Banking in Bangladesh

Topics: Bank, Fractional-reserve banking, Capitalism Pages: 6 (1956 words) Published: October 3, 2005
The Institute of Chartered Accountants
of Bangladesh

An assignment on
Foundation Course (Group-G)
7th Batch


Submitted by-
Md. Faruk Hossain
Roll no. 454

Submitted to-
Mr. Kazi Abul Bashar
Class Teacher

Date :– 21-01-2003 After Independence of Bangladesh the banking sector was restructured as a fall out of war of liberation. Banking grew primarily in the public sector with main emphasis development needs of the war-torn economy. With gradual liberalization in subsequent years, it was increasingly felt that banks should be allowed in the private sector for giving a fillip to development process on the basis of private initiative. In the 80's for the first time a number of banks in the private sector was allowed. Subsequently in the mid 90's some more banks in private sector commenced operations. In 1999. 3rd Generation of private sector banks was given permission to operate. Finally in 2001 4th Generation of private sector banks commenced operation. As a result while up to 80's financial sector was dominated by public sector banks, banks in the private sector were given increased responsibility with the passage of time. The share of deposits of Nationalised Commercial Banks (NCBs) in total deposits which stood at 89% in 1980 gradually declined over years to reach the level of 55% in 2000. Simultaneously, Private Commercial Banks (PCBs) which were responsible for only 18% of deposits in 1985 this share increased gradually over the years to constitute abort one third - 1 -

of the total deposits of the country by the end of the millennium. But market share of deposits of FCBs did not change much during the last twenty years. In the early 80's the share was 6% and it stood at 7% by the end of the century with a relatively small branch network in the country.

Likewise share of NCBs in total advances of the country declined gradually from 80% in 1980 to reach the level of 47% by the end of year 2000. At the same time, share in advances of the PCBs increased from 14% to 31% over the same period.

A break-up of deposits and advances indicates that share of rural branches contribute higher share of deposits than their share in advances. Rural deposits constitute slightly more than one-fifth of total deposits of the banks. On the other hand, rural advances constitute around 17% of the total advances of the banking sector.

This scenario leads some analysts to conclude that there has been a continuous siphoning of resources from rural to urban areas. While - 2 -
apparently this may seem to be a reason for a serious concern, the real picture is somewhat different if an in-depth analysis is made. Branches situated in the urban areas are usually well equipped to handle big advances, project loans, larger L/C proposals etc. So when a larger L/C for import of fertilizer or food grains is opered in the urban area, distribution of fertilizer or food grains and consequential financial transactions involved in the process take place largely in the rural areas. Likewise big industrial projects to be established outside the urban areas are also financed from urban branches. So the benefit of importation of the items or investment of funds in case of project loans goes to the rural areas which are not taken into account in such generalization on resources transfer from rural to urban areas. Apart from this, Bangladesh is a geographically compact landmass. Economic activities situated situated in any area are likely to benefit the rest of the country. As such apprehension about resource transfer from rural to urban areas does not hold good. Besides due to rapid improvement in communication and infrastructural network, development activities in any area is likely to have wholesome effect on the rest of the country. - 3 -

The review of the banking system reveals some...
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