Apr 24, 2014, 4:15 am (BST)
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BB explains rationale for allowing new banks
DHAKA, April 9 (BSS) - Coming up with a detailed explanation of allowing new banks, Bangladesh Bank (BB) today said entry of the new banks would heighten the quality of financial services by increasing competition in the banking sector.

Explaining the economic context and rationale behind issuing new bank licences, the central bank said the economy has grown and the banking system has become more competitive when there are a large number of under-banked people in Bangladesh.

The BB said while the economy has grown and the banking system has become more competitive, 45 percent of the population still remain unbanked.

The population per branch (21,065) and the ratio of loan accounts per 1,000 adults (42) suggests that the outreach of the formal financial sector is lower than in India (14,485 and 124 respectively) and Pakistan (20,340 population per branch and 47 loan accounts per 1,000).

It said the capital infusion by these new banks would augment the banking system's capacity to meet the credit needs of the expanding corporate sector. Currently, because of limitations on large exposures, large corporations must approach many banks simultaneously with their credit needs, which then have to be stitched together in syndicate or participation loans.

"The entrance of the new banks will add to the aggregate capital base of these existing syndications, allowing for larger loans to be granted for productive investment and job-creation," the central bank said.

The BB also expects that foreign exchange brought in as capital for the new NRB banks and the foreign exchange position deposits they are likely to attract will strengthen the country's balance of payments. Also, expatriate management in these banks will hopefully have a helpful "demonstration effect" on the local banking sector.

According to the BB, since bank licences were last issued in 2000-01, there have been many significant developments in the Bangladesh economy in the past one decade. These include GDP increase by Taka 1690 billion to Taka 3850 billion in 2011 from Taka 2160 billion in 2001, per capita income to US $ 818 from US $ 374, foreign exchange reserves to US $ 10.91 billion from US $1.30 billion, export income to US $ 22.92 billion from US $ 6.47 billion, import payment to US $ 33.66 billion from US $ 9.33 billion and remittance to US 11.65 billion from US $ 2.50.

At the same time, performance of the banking sector has improved significantly as has the supervision tools and capacity of the central bank, the BB said. These include decline in the net NPL ratios (nonperforming loan) by more than two-thirds since 2004 when the return on assets was doubled (from 0.69 to 1.78 average for all banks) and the return of equity increased from 9.7 percent in 2003 to 21 percent in 2010.

The BB has also prepared risk management guidelines to strengthen debt management and increase the quality of assets, and conducted stress-test to increase the shock absorbing capacity of the banking sector.

Against the backdrop, the BB expects that the new banks would also be able to meet the unfulfilled credit demand of the private sector whose needs have grown in line with the fast- expanding economy.

"Moreover, for new banks, the ratio of opening rural and urban branch will be 1:1 which will increase bank branches in rural areas and improve financial inclusion," the central bank said.
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