Performance Evaluation of Banking Industry in Bangladesh: a Comperative Study

Topics: Bank, Commercial bank, Central bank Pages: 17 (5610 words) Published: June 24, 2013
Performance Evaluation of Banking Industry in Bangladesh: A Comparative Study

Introduction

Banking is an essential industry that affects the welfare of all other industry and the economy as a whole. In fact, growth and development of a country significantly depend on the level of growth and development attempted by the banking sector. There is a consensus regarding the positive role played by the financial sector in promoting economic development (Gerschenkron, 1962; Patrick, 1966; Galbis, 1977). In Bangladesh, banking sector has flourished a lot compared to other sectors of the economy. But the role of this key sector in national development is not satisfactory. There is not only an extremely strong capital stock but the rate of capital formation is also very meager. The current rates of domestic savings and investments as a % of GDP are 20.2 and 24.4% respectively (Bangladesh Bank Annual Report 2004-05). In the past, the rate of savings and investment were much lower than the present rate. Therefore, development plans of Bangladesh have been largely aid development. Between 1972-73 and 1981-82, aid has financed on an average of 75% of fixed investments and the lions share of the development budget (ERD). Under these Circumstances, internal resource mobilization is an urgent necessity for a self-reliant Bangladesh. Towards this end, banking Industry may play a crucial role in mobilizing community’s savings and channeling the same into the socially desirable sectors of the economy. As financial intermediaries, banks can play a crucial role in of most economies. In the absence of effective functional securities market, the banking sector in Bangladesh takes the lead in mobilizing resources and allocating funds to profitable ends. The effectiveness of financial intermediation can affect economic growth. The financial intermediation affects the net return to savings and gross return to investment. The prominence of financial institutions for rapid economic growth is unanimous. The bank based view of financial system highlights the positive role of bank in mobilizing resource, identifying good projects, monitoring managers and managing risks. The role of banking institutions as intermediary between the investor and entrepreneur is of vital importance in a developing country like Bangladesh.

The evaluation of Banks performance is a complex process involving interactions between the environments, internal operations, and external activities. In performing this evaluation concerned authorities in the banking sector prior to independence felt for resource mobilization and using the same in the desired sectors. For this reason all the commercial banks were nationalized immediately after independence (Bhattacharjee, 1989). Development of private sector is essential to cope with the challenges of globalization. But considering the socio-economic condition of Bangladesh, extreme privatization, particularly in the banking sector, may not be desired. Because, even though, the number of private banks (local & foreign) are increasing and the number of nationalized banks are decreasing, still the NCBs occupy a dominant place in the banking sector of the country and play a pioneering role in capital formation, stimulating the level of industrialization, poverty alleviation and human development and in the overall economic development. NCBs provide loans to productive and priority sectors both public and private covering agriculture, industry, trade and commerce. On the contrary, private banks mainly operate in towns and metropolitan cities and do business with noted entrepreneurs and with the affluent sections of the society; while foreign banks operate only in the cities and do business with the elite section of the society. Hence, this paper focused on the performance of the banking sector in general with a wider lance.

As financial intermediaries, banks can play a crucial role in the most economies. In the...

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