The banking sector in Bangladesh achieved a very steady and robust growth over the years ranging from its increase in terms of assets to number of branches and as well as in terms of amount of deposit and lending. Recently, some new banks have been given permission to start their operation for further growth of this sector and meet the increasing demand.
Bank Asset: Banking sector in Bangladesh went through a very rapid growth from various directions.
Figure 2.1: Bank assets (in billion taka)
Source: Bangladesh Bank Annual Report, various issues.
0 1000 2000 3000 4000 5000 6000 7000 8000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Bank asset
Total asset was 1280.31 billion taka in 2001. It then almost doubled and reached 2406.7 billion taka in 2007. In the next 5 years, it almost tripled and reached a mammoth 7030.7 billion taka.
On the basis of the traditional classification of banks (i.e. SCBs, DFIs, PCBs and FCBs), a shift in the percentage of assets can be observed between the SCBs and the PCBs while it remained much more stable for the FCBs. In 2002, the asset of the DFIs as a ratio of total assets was 11.47 while it was 6.8 for FCB. The highest ratio in 2002 was for the SCBs with 45.56 per cent. The PCBs had a share of 36.16 per cent.
Figure 2.2: Bank asset as a ratio of total asset (in per cent)
Source: Bangladesh Bank Annual Report, various issues.
Over the next ten years, PCBs achieved significant growth and their share of assets rose from 36.16 per cent to 62.18 in 2012. The share of the FCBs almost remained stagnant, marginally increasing from 6.28 to 6.80 per cent in this period. Both the SCBs and the DFIs experienced significant decline and reduced to almost half of their shares of 2002. The SCBs share fell to 26.06 from 45.56 while the share of DFIs reduced to 5.48 from 11.47 in these ten years.
0 10 20 30 40 50 60 70 SCB DFI PCB FCB 2012 2002
Number of Branches: The banking sector also achieved significant progress in establishing new branches all around the country. This is shown below.
Figure 2.3: Number of bank branches
Source: Bangladesh Bank Annual Report, various issues.
It can be seen that number of branches increased steadily, particularly from 2005. This not only helped in reaching more people who were not previously under the coverage of banking facilities but also increased competition among the banks in places where there were not enough branches previously. The number of bank branches was 6271 in 2001. It then increased to 6562 in 2007. In the next 5 years it increased and reached 8322.
Deposit: The amount of deposit also went through sharp increase in the last few years. In 2001, the amount of bank deposit was 956.28 billion taka. By 2007, it increased and almost doubled to reach 1860.6 billion taka. In the next 5 years, it almost tripled to 5396.0 billion taka. It can be noticed that the rate of change in the deposit was quite similar to the rate of change in assets. Following the traditional classification, it could be observed that there was a shift towards private banks in terms of deposits. In 2002, the deposit as a ratio of the total deposit for the SCBs was 50.32 per cent in 2002 but fell to 25.50 by the year 2012. The deposit of the DFIs as a ratio of total deposits gradually decreased in this period from 5.82 to 4.80. For the FCBs, it was 7.02 in 2002 and became 6.10 in 2012. On the
0 1000 2000 3000 4000 5000 6000 7000 8000 9000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Number of bank branches
contrary, the PCBs experienced significant growth rising from a share of 36.84 in 2002 to 63.60 per cent in 2012.
Figure 2.4: Bank deposit as a ratio of total deposit (in per cent)
Source: Bangladesh Bank Annual Report, various issues.
Lending: Lending by banks, which was a key for increased investment, and thereby growth, not only increased at gross level but it also rose as a ratio of gross domestic product (GDP). This was estimated as domestic credit provided by financial sector (% of GDP).
Figure 2.5: Bank lending as a ratio of GDP
Source: Bangladesh Bank Annual Report, various issues.
0 10 20 30 40 50 60 70 SCBs DFIs PCBs FCBs 2002 2012 0 10 20 30 40 50 60 70 80 1997 2002 2007 2012 Lending-GDP ratio
This ratio was 29.94 per cent in 1997. In the next five years, it increased dramatically to 50.44 per cent. The growth slowed down a bit but continued and by the year 2007, it reached 58.21 per cent. This growth picked up again in 2012 and became 68.98 per cent.
Recent Approvals for New Banks: There was a recent surge of approvals for banks in Bangladesh. From 2012 onwards, 10 new banks were given approval. This made the total number of banks reaching 57. The main aim of these new approvals was aimed at strengthening the financial inclusion of the unbanked people in the country. The previous time before this when bank licenses was approved happened in 2000-01. Hence, expansion in this sector was needed to address the current increased demand, particularly in the face of the continuous economic growth that Bangladesh achieved over the years as well as fulfilling the future banking requirements.
These new approvals were also required since population per branch was 21065 and the ratio of loan accounts per 1000 adults was only 42 (as of 2012). The situation was better in the neighbouring countries of India (with a population of 14485 per branch and 124 loan accounts per 1000 adults) and Pakistan (20340 and 47 respectively). Furthermore, a recent survey by the Institute of Microfinance (InM) observed that only 45 per cent of the surveyed people (based on nearly 9000 households) had access to banks and micro-finance institutions (MFIs) for loans8.
The newly established banks consisted of one specialised bank and nine commercial banks, of which six were PCBs and the remaining three were NRB banks. A brief description about these new banks, established from 2012 onwards, is given below. However, they were not included in this study due to their data unavailability for this study period.
Remittance was a major source of foreign exchange earnings and need special attention. To address this, the Probashi Kallyan Bank, was
8 The central bank also took other measures to bring unbanked people under banking
facilities. One of these initiatives was to provide banking account facility with a very nominal amount of deposit.
established to facilitate the financial transactions of the migrants. This specialised bank is particularly related to remittance transfer, migration and investment opportunities.
The newly established six PCBs were Union Bank Limited, Modhumoti Bank Limited, Farmers Bank Limited, Meghna Bank Limited, Midland Bank Limited and South Bangla Agriculture and Commerce Bank Limited while the three new NRBs are NRB Commercial Bank Limited, NRB Bank Limited and NRB Global Bank Limited.
It was made mandatory that these new banks would have to deposit 4 billion taka to the central bank of their paid-up capital before starting their operation. Moreover, they need to maintain the 1:1 ratio when opening branches in rural and urban areas. This was mainly to reach the unbanked people who were mostly located in rural areas.
The NRBs will also need to deposit 4 billion taka to the central bank of paid-up capital. Of these, 50 per cent will be from their sponsors while the rest will be from the public offerings. Moreover, each shareholder must hold at least shares worth 100 million taka while the maximum stake of bank’s total paid-up capital for a shareholder can be 10 per cent.