturn on 1<uity of Banks.
    3.# .on&+erforming 9oans
    )he anking sector in Bangladesh passed through significant changes in terms of structure and policies
    especially since the 255.s( After independence! Bangladesh accumulated huge amount of non6
    performing loans #;PLs& due to various reasons e(g(! politically motivated credit disursement and uild
    up of ad loans in state o"ned enterprises #$OBs& due to corruption! inefficient management! and lo"
    technical skills( Besides! the persistence of relatively high interest rates contriuted to increase in ;PLs in
    the country( Figure *(8 sho"s that the large entry of ne" anks during the late 255. and did not "orsen
    the ;PL situation "hile increasing ank6asset ratio contriuted to lo"er ;PL( )he t"o ratios follo"
    some"hat opposite trends suggesting that it is important for the anks to increase their assets to reduce
    the ;PL prolem
    8
    (
    8
    2inancial Sector *eview volume -3, 4umber 5$, Bangladesh Bank, Januar' !""#
    Page 8 2!
    Financial Performance Analysis and
    Operations of International Division of AB Bank Limited

    Source: 2inancial Sector *eview volume -3, 4umber 5$, Bangladesh Bank, Januar' !""#
    Figure 3.7- Classified 9oan&otal 9oan and ;sset&Bank 3atio.
    Among the classified loans! ad@loss loans constitute aout 82(2 percent( )he total classified loan ratio
    declined markedly from 42(. percent in 2555 to 2.(8 percent in Decemer -..8 #)ale *(*&( In Decemer
    -..8! the su6standard category of loans as a percent of total classified loans declined to 5(4 percent!
    "hile doutful loans increased from /(0 percent in Decemer -../ to 5(4 percent in Decemer -..8(
    4ear C9 as = of 9
    Su,&Standard
    9oans as = of C9
    *ou,tful 9oans as
    = of C9
    Bad:9oss 9oans as
    = of C9
    1888 42(22 0(-9 8(-/ 89(4/
    2!!! *4(5- 4(*/ 9(9- 85(.2
    2!!1 *2(45 0(9. 0(8/ 88(0*
    2!!2 -8(2. 8(90 0(-/ 89(.9
    2!!3 --(2* 2.(-4 8(/0 8.(5/
    2!!" 2/(9* /(-. 9(9. 89(25
    2!!# 2*(00 8(99 9(59 84(*/
    2!!$ 2*(20 2*(2* /(20 /5(/-
    2!!% 2*(-* 5(/0 /(02 8-(/4
    2!!7 2.(/5 5(4* 5(4- 82(24
    4ote: &.7&otal loan, &).7&otal classified loan.
    Source: Banking *egulation and 8olic' /e+artment, Bangladesh Bank.
    a,le 3.3- Status of Classified 9oans.
    In Bangladesh! a ma<or concern for the monetary authority is the adverse effect on ank alance sheets
    arising out of high ;PLs of the anks( Along "ith other measures! Bangladesh needs to strengthen asset
    management companies to :uicken recovery and improve efficiency in the anking sector( )he BBFs
    recent directives to the anks to take precaution "hile e1tending loans to high risk sectors and prioriti'e
    loans to productive sectors in con<unction "ith the governmentFs enactment of la"s prohiiting loan
    defaulters to take part in elections at local and national levels and similar other measures "ould help to
    further improve the ;PL situation in the country(
    3.$ 3isk 0anagement
    Page 8 21
    Financial Performance Analysis and
    Operations of International Division of AB Bank Limited
    In an attempt to improve the risk management practices in anks! Bangladesh Bank issued
    guidelines on I=anaging %ore ?isks in BankingI in -..*( Hnder these guidelines! the anks "ere
    advised to put in place an effective risk management system! "ith Bangladesh Bank monitoring
    the implementation of these guidelines through its on site inspection teams( Bangladesh Bank also
    prescries a preferred organi'ational structure for the credit department! "here the usiness development
    and credit risk management functions are structured under different reporting authorities( It has
    also stipulated lending limits for industry segments! type of loan facilities! single e1posure limits and
    an eight tier risk grading system to classify loans(
    3.% Basel // /mplementation
    Bangladesh plans to implement the standardi'ed approach for credit and market risks and the
    asic indicators approach for operational risk from 4anuary -.2.( 3hile a :uantitative impact
    study to assess the readiness for implementing Basel II "as conducted in -../! the actual
    parallel run of Basel I and Basel II only commenced in 4anuary -..5 and continued till Decemer -..5(
    Go"ever! the planned implementation of the I?B version of Basel II on a system "ide asis y -.2- is
    unlikely to take place as scheduled! as most anks lack the re:uired risk infrastructure(
    3.7 Capital ;de<uacy
    8
    )he overall capital situation of the anks improved in Decemer -..8( )he capital of all anks stood at
    )k( -.0(8 illion in Decemer -..8 as compared to )k( 2-*(4 illion in Decemer -../ and )k( /9(2
    illion during the end of -..9( )he year6end capital position in -..8 "itnessed an increase of 99(8
    percent as compared "ith 9-(. percent in the preceding year(
    Out of total capital for all anks! /*(4 percent "as maintained as core capital in Decemer -..8 "hich
    "as /2(8 percent in Decemer -../( )he amount of core capital in Decemer -..8 "as 4/(/ percent
    higher than the re:uirement #0(. percent of the risk "eighted asset&( Disaggregated figures sho" that
    actual core capital "as /5(0 percent and *28(4 percent higher than the re:uired core capitals for P%Bs
    and F%Bs respectively( )his sho"s high concentration in )ier I capital for P%Bs and F%Bs( In the case of
    $%Bs and $Bs! the actual level of core capital "as -9(- percent and -04(5 percent lo"er than their
    re:uired levels(
    9
    2inancial Sector *eview volume -3, 4umber 5$, Bangladesh Bank, Januar' !""#
    Page 8 22
    Financial Performance Analysis and
    Operations of International Division of AB Bank Limited
    Source: /e+artment of 6ff-site Su+ervision, Bangladesh Bank
    Figure 3.8. Capital +osition ,y Bank ypes.
    Source: /e+artment of 6ff-site Su+ervision, Bangladesh Bank
    Figure 3.1!- ier / and # percent 3isk >eighted ;sset of +CBs.
    3.7.1 3egulatory Capital 3e<uirement
    3hile total amount of capital stood at )k( *-(. illion in Decemer -..8 for $%Bs! after ad<usting the
    provision shortfall and cumulative losses! the ad<usted capital "as )k( *2(5 illion and capital shortage
    reached )k( 24(- illion according to the regulatory re:uirement( )he $Bs had a total capital amount of
    )k( #6& 5(- illion after partial ad<ustment of provision shortfall and cumulative losses and ad<usted capital
    stood at )k( #6& -.(2 illion and capital shortage reached )k( *2(8 illion in Decemer -..8(
    )he P%Bs as a group "itnessed a surplus position in ad<usted capital #)k( 2**(* illion& after ad<usting the
    provision shortfall! cumulative loss! and regulatory re:uirement( As a group! the P%Bs registered a rapid
    gro"th in capital position in -..8( During end -..8! capital share of P%Bs in total capital of all anks
    stood at 98(/ percent compared "ith 8-(4 percent in end -../( ;onetheless! most of the capital increase
    is attriuted to increase in )ier I capital( Figure -(5 sho"s the )ier I capital position of P%Bs compared
    "ith 0 percent risk "eighted assets( Hnder the present risk6sensitive regulatory regime! the position of
    )ier I capital suggests that anks in Bangladesh have the aility to asor losses ade:uately! if such
    circumstances arise(
    3.8 Credit /nformation
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    Financial Performance Analysis and
    Operations of International Division of AB Bank Limited
    A %redit Information Bureau #%IB& "as set up in 255- "ithin Bangladesh Bank( )he %IB dataase
    contains information in respect of individual orro"ers! o"ners and guarantors( )he %IB collects data
    from anks on a monthly asis and a :uarterly asis( ;on ank financial institutions are re:uired to
    report outstanding loans aove BD) 0.!... on a half yearly asis( A donor funded pro<ect to automate the
    ureau is under "ay(
    It appears that %IB! in addition to eing an integral part of the financial information infrastructure! is
    also a politically sensitive ody! as not only are anks not permitted to e1tend ne" credit
    facilities or rene" e1isting credit facilities to defaulting orro"ers! ut the listed defaulters
    themselves are not allo"ed to participate in parliamentary elections! promote shares for flotation
    in the capital market! :ualify for directorship of anks@financial institutions! or insurance companies
    or achieve the status of a Icommercially important personD( Furthermore! the efficacy of the ureau is
    undermined y the actions of some defaulting orro"ers "ho manage to otain court stay orders
    to prevent the release of negative credit information and therefore continue to secure anking
    facilities despite their delin:uent position(
    3.1! ;ccounting and *isclosure
    >eneral accounting and disclosure standards have een rather "eak in Bangladesh! although
    they are on an improving tra<ectory( 3hile emerging international standards and est practices are
    often adapted "ith delays! local accounting standards are still roadly dra"n in line "ith
    international standards( Hnlike other anks in the region! Bangladeshi anks pulish some
    additional information such as deficits in provisioning or capital position according to different ank
    classes( 3hile this is indeed "elcome! such disclosures are necessity driven! more as a
    compromise! given the rather poor record of compliance "ith the underlying prudential
    regulations(
    Bangladesh Bank for its part has attempted to improve standards of disclosure( $ome such steps have
    re:uired anks to pulish annual financial statements in ne"spapers and display these for pulic
    vie"ing in their places of usiness and otain a credit rating from a rating agency( $uch credit
    ratings "hen otained are re:uired to e pulished in the anksD annual and half yearly financial
    statements(
    Previously a credit rating "as only re:uired for anks that "ere raising capital through IPOs( In
    addition! Bangladesh Bank re:uires anks to list on the stock e1change! "ith a target of listing at least
    0.+ of their shares( Auditing re:uirements for anks are more stringent than for non financial
    corporations! "ith the audit conducted y the memer of a panel of auditors approved y
    Bangladesh Bank(
    3.11 Banking /ndustry in 2!!7
    Page 8 2"
    Financial Performance Analysis and
    Operations of International Division of AB Bank Limited
    )he =a<or indicators of the anking system sho"ed improvement during the year -..8( )otal deposit and
    advance of the anking sector increased y 29(.* percent and 28(84 percent respectively in -..8
    compared "ith their -../ levels( )he countryFs anking sector remained shielded from the gloal financial
    turmoil mainly due to lo" level of gloal integration and good health underpinned y prudent regulation
    and sound management( )he ma<or contriution of this gro"th came out from P%Bs! F%Bs and $DBs
    sho"ing a consistent gro"th of loans and deposits( Deposit and Advances position of anking industry as
    on ;ovemer -/! -..8 are sho"n in tale *(*
    S9 +articulars
    SCBs
    "
    +CBs
    3!
    FCBs
    8
    S*Bs
    #
    otal
    "7
    1.
    Deposit #e1cluding interank items& /08(8 240.(98 -24(2 2*/(82 -092(*5
    Demand Deposit 254(*8 -*-(98 /2(05 2/(0 029(20
    )ime Deposit 094(4- 2-28 24-(02 2-.(*2 -.40(-4
    2.
    %redit provided in Bangladesh 0-8(82 2-8*(99 245(49 24/ -2.8(5*
    Loans and Advances 4/4(4- 2-./(88 24*(-* 244(58 25/.(02
    Inland Bills -0(-- 99(54 *(20 2(*5 59(95
    Foreign Bills -5(2/ 8(84 *(.8 .(94 42(/*
    3. %redit Deposit ?atio #+& 95(95 88(45 95(82 2.9(9/ 8-(*4
    ". )otal Investment in $ecurities #Book Jalue& -.*(0 280(9* *8(99 8(4- 4*9(-2
    #. Investment Deposit ?atio #+& -9(8- 2-(8. 28(.9 9(22 2/(.5
    $. =oney %all at $hort ;otice 4(00 25(0 9(54 -(.2 **(..
    %. Borro"ings from Bangladesh Bank #in Ley& .(2. -0(-. .(.* 9-(05 8/(5-
    7. Borro"ings from Bangladesh Bank #in Fey& .(5. 0(-- .(/4 - 8(54
    Source: Weekl' 2inancial 8osition of Scheduled banks, Bangladesh Bank
    a,le 3."- ?ey Financial /ndicators 'aka in ,illion(
    In -..8! an overall higher positive gro"th of loans and advances "as asored in line "ith positive
    deposit gro"th in the anking sector( As on Decemer *2! -..8 deposit gro"th "as 25(-.+ "ith respect
    to Decemer -../ "hich "as 20(0+ in Decemer -../ compared tot hat of the year -..9 and "as
    22(/+ in Decemer -../ than that of Decemer -..9(
    Page 8 2#
    Financial Performance Analysis and
    Operations of International Division of AB Bank Limited
    Source: Weekl' financial +osition of Scheduled Bank, /ecember, !""9
    Figure 3.11- 5rowth pattern of all the ,anks@ deposits and advances.
    Source: Weekl' financial +osition of Scheduled Bank, /ecember, !""9
    Figure 3.12- Bank group&wise market share of *eposits.
    Page 8 2$
    Financial Performance Analysis and
    Operations of International Division of AB Bank Limited
    Source: Weekl' financial +osition of Scheduled Bank, /ecember, !""9

    Figure 3.13- Bank group&wise market share of loans and advances.
    P%Bs had a ma<or market share in loans #92+& and deposits #0/+& as "ell( )he trend "as oserved as
    market share "as shifting from $%Bs to P%Bs( As $%Bs "ere operating on comparatively restricted
    pattern and P%Bs are offering more diverse anking services in the country( $%Bs had -0+ market share
    of total loans and *.+ of total deposits( F%Bs had /+ market share of total loans and 8+ share of total
    deposits( On the other hand $DBs had /+ market share of total loans and 0+ share of total deposit(
    Page 8 2%

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