Ch-05 (English-2018)
Ch-05 (English-2018)
Ch-05 (English-2018)
CHAPTER 5
MONETARY MANAGEMENT AND FINANCIAL
MARKET DEVELOPMENT
The monetary policy pursued during FY2017-18 aimed at limiting inflation within
tolerable level and achieving desired economic growth through promoting investment.
The monetary policy strategy for FY2017-18 was targeted to maintain an annual average
inflation rate below 6.0 percent. To keep inflation within desired level the Monetary
Policy Statement (MPS) for FY2017-18 set targets for broad money and reserve money
growth at 13.3 percent and 12.0 percent respectively. However, at the end of June 2018
broad money and reserve money growth stood at 9.24 percent and 4.04 percent against
10.88 percent and 16.28 percent increase in FY2016-17 respectively. On the other hand,
though lending rate and deposit rate both have slightly increased from June 2017 to June
2018, the intermediation spreads lid down to 4.45 percent at the end of June 2018 from
4.72 percent at the end of the previous fiscal year. Besides emphasizing on financial
inclusion a broad range of activities to bring a large number of financially excluded
people under the umbrella of conventional financial services have been undertaken by the
Government. Although, in case of Dhaka Stock Exchange, the price index slightly
decreased but market capitalisation slightly increased from June 2017 to June 2018. On
the other hand, both the price index and market capitalisation of Chattogram Stock
Exchange stirred in upward direction in FY2017-18. For ensuring stable and smooth
operation of the capital market and restoring the confidence of general investors several
restructuring activities were carried out during this period.
30
25
20
15
10
0
June'12 June'13 June'14 June'15 June'16 June'17 June'18
M1 Time Deposit M2
100%
Share (in percent )
80%
78.78 79.52 79.78 79.58 76.82 76.37 77.04
60%
40%
20% 9.92 9.29 9.24 9.25 9.86 10.09 10.27
11.30 11.19 10.98 11.17 13.32 13.54 12.70
0%
June'12 June'13 June'14 June'15 June'16 June'17 June'18
Particular June 2014 June 2015 June 2016 June 2017 June 2018
55
50
45
40
35
30
2007-08
2009-10
2005-06
2006-07
2008-09
2010-11
2011-12
2012-13
2013-14
2014-15
2016-17
2017-18
2015-16
9
Interest Rates (in %)
0
Jun-17
Aug-17
Nov-17
Jun-18
Oct-17
Jul-17
Sep-17
Dec-17
Feb-18
Apr-18
May-18
Jan-18
Mar-18
Interest Rate Spread Weighted Average Deposit Rate Weighted Average Lending Rate
Table 5.6 shows that as on June 2018, 57 housing NBFIs also invest in capital market
scheduled banks with 10,114 branches are which stood at Tk.1,855.54 crore at the end
performing their banking business in of June 2018. At the end of same period,
Bangladesh of which the numbers of urban total outstanding loan/lease by the NBFIs
and rural branches are 5,224 and 4,890 stood at Tk.64080.36 crore. To ensure
respectively. Around 66.85 percent of total transparency and control of risk of financial
assets and 66.14 percent of total deposits are institutions various measures (e.g.
being handled by PCBs. On the other hand, guidelines, circulars & circular letters etc)
SOCBs covers 26.16 percent of total assets have been taken at different times. Earlier
and 27.02 percent of total deposits. guidelines on products and services, base
rate system, early warning system for weak
Non-bank Financial Institutions (NBFIs)
and problem FIs, commercial paper etc. have
Non-Bank Financial Institutions (NBFIs) are
been introduced for better direction and
playing a significant role in providing
effective measures intending to prosperity of
funding in different sectors like industrial,
the sector. With a view to increase the
commercial, housing, transportation and IT
integrity, morality, efficiency and
sectors of the country. At present 34 licensed
responsibilities of banks and financial
non-bank financial institutions are working
institutions, to ensure transparency in their
in the country. These NBFIs have a wide
products and services delivery and to
network through 262 branches and they are
promote rationale behavior amongst banks,
operating in Dhaka city along with other
NBFIs and their stakeholders, a 'Code of
districts of the country. Total paid up capital
Conduct for Banks and Non-Bank Financial
and reserve of these financial institutions
Institutions', as part of formulation and
stood at Tk.10,928.42 crore as on 30 June
implementation of National Integrity
2018. Of which paid-up capital and total
Strategy (NIS) has been introduced. To
deposit are Tk.7973.36 crore and
ensure the protection of customer interest
Tk.48,010.52 crore respectively. Besides,
and to bring uniformity in the schedule of
investment in industry, commerce and
fee/charges/commission against the
Chapter 5-Monetary Management and Financial Market Development | 67
Bangladesh Economic Review 2018
loan/lease accounts by financial institutions, Bangladesh Bank has instructed all the
a decision has been taken during the same commercial banks operating in
period. Bangladesh to open Tk10 bank accounts
of the inhabitants of the 111 former
Financial Inclusion
enclaves, which have been included in
In recent times, financial inclusion seems to the map of Bangladesh. With the
be the most willful tool to ensure inclusive initiatives of Bangladesh Bank the
and sustainable economic development in the number of these account reached to 1.76
world. With a view to building a sustainable crore at the end of March 2018.
economic infrastructure of the country and
realising the importance of financial 2. With a view to facilitate the farmers for
inclusion, Bangladesh Bank has been keeping their Tk10 account effective by
engaged in the exploration and promotion of providing credit under minimum
innovative and successful policy initiatives conditions, Bangladesh Bank has created
to bring the financially excluded marginal a revolving refinance fund worth of
population under the umbrella of financial Tk.200 crore from its own source. Small,
inclusion. The major policy initiatives taken marginal, and landless farmers are the
by Bangladesh Bank to promote financial main target groups of this refinance
inclusion are as follows: scheme. About Tk.95.95 crore has been
disbursed under this scheme up to June
1. Bangladesh Bank has issued various
2018. Presently 40 commercial banks
circulars time to time to open bank
have signed participation agreement with
account (popularly known as TK 10 bank
Bangladesh Bank and providing loans
account) with a minimum deposit of
under this scheme.
Tk10 to include the under-privileged and
financially excluded population in the
3. Bangladesh Bank has relaxed the
formal banking services. Bangladesh
regulations for opening the Tk.10 special
Bank has also instructed all the banks to
accounts of the street and working
operate these accounts without any
children which was introduced in 2014 to
service charges or any minimum balance
make these children financially
requirements. People from various
independent, safeguard their hard earned
classes and professions such as farmers,
money and secure their future. Now if
hardcore poor, workers of city
the biological parents of these children
corporation, shoe and leather, and RMG,
are available, then the account can be
physically challenged persons,
operated by the joint signature of the
beneficiary under the social security
street children and their father/mother.
program and freedom fighters along with
The number of these accounts and the
other financially excluded groups are
balance of these accounts stood at 4,381
included in this category. In 2016,
relatively shorter maturity funds creating Banks and Non-bank Financial Institutions.
maturity mismatch both at banks and This Act was last amended in 2010. As per
investors book. Hence there is a demand the provision of chapter 5 (section 22-25) of
for long term financing for the the Artha Rin Adalat Ain, 2003, all scheduled
manufacturing sectors for maintaining banks have already been instructed to
growth through up-gradation of accelerate the loan recovery process through
technology and production lines and Alternative Dispute Resolution (ADR). In
improve compliance with the international addition, banks are being given necessary
standards on social and environmental instructions from time to time to dispose the
practices. This prime component of the suits more quickly through ADR process. A
project will provide long term funds, Guideline (Guidelines on External Audit of
especially in US Dollar, which would be Banks) has also been drafted jointly by
channeled by Bangladesh Bank to eligible Bangladesh Bank and Ministry of Finance
participating financial institutions (PFIs) based on Section 38, 39, 39 (ka), 39 (Kha) &
based on eligibility criteria for lending. 40 of the Bank Company Act 1991 (amended
The fund will be available, on demand, to up to 2013), Financial Reporting Act-2015
the manufacturing enterprises for and the core principle no-27 of Basel
procurement of capital machineries, Committee.
equipment and other needs of the industry
Reforms in State Owned Commercial
for setting up of new firm, expansion
Banks
and/or up-gradation. The project would
extend technical assistance to support The state-owned commercial banks (except
PFIs to build appraisal skills (including on BDBL) are being monitored under the MoU
assessing safeguards risks) and to funded in FY2017-18 similar to previous years.
borrowers. The PFI agreement has been Under the MoU signed with Sonali, Janata,
signed with 31 scheduled banks and Agrani, Rupali and Basic Bank Ltd along
US$228.90 million has been sanctioned with a view to improving the quality of loan
from which US$163.35 million has been management, ensuring the efficiency of
disbursed till June 2018. Besides, an liability-management, controlling the
Environmental Regulations Compliance operational expenses, improving the quality
Specialist and a Long Term Project of risk management and internal control
Financing Advisor have been recruited system, Bangladesh Bank has been
under this component. extensively monitoring the compliance of
Internal Control and Compliance (ICC)
Legal Reforms Policy which was developed and
implemented by the respective banks.
The Artha Rin Adalat Ain, 2003 has been
Bangladesh Bank has also been regularly
enforced for the purpose of quick disposal of
monitoring the implementation status of MoU
suits related to loan recovery of scheduled
against the certain targets fixed up therein. On
Chapter 5-Monetary Management and Financial Market Development | 71
Bangladesh Economic Review 2018
the other hand, monitoring of specialized deposit growth, ADR/IDR ratio has been
banks (Bangladesh Krishi Bank and Rajshahi revised.
Krishi Unnayan Bank) has also been carried
out under the MoU for FY2017-18. Bank's investment in commercial paper is
being monitored in quarterly basis.
Money and Financial Market Reforms
Development of Payment System
With a goal of developing existing banking
system of Bangladesh to international To establish a public interest oriented modern
standard through competitive management payment system in Bangladesh some
and stabilising and strengthening the initiatives such as - formalise the ‘Strategy
financial base of the overall banking system, Paper for Bangladesh Bank’ payment system,
a number of initiatives including establishment of ‘Bangladesh Automated
restructuring of money and financial market Clearing House (BACH)’ and manage its
have been taken by Bangladesh Bank in overall activities, approval of Mobile
FY2016-17. In continuation to that following Financial Services and appropriate oversight,
measures have been undertaken in FY2017- development of ‘National Payment Switch’
18: and to establish e-payment system, formalise
In order to strengthen the Asset-Liability the rules and regulatory infrastructure related
management of the banks and its liquidity to payment system, start Electronic Fund
position, two new statements namely Transfer (EFT) activities, accelerate
‘Wholesale Borrowing’ and remittance flow and implementing Real Time
‘Commitment Limit’ have been Gross Settlement System (RTGS) have been
introduced in light of Asset-Liability undertaken. Some mentionable improvements
Management Guidelines issued by are as follows:
Bangladesh Bank in March 2016.
To expand the usage of mobile technology as
Bank's exposure (in the form of loans and an Alternative Payment Channel in banking
advances, deposit or in any other form) sector, 29 banks have been permitted to carry
with financial institutions is under strict out mobile based financial services. Among
monitoring process. them 18 banks including a subsidiary
company have started providing Mobile
With a view to strengthening the financial Financial Services following the Guidelines
indicators of the banking industry such as issued by Bangladesh Bank. These banks are
capital base, Liquidity condition, continuing their activities of inward
interbank dependency, LCR & NSFR as remittance disbursement, transaction through
per Basel-III requirement and to ensure agent/bank branch/atm/mobile operator
harmonious advance growth in line with outlet, bill payment by individuals (such as
Utility bill payment), payment by commercial
institutions (for example: to pay wage of
Chapter 5-Monetary Management and Financial Market Development | 72
Bangladesh Economic Review 2018
information related to AML & CFT and IMF etc. to boost international efforts in
increase the cooperation between the this arena. Bangladesh actively
organisations. participated in various international
initiatives undertaken by these
For prevention of money laundering (ML) organizations and other foreign FIUs in
and combating terrorist financing (TF) FY2017-18. Furthermore, as the main
and proliferation financing (PF), the coordinating agency for prevention of
BFIU, as the central agency of the country ML, TF and PF, BFIU actively
has been maintaining continued participated in a number of local
engagement with all the international conference/meeting/workshops arranged
bodies such as APG, Egmont Group, by other government agencies.
FATF, BIMSTEC, UNODC, World Bank,
As a step towards implementation of Pillar II of Basel III, BB is working for implementation of Internal Capital
Adequacy Assessment Process (ICAAP) in the banks of Bangladesh. Banks evaluate their internal processes and
strategies to ensure adequate capital resources covering all material risks through ICAAP reports. BB reviews and
evaluates banks’ ICAAP and the strategies using information and observations found during Supervisory Review
Evaluation Process (SREP) inspection. If a bank fails to produce their own ICAAP backed by proper evidence and
rigorous review of their internal risk management process, BB applies prudence and provides directions regarding
compliances. Based on the findings of ICAAP reports and Supervisory Review Evaluation Process (SREP)
inspection based on December 2016; a series of bilateral meeting with the banks were held from February 2018 to
June 2018.
From the experience of recent meetings (held for 2016, 2015 and 2014) it has been observed that, additional
capital requirement against residual risk (mainly due to documentation error) is the highest among the pillar 2
risks. Apart from that, strategic risks and appraisal of core risks management practice are the other major
concerns for the banks.
December 2015.
An Order has been issued regarding The number of listed securities (including
negative equity in case of Margin Loan mutual funds and debenture) of Dhaka Stock
for Merchant Banks Exchange (DSE) has increased from 563 at
the end of FY2016-17 to 572 at the end of
A Notification has been issued regarding FY2017-18. At the end of June 2018, total
time extension in respect of provision for issued capital of all listed securities stood at
unrecovered loss; Tk.1,21,966.51crore, up by 4.65 percent from
Tk.1,16,551.08 crore at the end of previous
The Commission has introduced E- fiscal year.
tendering for tender advertisement
Total market capitalisation of all listed
securities was Tk.3,80,100.10 crore in June
The 20% quota for affected small
2017 which increased to Tk.3,84,734.78 crore
investors has been extended till June 30,
in June 2018 representing an increase of 1.22
2018 for IPO
percent.
BSEC has arranged ‘Investors & The DSE Broad Index (DSEx) decreased by
Entrepreneur Conference and Investment 4.43 percent from 5,656.05 points at the end
Education Fair’ in Rajshahi, Khulna, of FY2016-17 to 5,405.46 points at the end of
Sylhet and Barishal FY2017-18. DSE Broad Index (DSEx), which
was introduced on 28 January 2013 where the
a2i made presentation on e-filing system first day closing was 4,090.47 points which
to BSEC, trained its officials and created reached its highest points at 6,336.88 in 26
user ID in the systems for 84 users. November 2017.
Market Situation
Dhaka Stock Exchange (DSE) Ltd
450,000 6,000
400,000
5,500
350,000
M. Cap Tk in crore
300,000 5,000
250,000
4,500
Index
200,000
150,000 4,000
100,000
3,500
50,000
- 3,000
2002-03
2011-12
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
16,558.50 points at the end of June 2018 Table 5.8 and Figure 5.6 show the trend of
which was 15,580.37 at the same period. CSE market capitalisation, CSE general index
and securities turnover.