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Socially-responsible banking: insights from Bangladesh. Atiur Rahman, Ph. D. Governor Bangladesh Bank October 2013. Structure. Key development outcomes in Bangladesh Core goals of Bangladesh Bank and outcomes The rationale for, and promotion of, socially responsible banking in Bangladesh - PowerPoint PPT Presentation
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Socially-responsible banking: insights from Bangladesh
Atiur Rahman, Ph. D.Governor
Bangladesh BankOctober 2013
Structure
• Key development outcomes in Bangladesh• Core goals of Bangladesh Bank and outcomes • The rationale for, and promotion of, socially
responsible banking in Bangladesh • Concluding thoughts
FY19
99
FY20
00
FY20
01
FY20
02
FY20
03
FY20
04
FY20
05
FY20
06
FY20
07
FY20
08
FY20
09
FY20
10
FY20
11
FY20
12
FY20
13 (p
)
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
4.9%
5.9%
5.3%
4.4%
5.3%
6.3%
6.0%
6.6%
6.4%
6.2%
5.7% 6.
1%
6.7%
6.2%
6.0%
Real GDP growth y-o-y
Steady economic growth leading to higher per capita incomes
Note: (p) indicates provisional dataSource: Bangladesh Bank
GNI/capita of around $900 using 1995/96 base and with newer 2005/06 base GNI/capita is now $1044
FY19
99
FY20
00
FY20
01
FY20
02
FY20
03
FY20
04
FY20
05
FY20
06
FY20
07
FY20
08
FY20
09
FY20
10
FY20
11
FY20
12
FY20
13 (p
)
0
100
200
300
400
500
600
700
800
900
1,000
369
377
374
378 41
1 440 46
3
476 52
3
608
676
751
816 84
0
923
GNI Per Capita (US$)
Robust Growth Contributing to Significant Poverty Reduction
4Source: HIES 2005, 2010
Large reductions in poverty witnessed in the past decades…
Percentage of Population Below Upper Poverty Line
… more still needs to be done, especially for the extreme poor
Percentage of Population Below Lower Poverty Line
Population in poverty fell from 61.6 million in 2000 to 44.8 million in 2010 Inequality measure has stayed constant (consumption Gini 0.33) over ten years
promoting social cohesion
Steady Improvement in Social Outcomes due to long-standing Government – NGO partnerships
1991 2010/ Latest
Fertility rate, total (births per woman) 6.72 2.25
Mortality rate, infant (per 1,000 live births) 96 38
Life expectancy at birth, total (years) 59.99 68.63
Malnutrition prevalence, height for age (% of children under 5) 76.70 43.20
Literacy rate, adult total (% of people ages 15 and above) 35.32 55.90
The objectives of Bangladesh Bank• Inflation management through monetary policy
• Promote financial sector stability and depth
• Ensure adequate foreign exchange reserves and avoid excessive exchange rate volatility
• Contribute to economic growth through appropriate mix of macro-prudential policies
• Contribute to pro-poor and sustainable growth through socially-responsible policies
Responding to Growth and Inflation Risks Using Monetary Policy
Monetary easing in late 2009 due to concerns over impact of global financial crisis Policy tightening began in late 2010 as inflation began to rise – rate rises gradual and then constant for
1 year Daily open market operations, monthly Monetary Policy Committee and twice-yearly consultations
leading to Monetary Policy Statements
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q42006 2007 2008 2009 2010 2011 2012
0.0
2.0
4.0
6.0
8.0
10.0
-5.0
3.0
11.0
19.0
27.0
35.0
8.00
8.25
8.25
8.25
9.00
9.25
9.25
8.50
8.50
8.50
8.75
8.75
8.50
8.50
8.50
4.50
4.50
4.50
5.50
5.50
6.00
6.75
7.25
7.25
7.75
7.75
7.75
7.75
Policy Rate: Repo Rate (%) Reserve Money Growth [% y/y, RHS]
Source: Bangladesh Bank
Repo Rate (%) (LHS) and Reserve Money and Private Sector Credit Growth (y-o-y, %) (RHS)
Monetary stance has contributed to lowering inflation
• Monetary policy tightening started early 2011 with one year lag impact on inflation• Average inflation target of 7.5% for FY13 likely to be met though recent uptick in
food inflation needs to be monitored• Overall core objective of restraining inflation being met
Jan-
11Fe
b-11
Mar
-11
Apr-
11M
ay-1
1Ju
n-11
Jul-1
1Au
g-11
Sep-
11O
ct-1
1No
v-11
Dec-
11Ja
n-12
Feb-
12M
ar-1
2Ap
r-12
May
-12
Jun-
12Ju
l-12
Aug-
12Se
p-12
Oct
-12
Nov-
12De
c-12
Jan-
13Fe
b-13
Mar
-13
7.00
8.00
9.00
10.00
11.00
12.00
8.00
7.74
a) Inflation (average vs. point to point)
12-Month Average
Point to point
Perc
ent
Jan-
11Fe
b-11
Mar
-11
Apr-
11M
ay-1
1Ju
n-11
Jul-1
1Au
g-11
Sep-
11O
ct-1
1No
v-11
Dec-
11Ja
n-12
Feb-
12M
ar-1
2Ap
r-12
May
-12
Jun-
12Ju
l-12
Aug-
12Se
p-12
Oct
-12
Nov-
12De
c-12
Jan-
13Fe
b-13
Mar
-13
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
7.74
8.30
6.79
b) Inflation (point to point)
General FoodNon-Food
Perc
ent
Stronger External Balances Underpins Macro Stability
Source: Bangladesh Bank
• The external balance in FY13 reflects mainly the increasing inflows of remittances, sustained export expansion and declining imports
• Improved external balances are reflected in the accumulation of international reserves to over $15 billion at the end of FY13, sufficient to cover 4.9 months of projected imports.
• The Taka appreciated by 2.6% between January 1st-June 30th 2013• Overall BB’s objective of maintaining external sector stability is being attained
Items FY11 FY12 FY13
Export (% change) 41.5 6.0 11.2
Import Shipment (% change- c&f) 52.1 2.5 0.8L/Cs Opened (% change) 34.0 -4.0 -2.84
Remittances (% change) 6.0 10.2 12.6 FDI (in million USD) 775 1191 1300 Overall Balance (in million USD) -656 494 5128 Forex Reserve (in million USD, end of period) 10912 10364 15315 Exchange Rate (Tk./USD, end of period) 74.2 81.8 77.8
Financial Sector Stable, but Recent Trends Present New Challenges
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Dec. 2012
02468
101214
7.5 8.4 8.7
5.6 6.7
9.6 10.111.6
9.311.4 10.5
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Dec. 2012
05
1015202530 28.0
22.117.6
13.6 13.2 13.2 10.8 9.2 7.3 6.110.0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Dec. 2012
05
10152025
11.6 9.813.0 12.4 14.1 13.8 15.6
21.7 21.017.0
8.2
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Dec. 2012
0
0.5
1
1.5
2
0.5 0.50.7 0.6
0.8 0.91.2
1.41.8
1.5
0.6
Unusual increase in NPLs (and relative decrease in ROA & ROE) in 2012 was largely due to the implementation of new loan classification policy from 2012 and a fraud in a branch of a state-owned bank
All Banks, Capital to RWA Ratio (%) All Banks, Gross NPL Ratio (%)
New loan classification / provisioning rules have affected profitability
All Banks, Return on Assets (%) All Banks, Return on Equity (%)
*This has been calculated in line with Basel II guidelines where credit risk has been calculated more conservative with two new risk factors – (Market Risk and Operational Risk) added to the calculation of CRWA. Therefore CRWA show decrease in 2012 despite no overall fall in asset quality or capitalSource: Bangladesh Bank
Measures to Address these Financial Sector Challenges
Revised Bank Companies Act provides BB with greater powers over state-owned commercial banks
New loan classification/provisioning guidelines introduced in FY13 in line with international best practices will improve financial sector transparency
Stepped up inspections by BB have led to increased classification and declining trend in off-balance sheet items
Efforts to strengthen bank supervision include staff capacity building and new e-dashboard which provides real-time information on bank transactions to BB
Quarterly performance plans (“MOUs”) sets differentiated credit ceilings for the various SOBs and Basic Bank depending on their performance
Bangladesh Bank’s anonymous consumer surveys now double-check accuracy of reported data by banks
Overall BB’s objective of maintaining financial sector stability being met
SOCIALLY RESPONSIBLE FINANCING
Context / rationale behind socially responsible financing
• Recent global financial crisis showed the consequences of excessive risk-taking and greed
• Stronger regulation is one solution (Basle 3 etc)• However underlying ethics, objectives and
motivations of financial institutions also need to change to incorporate social returns
• Socially inclusive financing key steps related to promoting access to savings/credit/payment systems to disadvantaged groups along with emphasis on ‘green banking’ and CSR
Policy step 1: Rural-urban branch permission policy recently amended to redress existing imbalances
Afghanistan
Bangladesh
India
Pakistan
SA
Developing
0 2 4 6 8 10 12
0.48
6.48
6.41
6.39
6.40
11.11
1.10
2.43
7.46
4.05
3.24
2.63
Number of branches per 100,000 adults (commercial banks)
Rural Branches/ Rural Population Urban Branches/ Urban Population
Policy step 2 – promoting access to savings
“Ten-taka” accounts No fees, no minimum balance with initial deposits of only Taka 10 13.1 million (of which 9.6 million are farmers) accounts opened up to March
2013 Some subsidy payments are made via these accounts School banking also being promoted with 2.2 million accounts
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120.0
10.0
20.0
30.0
40.0
50.0
60.0
0.00
4.00
8.00
12.00
16.00
20.00
24.00
28.00
28.4 30.1 30.9 31.3 31.6 33.1 34.5 35.7 37.6 39.0
48.755.2
58.8
Number of deposit accounts and its growth (y-o-y)
Number of bank deposit A/Cs (millions) Growth
PercentMill
ion
Overall impressive bank account access with low gender and income gaps relative to other South Asian countries
16
World East Asia and Pacific
South Asia Bangladesh India Pakistan Sri Lanka0%
20%
40%
60%
80%
50%55%
33%
40%35%
10%
69%
47%52%
25%
35%
26%
3%
67%
41% 39%
26%
35%
27%
4%
58%
Account at a formal financial institution (% age 15+) Account at a formal financial institution, female (% age 15+) Account at a formal financial institution, income, bottom 40% (% age 15+)
Source: Global Financial Inclusion (Global Findex) Database, World Bank, April 2012
Accounts at a Formal Financial Institution (% age 15+)
RESTRICTED
Policy step 3: Promotion of faster money transfer via mobile phone banking
- BB specified this would be a bank-led model in its regulatory guidelines- Spectacular growth over past year with around 7 million accounts now
from only around 1 million a year ago- Many well known benefits (timely transfers, security etc)- Risks relate to financial integrity (lower KYC requirements) and consumer
protection issues – but no risk to financial stability- Over time as customers gain confidence in system these will become more
like virtual bank accounts with savings build-up- BB is trying to promote greater number of providers to ensure
competition in the industry
Policy step 4 – Provision of credit to sharecropper farmers
• BB set up Taka 5.00 billion (US$70 million) refinancing line for loans to landless sharecroppers via BRAC (NGO)
• Loan provided without collateral, at a subsidized rate and jointly with extension services to households who previously had little access to formal credit
• Impact assessment shows positive impact of program on technology adoption and farm productivity
• Program is in line with promoting pro-poor growth by allocating credit to productive purposes and does not adversely affect other central bank core functions or financial sector stability
Policy step 5 – promotion of agriculture and SME lending
• Agricultural credit targets for commercial banks (2.5% of outstanding with penalties for non-fulfillment)
• SME lending growth also being actively promoted by BB with concessional refinance lines of credit available and some concessions for classification/provisioning
• Special emphasis on women entrepreneurs• Medium scale industries gained most with their share
growing from 23% to 30% FY09-12 while small scale industry share went up from 4% to 7% (overall SME increased from 27% to 37%)
• Gradually banks are realizing that these market segments are also profitable and over time will not require mandates/targets from BB
Financial stability and inclusion links
• Overall development outcomes, financial stability and inclusion have all improved steadily over time
• Financial inclusion can contribute to financial stability by strengthening the depositor base, reducing credit concentration etc
• While micro-credit access is large, both deposits and loans are small relative to overall financial sector minimizing any systemic risks to overall financial stability
• Supply-side contribution of financial inclusion can also promote financial stability
Green Banking - policy adoption phases
Phase-ITimeline: December 31, 2011
Introducing Green finance
Creation ofClimate Risk Fund
Introducing Green Marketing
Supporting Employee Training,
Consumer Awareness & Green Event
Reporting Green Banking
Practices
Online Banking
Policy Formulation & Governance
Incorporation of Environmental Risk
in CRM
Initiating In-house Environment Management
21
Phases of policy adoption..(Cont’d)
Phase-IITimeline: December 31, 2012
Improved In-house Environment Management
Formulation of Bank Specific Environmental
Risk Management Plan &Guidelines
Disclosure & Reporting of
Green Banking Activities
Rigorous Programs to Educate Clients
Sector Specific Environmental Policies
Green Strategic Planning
Setting up Green Branches
22
Incentives for banks to engage in ‘green banking’
o Improved CAMELS rating.o BB publishes the names of the top 10 banks
regarding their overall performance in green banking activities.
o BB considers green banking activities of banks while giving permission for opening new branch.
o BB gives permission for SME branch subject to installation of solar panel in place.
o Separate treatment in existing guidelines of RBCA for Environmental Risks in computation of Adequate Capital by BB.
23
‘Green financing’ sectoral distribution
24
Effluent Treatment
Plants
Biogas Plants HHK Solar Panel Bio Fertilizer Plant
0
500
1000
1500
2000
2500
3000
3500
4000
4500
Green Financing by Banks(Taka in million)
Corporate social responsibility in banking sector
• CSR is actively promoted by BB and CSR guidelines indicate the type of activities banks can classify as CSR (eg elite club contributions are not CSR!)
• Annual CSR report launched in front of all bank MDs and media ranks banks according to CSR contributions – this creates healthy competition
• As a result our annual tracking shows that CSR has increased four-fold during the 2009-2012 period
Concluding thoughts
• Bangladesh is now in a position to accelerate progress towards socially responsible financing due to new technology and learning from successful models / policies
• Socially responsible financing objectives and initiatives can co-exist with other core Central Bank goals if designed appropriately
• Socially responsible financing needs a catalytic Central Bank role but over time they ought to be ingrained in the business culture of the banks themselves
• In order for Central Banks socially responsible financing objectives to succeed in the long run we need to be aware that potential trade-offs and concerns exist so that solutions are derived which take these into account
• Post 2015 SDGs is likely to include socially responsible financial goals
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