Swinging Banking : Not Very Promising
August 13, 2002
Not too bad if you may claim so …..
The Bangladesh banking sector relative to the size of its economy is comparatively larger than many economies of similar level of development and per capita income. The total size of the sector at 26.54% of GDP dominates the financial system, which is proportionately large for a country with a per capita income of only about US$370. The non-bank financial sector, including capital market institutions is only 3.22% of GDP, which is much smaller than the banking sector. The market capitalization of the Dhaka Stock Exchange was US$1,025 million or 2.19% of GDP as at mid-June ...view middle of the document...
The adjustments would possibly be larger if provisioning as followed by major international auditors were applied. State-owned Commercial Banks (SCBs) also have disproportionately large and unexplained “Other Assets” that include, in particular, jute and other subsidized credits, suspense accounts and various receivables. To what extent these questionable assets have been provisioned remains unclear.
Wonder why so ?
The large capital deficiency, operating inefficiencies and recurring losses of the banking system is the product of a combination of different factors including: a) weak corporate governance (bank-wide structures, policies, systems and procedures, especially credit risk management); b) deficient executive and staff banking skills; c) absence of professionalism, accountability and incentives; d) policy lending (particularly to jute and other loss-making State-owned Enterprises or SoEs); e) political patronage and directed lending in the SCBs; f) insider lending in private local banks; g) pervasive systemic default culture; h) non-cost recovery for governmental services extended; i) loss-making branches; j) unproductive assets; k) politically-influenced recruitment, extraordinary staff redundancy, bank-wide security of tenure, and disruptive union activity; and l) poor IT/MIS that hinders efficient and cost-effective operations.
Who is who …..
At mid-2001, the US$13 billion stock of financial market instruments was predominantly tilted toward banking products (72.2%), basically in the form of term deposits, and secondarily toward non-bank debt instruments (27.8%), with private sector obligations accounting for 0.4% of all non-bank debt instruments and GOB-related instruments making up for the balance of 99.6%. Of the GOB-related instruments, Savings Schemes, redeemable instruments with disproportionately high yields, accounted for 59.3%, the balance made up of T-Bills (26.7%) and Treasury Bonds (13.9%). Private sector instruments are basically debenture-type issues mainly of one business group listed in the stock exchanges. With the exception of T-Bills and private sector debentures, the fixed income securities are non-transferable and, where they are transferable, there is no secondary market activity. There are no government securities dealers or market makers and the ‘buy-hold’ culture is quite pronounced. The commercial banks have not issued any securities to raise funds, other than for government-administered programs.
Pot belly or belly up already ?
The ratio of bank deposits to GDP in Bangladesh has increased from 19.53% in 1990 to 32.35% at end 2001. As the private sector banks are still in a rudimentary stage, they are way behind the SCBs in terms of deposit mobilization and asset accumulation. But classified loans of SCBs are large, constituting 3.94% of GDP in 1990 and 8.66% in 2001. In 1990, the SCBs had 27.59% of their total outstanding loans classified, compared to 23.73% in private commercial banks and 20.65% in...