Banking Industry in Bangladesh: Its Contribution and Performance

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Journal of Business Research, vol. 3, 2001
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Banking Sector in Bangladesh: Its Contribution and
Sharif Rayhan Siddique*
A F M Mafizul Islam**
Abstract: The paper attempted to highlight the prospects and opportunities of banking sector in Bangladesh. Like other economic sector in the country, Banking is one of major sectors which contribute to the national economy. The study tried to furnish the overview of the performances of banking sector and also find out the comparison among the various categories of banks with respect to the Profitability. Finally, the paper tried to establish the linear relationship among the various variables and net profit of the banking sector.

1. Introduction
Banking sector of Bangladesh is one of the major sectors, which contributes significantly to the national economy. The sector comprises a number of banks in various categories. Considering ownership the sector can be classified in to four major categories - such as Nationalized Commercial Banks (NCBs), Specialized Banks (SPBs), Private Commercial Banks (PCBs), and Trans-National Banks (TNBs). The list of banks under different categories is furnished in the appendix - A.

The study has been initiated to analyze the contribution of this sector and its profitability. This paper attempts to provide an overview of the contribution of the sector in national economy. The paper also analyzes the profitability of different categories of banks. Finally a regression analysis has been done to examine the relationship between the profitability and other variables.

2. Contribution of the Banking sector in National Economy
Economic development - of the country is executed by the contribution of various economic sectors. Like agriculture, industries, power, transport, trade service, etc., banking sector also has a contribution to the economic growth. In mid 80s Banking and Insurance contributed 1.69% of GDP and gradually the figure was increasing. The maximum contribution was 2.09% of GDP in the year 1993 and it was 2.00% in 1996-971 Average growth rate of this contribution was 1.51% of GDP, which shows a positive trend. Again, the sector makes a positive impact on the economic development by generating employment. In the year 1980 total number of employees in this sector was 59,235 but with in 15 years of time the figure shoot approximately double to 101,444.2 The average growth rate of employment generation was 3.76% (1980-1995). Countries like Bangladesh have a burden of its unemployment, where as banking sector still keep certain impact on employment generation.

Assistant Professor, Institute of Business Administration, University of Dhaka. **
Associate Professor, Institute of Business Administration, University of Dhaka. 1
Calculated from the data collected from Economic Trend, December 1997. 2


Banking Sector in Bangladesh: Its Contribution and Performance

Branches of the banks were also growing significantly.
Increasing branches indicate a
wide service provider to the population of Bangladesh. Overall growth rate of the bank branches was 2.11% (1980-1995). But before 1990 the rate was 3.00% and after 1990 it was 0.92%. In early 80s for the first time Government of Bangladesh (GOB) allowed private sector to operate commercial banks. At that time number of bank branches was growing rapidly. In the early 90s this growth rate was reduced, which may be because of the saturation stage.

Individuals and business organizations used to deposit their savings in the bank and borrow money form it. More the bank branches more people can be covered to avail them in banking services. Average population per branch was 19,875 during the period from 1984 to 1995. Because of the higher population growth rate (2.22%),3 in spite of increasing branches, the population per branch was also increasing.

Commercial banks are one of the profit...
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