Banks & Financial
Institutions of Bangladesh
Tips & Information
Financial System: Bangladesh
Bangladesh has mixed financial System. The financial system of Bangladesh comprising Bangladesh Bank, State Owned (nationalized), Private and Foreign commercial banks, Islamic commercial banks, Government owned specialized and development banks, Non-banking financial institutes, Merchant banks, Cooperative banks, Insurance companies and Stock exchanges.
Bangladesh Bank
Bangladesh Bank is the Central Bank and apex regulatory body for the country's monetary and financial system, was established in Dhaka as a body corporate vide the Bangladesh Bank Order, 1972 (P.O. No. 127 of 1972) with effect from 16th December, 1971. Bangladeshi Bank is in charge of monetary policies of the Government and controls all banks in the country.
Bangladesh Bank performs all the core functions of a typical monetary and financial sector regulator, and a number of other non core functions. The major functional areas include:
- Formulation and implementation of monetary and credit policies.
- Regulation and supervision of banks and non-bank financial institutions, promotion and development of domestic financial markets.
- Management of the country's international reserves.
- Issuance of currency notes.
- Regulation and supervision of the payment system.
- Acting as banker to the government.
- Money Laundering Prevention.
- Collection and furnishing of credit information.
- Implementation of the Foreign exchange regulation Act.
- Managing a Deposit Insurance Scheme
State Owned Commercial Banks (SOCB)
State Owned Commercial Banks (SOCBs) which are fully or majorly owned by the Government of Bangladesh are operates under full control and supervision of Bangladesh Bank (i.e. Central Bank). Order, 1972 and Bank Company Act, 1991. All these banks are registered with the Registrar of Joint Stock Companies and are operating as Public Limited Company under license from Bangladesh Securities and Exchange Commission (BSEC).
These banks perform the banking functions in conventional method i.e. interest based operations
Private Commercial Bank
Conventional type Public/Private Commercial Banks (PCB) are now operating in Bangladesh under full control and supervision of Bangladesh Bank (i.e. Central Bank).. All these banks are registered with the Registrar of Joint Stock Companies and are operating as Public Limited Company under license from Bangladesh Securities and Exchange Commission (BSEC).
These banks perform the banking functions in conventional method i.e. interest based operations.
Islamic Commercial Bank
Islami Shariah based Public/Private Commercial Banks are operating in Bangladesh under full control and supervision of Bangladesh Bank (i.e. Central Bank). All these banks are registered with the Registrar of Joint Stock Companies and are operating as Public Limited Company under license from Bangladesh Securities and Exchange Commission (BSEC).
Islami Shariah based Private Commercial Banks execute banking activities according to Islami Shariah based principles i.e. Profit-Loss Sharing (PLS) mode.
Foreign Commercial Bank
Foreign Commercial Banks (FCBs) are operating in Bangladesh as the branches of the banks which are incorporated in abroad. All these banks are also under full control and supervision of Bangladesh Bank (i.e. Central Bank).
These banks perform the banking functions in conventional method i.e. interest based operations.
Government Owned Specialized Banks
Specialized banks were established for specific objectives like agricultural or industrial development. These banks are also fully or majorly owned by the Government of Bangladesh and are under full control supervision of Bangladesh Bank (i.e. Central Bank)
Specialized banks are operating in Bangladesh duly registered with the Registrar of Joint Stock Companies and are operating as Public Limited Company under license from Bangladesh Securities and Exchange Commission (BSEC).
These banks perform the banking functions in conventional method i.e. interest based operations.
Non-Scheduled Banks
The banks which are established for special and definite objective and operate under the acts that are enacted for meeting up those objectives, are termed as Non-Scheduled Banks. These banks cannot perform all functions of scheduled banks. At present there are 4 (four) Non-Schedule banks operating in Bangladesh.
Non Banking Financial Institutes
Non Bank Financial Institutions (FIs) are those types of financial institutions which are regulated under Financial Institution Act, 1993 and controlled by Bangladesh Bank. Major sources of funds of FIs are Term Deposit (at least six months tenure), Credit Facility from Banks and other FIs, Call Money as well as Bond and Securitization.
The Financial Institute can conduct their business operations with diversified financing modes like syndicated financing, bridge financing, lease financing, securitization instruments, private placement of equity etc.
- The Financial Institute cannot perform all functions of scheduled banks.
- The Financial Institute cannot issue cheques, pay-orders or demand drafts.
- The Financial Institute cannot receive demand deposits,
- The Financial Institute cannot be involved in foreign exchange financing.
Merchant Bank
Merchant Banks are operating in Bangladesh under license from Bangladesh Securities and Exchange Commission (BSEC). The main functions are mainly:
- underwriting IPOs
- and (ii) managing new issues.
Bangladesh Merchant Bankers has an Association (BMBA) which was formed under the companies’ Act 1994 and registered with the Registrar of Joint Stock Companies on 9th November’ 2004. BMBA is a member of the Federation of the Bangladesh Chamber of Commerce & Industry (FBCCI)
National Payment Switch Bangladesh (NPSB)
The Bangladesh Bank has introduced National Payment Switch Bangladesh (NPSB) in order to facilitate interbank electronic payments originating from different channels like Automated Teller Machines (ATM), Point of Sales (POS), Internet, Mobile Devices, e-commerce, Online payment of Government dues etc. The main objective of NPSB is to create a common electronic platform for the payment switches in Bangladesh.
Capital Market
After the independence, establishment of Dhaka Stock Exchange (formerly East Pakistan Stock Exchange) initiated the pathway of capital market intermediaries in Bangladesh. In 1976, formation of Investment Corporation of Bangladesh opened the door of professional portfolio management in institutional form.
In last two decades, capital market witnessed number of institutional and regulatory advancements which has resulted diversified capital market intermediaries. At present, capital market intermediaries are of following types:
Stock Exchanges: Apart from Dhaka Stock Exchange, there is another stock exchange in Bangladesh that is Chittagong Stock Exchange established in 1995.
Central Depository: The only depository system for the transaction and settlement of financial securities, Central Depository Bangladesh Ltd (CDBL) was formed in 2000 which conducts its operations under Depositories Act 1999, Depositories Regulations 2000, Depository (User) Regulations 2003, and the CDBL by-laws.
Stock Dealer/Sock Broker: Under BSEC (Stock Dealer, Stock Broker & Authorized Representative) Rules 2000, these entities are licensed and they are bound to be a member of any of the two stock exchanges i.e. Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE)
. Merchant Bank & Portfolio Manager: These institutions are licensed to operate under Bangladesh Securities and Exchange Commission (BSEC) - Merchant Banker & Portfolio Manager Rules 1996.
Asset Management Companies (AMCs): AMCs are authorized to act as issue and portfolio manager of the mutual funds which are issued under BSEC (Mutual Fund) Rules 2001.
Credit Rating Companies (CRCs): CRCs in Bangladesh are licensed under Credit Rating Companies Rules, 1996 and now, 5 CRCs have been accredited by BSEC.
Trustees/Custodians: According to rules, all asset backed securitizations and mutual funds must have an accredited trusty and security custodian. For that purpose, BSEC has licensed 9 institutions as Trustees and 9 institutions as custodians.
Commercial Banks Lending and Deposit
Usually Banks gives lend on these areas:
- Agriculture
- Term loan to large & medium Industry
- Term loan to small industry
- Working Capital to Industry
- Export
- Trade Financing
- Housing Loan
- Consumer Credit
- Others
Against deposit or Accounts; Banks gives interest/Profit on the following areas:
- Saving Account
- 3 months but < 6 months
- 6 months but < 1 year
- 1 year but , 2 years
- 2 years but , 3 years
- 3 years and above
Banks are permitted to differentiate in lending rates to individual borrowers
not more than 3 % in the same lending category
SWIFT CODE:
SWIFT Code is standard format of Business Identifier Code approved by International Organization for Standardization (ISO) is assigned to each and every financial as well as non-financial bank or institutes by The Society for Worldwide Interbank Financial Telecommunication (SWIFT). SWIFT Code is being used to transfer money and exchange messages between banks or financial / non-financial institute.
Information on Insurance Company in Bangladesh
Marine is the oldest form of insurance, which was introduced in Northern Italy sometime between the 12th and 13th century. But the insurance business got an institutional shape in the United Kingdom after establishment of Lloyds Insurance Company in late 17th century.
The coffee houses of London played a vital role in developing trade and commerce in the UK. The merchants and traders used to gather in these coffee houses for their business transactions. Edward Lloyd opened one such coffee house in 1680. In late 17th century this coffee house virtually turned into the most famous Lloyds Insurance Company of the UK.
Insurance Company: Bangladesh
After independence, Bangladesh government nationalized the insurance industry in 1972 by the Presidential Order No 95, known as the Bangladesh Insurance (Nationalization) Order 1972. During the period only 2 nationalized insurance companies’ i.e.1 (one) Life & 1 (one) General; and 1 (one) foreign life insurance company were operating. Consistent with the privatization policy the world over, the Government of Bangladesh took a decision in 1984 to allow operation of insurance companies in the private sector side by side with state-owned. As a result, a number of companies in the private sector start functioning under Insurance Act 2010. At present number of insurance companies are:
- 18 (Eighteen) are Life Insurance Companies including 1(one) foreign company and 1 (one) state-owned company,
- 44 (Forty-four) General Insurance Companies including 1(one) state-owned company.
Insurance companies in Bangladesh provide following services:
- Life insurance;
- General Insurance;
- Reinsurance;
- Micro-insurance;
- Takaful or Islami insurance;
Insurance Directorate, under the Ministry of Commerce, is the regulatory-body of the country's insurance sector.
Bangladesh Insurance Association
Bangladesh Insurance Association was formed under the companies' Act 1913 and registered with the Registrar of Joint Stock Companies on 25th April' 1988.
The objectives for which the Association has been formed are to promote, support and protect the interests and welfare of the member companies, to help develop the healthy growth of insurance business in the country, to act on behalf of its members both collectively and individually in any matter affecting their interest, to issue tariffs and regulate rating of risks, to approach the government from time to time to take such steps as may be deemed expedient in the interests of the insurance industry as a whole, to provide facilities to enable persons engaged in insurance to acquire higher skill and to cultivate internationally recognized legal and ethical practices in the conduct of insurance business.
Bangladesh Insurance Association (BIA) is the member of the different bodies, such as:
- The Federation of the Bangladesh Chamber of Commerce & Industry (FBCCI)
- International Chamber of Commerce-Bangladesh (ICCB), and
- Bangladesh Employer's Federation.
Bangladesh Insurance Association recently signed a memorandum of Understanding (MOU) with Malaysian Insurance Institute (MII). This is the first step by the BIA in its endeavor to train up officers in technical education of world class standard.
These disclosures have been made in accordance with the Bangladesh Bank BRPD Circular no. 35 of 29 December 2010 as to Guidelines on 'Risk Based Capital Adequacy for Banks' in line with Basel II.
- Capital Adequacy under Basel-II
To cope with the international best practices and to make the Bank’s capital more risk sensitive as well as more shock resilient, ‘Guidelines on Risk Based Capital Adequacy (RBCA) for Banks’ (Revised regulatory capital framework in line with Basel II) have been introduced from January 01, 2009. Throughout the year 2009, Basel II reporting was parallel to Basel I which was the statutory requirement up to that year. However, beginning year 2010, Basel II became mandatory. Bangladesh Bank further reviewed the RBCA Guidelines on several occasions prior to Basel II became fully in force. Instructions regarding Minimum Capital Requirement (MCR), Adequate Capital, and Disclosure requirements as stated in these guidelines have to be followed by all scheduled banks for the purpose of statutory compliance.
Above guidelines were issued by Bangladesh Bank (BB) under section 13 and section 45 of the Bank Company Act 1991 (Amendment up to 2013) and also in accordance with “International Convergence of Capital Measurement and Capital Standards: A Revised Framework” of June, 2006 (popularly known as `Basel II Capital Adequacy Framework’) released by Basel Committee on Banking Supervision (BCBS).
Basel II guidelines are structured on the following aspects:
- Minimum capital requirements to be maintained by a Bank against credit, market, and operational risks.
- Process for assessing the overall capital adequacy aligned with risk profile of a Bank as well as capital growth plan.
- Framework of public disclosure on the position of a Bank’s risk profiles, capital adequacy, and risk management system.
2. Scope of application
Basel II guidelines apply to all scheduled banks on ‘Solo’ basis as well as on ‘Consolidated’ basis where-
- Solo Basis’ refers to all position of the bank and its local and overseas branches/offices; and
- Consolidated Basis’ refers to all position of the bank (including its local and overseas branches/offices) and its subsidiary company (ies) engaged in financial (excluding insurance) activities like merchant banks, brokerage firms, discount houses, etc. (if any).
Bank routing number or routing transit number (RTN) is a nine digit number used to identify financial institution in a transaction. Most common transaction types where routing numbers are used in Automated Clearing House (ACH) and wire transfers. This very special unique code is generated with the combination of 3 digits bank code, 2 digits district code, 3 digits branch code and at last 1 check digit. This number is also printed on the bottom-left of bank cheque leaves.