An overview of Bangladesh Bank

Bangladesh Bank (BB) was established as a central bank to accelerate the growth of the Bangladeshi
economy as well as to take the better monetary policy and to lead other banks. It is a fully government
owned bank.

The name of the central bank of Bangladesh is Bangladesh bank. Immediate after independence, in
1972, the former state bank of Pakistan which was in Bangladesh, turned into Bangladesh bank with all
assets and liabilities.

Management
A governing body under the finance ministry is the administrator of this bank. This governing body has 9
members. Governor is the chairman of this governing body, and he is elected for four years. The first
governor of BB was A. N Hamidullah and the current governor is Mr. Abdur Rouf Talukder.

Organogram
Functions of Bangladesh bank
1. Currency circulation: the principal job of Bangladesh Bank is to circulate different values of
currencies. In Bangladesh, only BB has rights over currency circulation. BB has 8 official banknotes,
those are- 5 taka, 10 taka, 20 taka, 50 taka, 100 taka, 200 taka, 500 taka & 1000 taka banknote. This
monopoly power of issuing notes by the Central Bank is important to maintain confidence in the
value of the legal currency of the country. It is also important to promote acceptability of the
currency among the members of the public.

2. Banker to the Banks: A fundamental and universally acknowledged duty of the Bangladesh Bank is to
serve as the banker’s bank. As the banker of the banks, Bangladesh Bank performs a set of functions
such as acting as lender of last resort, regulating, and supervising the financial institutions, ensuring
clearance, settlement, and transfer, ensuring quality of loan portfolio, at the same time protecting
the customers. A very important role of the Central Bank as a banker to the banks in a developing
economy like Bangladesh is to encourage the growth of sound institutions and check the
appearance of the weaklings, because in the financial sector a weak institution can weaken the
other and better institutions.

3. Pursue Monetary Policy: Pursuing Monetary Policy is one of the key functions of the Bangladesh
Bank. Usually, Monetary Policy is implemented with some basic policy targets like price stability and
economic growth rates. Bangladesh Bank employs a judicious mix of instruments to achieve these
targets.

4. Banker to the Government: Bangladesh Bank acts as the banker to the Government. As part of this
role, it makes advances to the Government and maintains the cash balances of the Government. The
Bank receives and makes payments for the Government. It also renders financial and economic
advice to the Government.

5. Special functions
 Agricultural development: For the development of agriculture in Bangladesh, BB provides
loans to farmers and related institutions with the help of agricultural banks or with the wing
of agriculture of other banks.
 Industrial development: BB provides loans to improve the industrial condition of our country
with the help of an industrial bank or with the wing of the industry of other banks.
 Cooperative loans: this bank provides loans to farmers, small businessmen, and other
peoples with different occupations by cooperative associations and cooperative banks.
 Other functions: In addition to the above Bangladesh bank helps to get financial services on
the development of forests, discover and extract minerals, develop on Chattogram hill tract;
jute, leather, and tea exports.
Core Policies of Central Bank
Monetary policy

The main objectives of monetary policy of Bangladesh Bank are:

 Price stability both internal & external

 Sustainable growth & development
 High employment
 Economic and efficient use of resources
 Stability of financial & payment system

Bangladesh Bank declares the monetary policy by issuing Monetary Policy Statement (MPS) twice
(January and July) in a year. To keep the monetary growth in line with the desired path monetary
policy instruments presently being used by Bangladesh Bank are

 open market operation through Treasury Bills & Bonds,

 Repo, reverse Repo; BB bills (7-day, 14-day and 30-day)
 variation in reserve ratios
 discount /bank rate
 moral suasion.

Apart from this, Government backed Islamic Investment Bonds (GIIBs) are also traded for shariah
compliant Islamic banks. Through open market operation BB targets available liquidity flow in the
market, routinely mop-up excess liquidity and inject it as necessary. Auctions of repo and reverse
repo and BB bills are generally held on daily basis. Variation in reserve ratios (i.e. CRR and SLR),
which are primarily used to influence the quantity of credit available in the banking system, are used
infrequently.

Reserve Management Strategy

Bangladesh Bank maintains the foreign exchange reserve of the country in different currencies to
minimize the risk emerging from widespread fluctuation in exchange rate of major currencies and
very irregular movement in interest rates in the global money market. BB has established Nostro
account arrangements with different Central Banks. Funds accumulated in these accounts are
invested in Treasury bills, repos, and other government papers in the respective currencies. It also
makes investment in the form of short-term deposits with different high rated and reputed
commercial banks and purchase of high rated sovereign/supranational/corporate bonds. A separate
department of BB performs the operational functions regarding investment which is guided by
investment policy set by the BB's Investment Committee headed by a Deputy Governor. The
underlying principle of the investment policy is to ensure the optimum return on investment with
minimum market risk.

Interest Rate Policy

The Bangladesh Bank has withdrawn the minimum deposit rate for banks and allowed lending rate
on consumers’ credit up to 12 per cent in its monetary policy announced for the second half of
financial year 2022-23. Earlier, the minimum deposit rate was the average of three months’ inflation
rate. Consumer credit refers to personal loan, and loan on car, real estate, education, etc. In April
2020, the central bank imposed the lending rate cap at 9 per cent. It also levied the minimum
deposit rate in August 2021.

Capital Adequacy for Banks and FIs

Basel-III has been introduced with a view to strengthening the capital base of banks with the goal of
promoting a more resilient banking sector. The Basel III regulation will be adopted in a phased
manner starting from the January 2015, with full implementation of capital ratios from the
beginning of 2019. Now, scheduled banks in Bangladesh are required to maintain minimum capital
of Taka 4 billion or Capital to Risk Weighted Assets Ratio (CRAR) 10%, whichever is higher. In
addition to minimum CRAR, Capital Conservation Buffer (CCB) of 2.5% of the total RWA is being
introduced which will be maintained in the form of CET1. Besides the minimum requirement all
banks have a process for assessing overall capital adequacy in relation to their risk profile and a
strategy for maintaining capital at an adequate level.

For FIs, full implementation of Basel-II has been started in January 01, 2012 (Prudential Guidelines
on Capital Adequacy and Market Discipline (CAMD) for Financial Institutions). Now, FIs in
Bangladesh are required to maintain Tk. 1 billion or 10% of Total Risk Weighted Assets as capital,
whichever is higher.

Deposit Insurance

The deposit insurance scheme (DIS) was introduced in Bangladesh in August 1984 to act as a safety
net for the depositors. All the scheduled banks in Bangladesh are the member of this scheme Bank
Deposit Insurance Act 2000. The purpose of DIS is to help to increase market discipline, reduce
moral hazard in the financial sector and provide safety nets at the minimum cost to the public in the
event of bank failure. A Deposit Insurance Trust Fund (DITF) has also been created for providing
limited protection (not exceeding Taka 0.01 million) to a small depositor in case of winding up of any
bank. The Board of Directors of BB is the Trustee Board for the DITF. BB has adopted a system of
risk-based deposit insurance premium rates applicable for all scheduled banks effective from
January - June 2007. According to new instruction regarding premium rates, problem banks are
required to pay higher rates as follows

Insurance Authority

Insurance Development and Regulatory Authority (IDRA) was instituted on January 26, 2011 as the
regulator of insurance industry being empowered by Insurance Development and Regulatory Act,
2010 by replacing its predecessor, Chief Controller of Insurance. This institution is operated under
Ministry of Finance and a 4-member executive body headed by Chairman is responsible for its
general supervision and direction of business.
IDRA has been established to make the insurance industry as the premier financial service provider
in the country by structuring on an efficient corporate environment, by securing embryonic
aspiration of society and by penetrating deep into all segments for high economic growth. The
mission of IDRA is to protect the interest of the policy holders and other stakeholders under
insurance policy, supervise and regulate the insurance industry effectively, ensure orderly and
systematic growth of the insurance industry and for matters connected therewith or incidental
thereto.

Regulator of Capital Market Intermediaries

Securities and Exchange Commission (SEC) performs the functions to regulate the capital market
intermediaries and issuance of capital and financial instruments by public limited companies. It was
established on June 8, 1993, under the Securities and Exchange Commission Act, 1993. A 5-member
commission headed by a chairman has the overall responsibility to administer securities legislation
and the Commission is attached to the Ministry of Finance.

The mission of SEC is to protect the interests of securities investors, to develop and maintain fair,
transparent, and efficient securities markets and to ensure proper issuance of securities and
compliance with securities laws. The main functions of SEC are:

 Regulating the business of the Stock Exchanges or any other securities market.
 Registering and regulating the business of stockbrokers, sub-brokers, share transfer agents,
merchant bankers and managers of issues, trustee of trust deeds, registrar of an issue,
underwriters, portfolio managers, investment advisers and other intermediaries in the
securities market.
 Registering, monitoring, and regulating of collective investment scheme including all forms
of mutual funds.
 Monitoring and regulating all authorized self-regulatory organizations in the securities
market.
 Prohibiting fraudulent and unfair trade practices in any securities market.
 Promoting investors’ education and providing training for intermediaries of the securities
market.
 Prohibiting insider trading in securities.
 Regulating the substantial acquisition of shares and take-over of companies.
 Undertaking investigation and inspection, inquiries and audit of any issuer or dealer of
securities, the Stock Exchanges and intermediaries and any self-regulatory organization in
the securities market.
 Conducting research and publishing information.
Regulator of Micro Finance Institutions

To bring Non-government Microfinance Institutions (NGO-MFIs) under a regulatory framework, the

Government of Bangladesh enacted "Microcredit Regulatory Authority Act, 2006’" (Act no. 32 of
2006) which came into effect from August 27, 2006. Under this Act, the Government established
Microcredit Regulatory Authority (MRA) with a view to ensuring transparency and accountability of
microcredit activities of the NGO-MFIs in the country. The Authority is empowered and responsible
to implement the said act and to bring the microcredit sector of the country under a full-fledged
regulatory framework.

MRA’s mission is to ensure transparency and accountability of microfinance operations of NGO-MFIs

as well as foster sustainable growth of this sector. To achieve its mission, MRA has set itself the task
to attain the following goals:

 To formulate as well as implement the policies to ensure good governance and transparent
financial systems of MFIs.
 To conduct in-depth research on critical microfinance issues and provide policy inputs to the
government consistent with the national strategy for poverty eradication.
 To provide training of NGO-MFIs and linking them with the broader financial market to
facilitate sustainable resources and efficient management.
 To assist the government to build up an inclusive financial market for economic
development of the country.
 To identify the priorities in the microfinance sector for policy guidance and dissemination of
information to attain the MRA’s social responsibility.

According to the Act, the MRA will be responsible for the three primary functions that will need to
be carried out, namely:

 Licensing of MFIs with explicit legal powers.

 Supervision of MFIs to ensure that they continue to comply with the licensing requirements;
and
 Enforcement of sanctions in the event of any MFI failing to meet the licensing and ongoing
supervisory requirements.

Regulator of Mobile Financial Services

With a view to providing an orderly, enabling, and competitive environment for optimal utilization
of the new windows of opportunity for extension of the traditional financial services, Bangladesh
Bank has issued Bangladesh Mobile Financial Services (MFS) Regulations, 2022. The purposes of
these Regulations are to:

 Provide regulatory framework to create an enabling and competitive environment to cater

cost efficient and prompt MFS.
 Promote convenient access to formal financial services at an affordable cost especially for
the poor and unbanked population segments.
  Ensure compliance with Anti Money Laundering and Combating Financing of Terrorism
(AML/CFT) standards set by AML/CFT rules, regulations, guidelines, and instructions issued
by Bangladesh Financial Intelligence Unit (BFIU).

Source:

1. https://oikosmist.com/bangladesh-bank/
2. http://rulrepository.ru.ac.bd/bitstream/handle/123456789/684/D3695.pdf?sequence=1&isAllow
ed=y
3. https://www.newagebd.net/article/191747/bangladesh-bank-lifts-minimum-deposit-rate-hikes-
lending-rate-up-to-12pc
4. https://www.bb.org.bd/en/index.php/financialactivity/regulator
5. https://www.bb.org.bd/mediaroom/circulars/psd/feb152022psd04e.pdf