BANK-REVIE 2012 Wssadmin.bibm.org.bd/notice/01-07-19/2. Bank Review 2012.pdf · a good number of executives working in the Bangladesh Bank and in the member banks of BIBM. ... Size

Bangladesh Institute of Bank ManagementS e c t i o n N o. - 2, M i r p u r, D h a k a -1216

B W2012ANK-REVIE

BANK-REVIEW 2012

Advisor & Editor

Dr. Toufic Ahmad Choudhury

Report PreparationTeam

Team LeaderDr. Shah Md. Ahsan Habib

MembersMd. Mohiuddin Siddique

Md. Nehal AhmedAtul Chandra Pandit

Editorial AssociatesDr. Bandana Saha

Abed Ali

Bangladesh Institute of Bank ManagementPlot # 4, Main Road # 1(South), Section # 2, Mirpur, Dhaka-1216

PABX: 9003031-5, 9003051-2, Fax: 88-02-9006756Email: [email protected], Web: www.bibm.org.bd

FOREWORDS

III

Preparation of 'Bank-Review 2012' is a collective endeavour of the team members that drews on

support of the faculty colleagues and other staffs of BIBM. This is the second annual issue of the

publication. This time 'the year' with the title of the publication is adjusted. The first issue of the

publication is titled as 'Bank Review 2010’, however this is named as 'Bank Review 2012' considering

the fact that the published data for 2011 can only be made available in mid-2012. In the process of

preparing this report, BIBM library, administration and publication wing have played a proactive role.

The preparation team received immense help and cooperation at the data collection stage from

a good number of executives working in the Bangladesh Bank and in the member banks of BIBM.

In this context, we would like to register our deep appreciation for the support received from the

officials of DOS, BRPD, SME and Statistics Departments of Bangladesh Bank. We are especially grateful

to Mr. Shahriar Siddiqui, Deputy Director, DOS, BB for his continuous support at the stage of data

gathering. We are also grateful to all the officials of relevant desks of commercial banks for their

cooperation. The preparation team is obliged to the faculty members for their suggestions and

support. Finally, we are indebted to the Advisor and Editor of the publication Dr. Toufic Ahmad Choudhury

for his continuous mentoring.

Dr. Shah Md. Ahsan Habib

Md. Mohiuddin Siddique

Md. Nehal Ahmed

Atul Chandra Pandit

V

MESSAGE FROM THE DIRECTOR GENERAL

Bangladesh Institute of Bank Management (BIBM) presents its second issue of the bank review titled

'Bank-Review 2012' - a publication started from the year 2011 that basically seeks to present a unique

way of assessing the strengths and weaknesses of the banking sector institutions of Bangladesh.

The study covers mainly the data of the banks for the calender year 2011.

In the Banking market of Bangladesh, the banks and financial institutions are operating in an intense

competitive environment where they need to locate their market niche so that they can craft and put

into use appropriate financial and marketing strategy. We hope the banks and financial institutions

would be benefited by the analysis contained in the Bank-Review. We, at the BIBM, envision the

Review to be our flagship publication and would welcome comments and suggestions from potential

users to improve upon our presentation.

(Dr. Toufic Ahmad Choudhury)

Director General

VII

CONTENTSAbbreviation IXChapter One: Background & Methodology 1 Background of the Report 3Methodology of the Report 5Limitations of the Report 11Organization of the Report 11

Chapter Two: Governance, Activities and Operations of Banks 13

Chapter Three: Health Report of the Banking Sector of Bangladesh 25 Performance Evaluation Criteria 27Strength and Soundness 28Size and Growth (S&G) 35Profitability and Efficiency (P&E) 48Asset Quality 54Inclusive and Online Banking 59

Chapter Four: Observations and Concluding Remarks 67Observations and Concluding Remarks 69Appendix One: A Short Review of the Specialized Banks of Bangladesh 74

List of TablesTable-1.1.1: Change in Capital Adequacy Ratio in between CY 2010 and CY 2011 30Table-1.1.2: Status of Top Performers in Terms of Capital Adequacy Ratio 30Table-1.2.1: NPL Net of Provision to Total Equity Ratio of Banks [Average] 31Table-1.2.2: Status of Top Performers in Terms of NPL to Equity Ratio 31Table-1.3.1: Liquid Assets to Short Term Liabilities of Banks [Average] 32Table-1.3.2: Status of Top Performers in Terms of Liquid Asset to Short Term Liability 32Table-1.4.1: Borrowing liability to Total Liability of Banks [Average] 33Table-1.4.2: Status of Top Performers in Terms of Liquid Asset to Short Term Liability 33Table-1.5.1: Advance Deposit (AD) Ratio of Banks [Average] 34Table-1.5.2: Status of Top Performers in Terms of Advance Deposit Ratio 34Table-2.1.1: Number of Deposit Account of Banks 36Table-2.1.2: Overall Performance of Banks in Terms of Number of Deposit Account (Average) 37Table-2.1.3: Status of Top Performers in Terms of Number of Deposit Account (Average) 37Table-2.2.1: Number of Branch of Banks 38Table-2.2.2: Overall Performance of Banks in Terms of Number of Branch (Average) 39Table-2.2.3: Status of Top Performers in Terms of Number of Branch (Average) 39Table-2.3.1: Total Revenue of Banks 40Table-2.3.2: Overall Performance of Banks in Terms of Number of Branch [Average] 40Table-2.3.3: Status of Top Performers in Terms of Total Revenue 41Table-2.4.1: Total Assets of Banks 41Table-2.4.2: Overall Performance of Banks in Terms of Total Asset [Average] 42Table-2.4.3: Status of Top Performers in Terms of Total Asset 42Table-2.5.1: Average Deposit Growth of Banks (%) 43Table-2.5.2: Status of Top Performers in Terms of Total Deposit Growth 43Table-2.6.1: Average Loan and Advance Growth of Banks(%) 44Table-2.6.2: Status of Top Performers in Terms of Total Loan and Advance Growth 45Table-2.7.1: Average Net Interest Income Growth of Banks (%) 45Table-2.7.2: Status of Top Performers in Terms of Net Interest Income Growth 46Table-2.8.1: Average Net Interest Income Growth of Banks (%) 46

List of TablesTable-2.8.2: Status of Top Performers in Terms of Net Interest Income Growth 47Table-3.1.1: Overall Performance of Banks in Terms of Return on Asset [Average] 49Table-3.1.2: Status of Top Performers in Terms of Return on Asset 50Table-3.2.1: Overall Performance of Banks in Terms of Return on Equity [Average] 51Table-3.2.2: Status of Top Performers in Terms of Return on Equity 51Table-3.3.1: Total Expense to Total Revenue of Banks 51Table-3.3.2: Status of Top Performers in Terms of Total Expense to Total Revenue 52Table-3.4.1: Profit Per Employee of Banks 53Table-3.4.2: Status of Top Performers in Terms of Profit per Employee of Banks 53Table-4.1.1: Growth in Gross NPL of Banks 55Table-4.1.2: Status of Top Performers in Terms of Growth in Gross NPL 55Table-4.2.1: Gross NPL to Total Loans & Advances 56Table-4.2.2: Status of Top Performers in Terms of Gross NPL to Total Loans & Advance 56Table-4.3.1: Credit Concentration 57Table-4.3.2: Status of Top Performers in Terms of Credit Concentration 58Table-4.4.1: Division Wise Share of Total Advances 58Table 5.1.1: Rural Branch (RB) to Total Branch (RB) 60Table-5.1.2: Status of Top Performers in Terms of Credit Concentration 61Table-5.2.1: Micro & Small Credit (MSC) to Total Credit (TC) (%) 61Table-5.2.2: Status of Top Performers in Terms of Micro & Small Credit to Total Credit 62Table 5.3.1: Agricultural Credit (AgC) to Total Credit (TC) 62Table-5.3.2: Status of Top Performers in Terms of Agricultural Credit to Total Credit 63Table-5.4.1: CSR Expenses to Total Asset 64Table-5.4.2: Status of Top Performers in Terms of CSR Expenses to Total Asset 64Table-5.5.1: Number of ATM Booth 56Table-5.5.2: Status of Top Performers in Terms of Number of ATM Booth 66Table-5.6.1: Number of Any Branch Banking Branch to Total Branch 66Appendix Table 1.1: Status of Deposits, Loans, Branches and Employees for the Year 2010 76Appendix Table 1.2: Status of Deposits, Loans, Branches and Employees for the Year 2011 77Appendix Table 1.3: Selected Growth Indicators of Specialized Banks 77

List of GraphsFigure-1.1.1 Capital to Risk Weighted Assets Ratio of Banks [Average] 29Figure-2.1.1: Share of Deposit Account of Banks in 2011 36Figure-2.2.1: Share of Number of Branch of Banks in 2011 38Figure-2.3.1: Share of Total Revenue in 2011 40Figure-2.4.1: Share of Total Assets of Banks in 2011 41Figure-2.5.1: Average Deposit Growth of Banks 43Figure-2.6.1: Average Loan and Advance Growth of Banks 44Figure-2.7.1: Average Net Profit/Net Income of Banks 45Figure-2.8.1: Average Net Profit/Net Income Growth of Banks 47Figure-3.1.1: Average Return on Asset of Banks 49Figure-3.2.1: Average Return on Equity of Banks 50Figure-4.3.1: Credit Concentration of Banks 57Figure-5.1.1: Share of Rural Branch in 2011 60Figure-5.2.1: Share of Micro & Small Credit in 2011 61Figure-5.3.1: Share of Agricultural Credit in 2011 63Figure-5.4.1: Share of CSR Expenses in 2011 64Figure-5.5.1: Share of ATM Booth 65Appendix Figure-1.1: Market Share of Specialized Banks in Advances, Deposits, Assets and Branches 75Appendix Figure-1.2: Average Growth Rates of Selected Expansion Indicators of the Specialized Banks 75Appendix Figure-1.3: Average Growth Rates of Selected Performance Indicators of the Specialized Banks 76

VIII

ABBREVIATION

IX

AAIBL Al-Arafah Islami Bank Limited

ABBL AB Bank Limited

ABL Agrani Bank Limited

ACH Automated Clearing House

AD Advance Deposit

AD Authorised Dealer

ALS Assured Liquidity Support

AQ Asset Quality

ATM Automated Teller Machine

BAL Bank Asia Limited

BASIC BASIC Bank Limited

BB Bangladesh Bank

BCBL Bangladesh Commerce Bank Limited

BCBS Basel Committee on Banking Supervision

BDBL Bangladesh Development Bank Limited

BDT Bangladesh Taka

BIBM Bangladesh Institute of Bank Management

BKB Bangladesh Krishi Bank

BRAC BRAC Bank Limited

BRPD Banking Regulation & Policy Department

BSB Bangladesh Shilpa Bank

BSEC Bangladesh Securities & Exchange Commission

BSRS Bangladesh Shilpa Rin Sangstha

BTRC Bangladesh Telecommunication Regulatory Commission

CAR Capital Adequacy Ratio

CBC Commercial Bank of Ceylon PLC

CDCS Certified Documentary Credit Specialist

CEO Chief Executive Officer

CIB Credit Information Bureau

Citi Citibank, N.A.

City The City Bank Limited

CL Classified Loan

CPD Centre for Policy Dialogue

CRM Credit Risk Management

CSR Corporate Social Responsibility

CY Calendar Year

DA Documents against Acceptance

DBBL Dutch-Bangla Bank Limited

DBL Dhaka Bank Limited

DOE Department of Environment

DOS Department of Off-site Supervision

DP Documents against Payment

ABBREVIATION

X

DSE Dhaka Stock Exchange

EBL Eastern Bank Limited

ECC Export Cash Credit

EDF Export Development Fund

EFT Electronic Fund Transfer

EIA Environmental Impact Assessment

EPZ Export Processing Zone

ERQ Exporters Retention Quota

ETP Effluent Treatment Plant

EXIM Export Import Bank of Bangladesh Limited

FCB Foreign Commercial Bank

FDBP Foreign Documentary Bills Purchased

FE Foreign Exchange

FSIBL First Security Islami Bank Limited

FY Fiscal Year

GDP Gross Domestic Product

GRI Global Reporting Initiative

HBL Habib Bank Limited

HHK Hybrid Hoffman Kiln

HRM Human Resource Management

HSBC The Hongkong and Shanghai Banking Corporation Limited

IBBL Islami Bank Bangladesh Limited

ICC Internal Control and Compliance

ICT Information and Communication Technology

IDRA Insurance Development and Regulatory Authority

IFIC IFIC Bank Limited

IPO Initial Public Offer

I & O Inclusive & Online Banking

JBL Janata Bank Limited

KSA Kingdom of Saudi Arabia

LC Letter of Credit

LIM Loan against Imported Merchandise

LTR Loan against Trust Receipt

MFI Micro Finance Institution

MICR Magnetic Ink Character Recognition

MTBL Mutual Trust Bank Limited

MTO Money Transfer Organization

MOF Ministry of Finance

MRA Micro-credit Regulatory Authority

NBL National Bank Limited

NBFI Non-bank Financial Institutions

NCCBL National Credit and Commerce Bank Limited

ABBREVIATION

XI

NPL Non Performing Loan

NRB Non-Resident Bangladeshi

ONE ONE Bank Limited

PBL Pubali Bank Limited

PC Packing Credit

PCB Private Commercial Bank

PD Primary Dealer

PEC Performance Evaluation Criteria

POST Point of Sale Terminal

PSTN Public Switched Telecommunication Network

P & E Profitability & Efficiency

RAKUB Rajshahi Krishi Unnayan Bank

RBL Rupali Bank Limited

RMU Risk Management Unit

ROA Return on Asset

ROE Return on Equity

SBL Sonali Bank Limited

SBI State Bank of India

SCB Standard Chartered Bank

SEBL Southeast Bank Limited

SEC Securities and Exchange Commission

SIBL Social Islami Bank Limited

SJIBL Shahjalal Islami Bank Limited

StBL Standard Bank Limited

SME Small & Medium Enterprise

SOCB State-owned Commercial Bank

SOD Secured Overdraft

SPCB Specialized Bank

SWIFT Society for Worldwide Interbank Financial Telecommunication

S & G Size & Growth

S & S Strength & Soundness

ST Short Term

TMSS Thengamara Samabay Samity

TT Telegraphic Transfer

UBL Uttara Bank Limited

UCBL United Commercial Bank Limited

UCP Uniform Customs and Practice

UCPDC Uniform Customs and Practice for Documentary Credits

URC Uniform Rules for Collection

URR Uniform Rules for Bank-to-Bank Reimbursements

URDG Uniform Rules For Demand Guarantees

Chapter One

Background & Methodology

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Banks are the most significant of the financial intermediaries that play very useful roles in the

economic life of every modern state. In Bangladesh, banking sector is the core component of the

financial system engaged mainly in mobilizing funds and offering lending services. Banks lend to

businesses, consumers, and governments and thus contribute to production, innovation,

infrastructure development, job creation and overall prosperity. It is well recognised that sustainable

performance of banking sector and real sector development go hand in hand. To ensure sustainable

operation, banks are expected to contribute to both economic and social development of the country.

The financial system of Bangladesh mainly comprises of banks, NBFIs, MFIs and their regulatory

bodies. Most of the institutions in the financial sector are characterized by a mix of public and private

ownership. Of these broad sub-sectors, banks are dominant that hold significant market share of the

financial sector of Bangladesh. While the Bangladesh Bank has regulatory and supervisory jurisdiction

over the entire banking subsector as well as the NBFIs (excluding insurance companies), the

Bangladesh Securities and Exchange Commission (BSEC) exercises similar functions for the stock

exchanges and the merchant banks. Insurance companies and MFIs are regulated by IDRA and MRA

respectively.

The growth and evolution of the banking system of Bangladesh can be viewed in different broad

phases. Banking sector of Bangladesh performed poorly following independence, offering a narrow

range of products and inefficient delivery of financial instruments, and was largely non-competitive in

structure. To rectify weaknesses of the banking sector and to take forward the development, reforms

commenced in the early 1980s. The period from independence to the early 1980s was marked by the

expansion of bank branches by the government controlled banks. The period from early 1980s to early

1990s was the period of privatization of banks that allowed new banks in the private sector to

augment competition in the banking sector. The period from early 1990s is the period of financial

reforms and consolidation. Improving performances of the banking sector received priority mainly

since 1990 when government launched financial sector reform programs. The program pursued a

series of legal, policy, and institutional reforms to improve the process of financial intermediation to

ensure more efficient allocation of financial resources and to improve the competitiveness of the

private sector. Over the years, performance of the banking industry has improved by increasing their

scope of activities, improving service quality, engaging technology, and introducing social

connectivity through CSR practices. The changes have brought greater competition in the industry;

and the intensive and continuously increasing competition in the banking sector has created a need

for access to information for evaluating commercial banks operating in this market.

Background of the Report

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Remarkable changes have taken place in the banking sector of Bangladesh in terms of size, market

structure, activities and performances over the years. The reforms injected more players in the

banking sector, with most banks increasing the range and diversity of their products and services.

Nevertheless, a few government controlled big banks still dominate the sector. In regard to the

change in governance, the enactment of the new banking laws and prudential regulations brought

discipline in the banking sector. As a whole, changes have taken place in terms of efficiency,

soundness, complexities and challenges. To cope with the growing changes and decision making,

reliable information is crucial.

In Bangladesh, different published sources1 capture comparative information on the performances of

broad groups of banks (SOCB, PCB, FCB, SPCB). This report is another effort to compare the different

broad groups of banks following different methodology. The main aim of the independent review is

to highlight performance and development in the banking sector and thus to contribut to the

country’s reliable business and economic information. In the report, a comparison of bank groups

would help identifying status of different bank groups as per selected performance indicators.

It would also have a comparison of the performances of the banking sector for the year 2010 and

2011. It is expected that this kind of publication would complement the existing disclosure system in

the banking sector of the country. This report might also help internal control team of a bank in

preparing annual report on the health of the bank that is required to be submitted to the MD and the

Audit Committee of the Board for onward submission to the Board of Directors – as suggested by the

Bangladesh Bank2.

1 Ministry of Finance, Bangladesh Bank etc.

2 In the guideline ‘Managing Core Risk in Banking: Internal Control and Compliance’ Bangladesh bank suggested a reporting structure for the internal control team of a bank according to which the

team would prepare an annual report on the health of the bank to be submitted to the MD and the Audit Committee of the Board for onward submission to the Board of Drectors.

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Performance of 36 Banks are Evaluated

A total of 36 banks are considered for performance evaluation in this study. Banks with less than 1 per

cent market share (total volume of assets of a bank expressed as a percentage of total volume of

assets of the banking industry) are excluded3. For some of these banks, data were also not available.

Four specialized banks (BKB, RAKUB, BASIC and BDBL) have been excluded considering their different

nature of operations or non-availability of required/comparable data. Morever, reporting time line of

BKB and RAKUB is different from that of the other banks; and required consolidated data on BDBL

(formed by merging BSRS and BSB) are not available.

Bangladesh Bank and Annual Reports are Main Sources of Data

Annual Reports of the selected banks were collected to gather relevant information. Morever, data

from different departments of Bangladesh Bank like Banking Regulation and Policy Department

(BRPD), Department of Off-site Supervision (DOS), Statistics Department have been collected.

Published information sources of MOF are also used. A number of individual banks were contacted for

data validation.

Performances of the CY 2011 are considered

The data of mainly for the calender year 2011 of the selected banks are considered to evaluate the

performances of banks. A comparison has also been made between CY 2010 and CY 2011. Write-up on

‘Governance, Activities and Operation’ covers some additional recent information.

Bank groups are evaluated on Five Broad Performance Evaluation Criteria

Five broad Performance Evaluation Criteria (PEC) have been set up to evaluate banks’ performance:

Strength and Soundness; Size and Growth; Profitability and Efficiency; Asset Quality; and Inclusive and

Online Banking. Each broad criterion is allocated 20 percent weight and a few logically selected ratios

(indicators) have been complied . Five broad PECs are discussed along with their selected indicators as

follows.

3 Bank Alfalah, BCBL, Habib Bank, ICB Islamic Bank, National Bank of Pakistan, State Bank of India, Woori Bank.

Methodology of the Report

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PEC 1: Strength and Soundness

The strength and soundness of a bank reflects the ability of a bank to absorb different shocks and

survive in an economic downturn. A financially sound bank can more easily achieve the confidence of

the customers than others. Financial Soundness and strength indicators are calculated and

disseminated to be used in macro prudential analysis, which comprises of assessment and control

over strengths and vulnerabilities of financial systems with a view to increasing financial soundness as

well as reducing probability of financial system bankruptcy. Five indicators have been used for

assessing the strength and soundness of banks:

PEC 1- Indicator 1: Capital Adequacy Ratio: Capital Adequacy Ratio (CAR) is a ratio of banks

Capital to Risk Weighted Assets. It is a ratio that regulators in the banking system use to watch bank's

health, specifically bank's capital to its risk. Higher ratio indicates better performance. The indicator is

computed as:

Capital to Risk Weighted Assets = [Total Eligible Capital ÷ Risk Weighted Assets] ×100

PEC 1- Indicator 2: NPL to Equity Ratio: Higher NPL is a recognized indicator of lack of

strength and soundness. The complete title of the ratio should be NPL net of provisions to total equity.

Like CAR, the ratio indicates a bank’s capacity to absorb credit risk. Lower ratio indicates better

performance. The indicator is computed as:

NPL to Equity Ratio = [(Classified Loan – Provision against Classified Loan) ÷Total Equity] ×100

PEC 1- Indicator 3: Liquid Assets to Short term Liabilities: To banks, liquidity is the

ability to meet obligations when they become due without incurring unacceptable losses. Here the

Liquid Assets are the sum of Cash, Balance with other banks and Financial Institutions, Money at call

and Short Notice and Investment. Short-term Liabilities are the sum of Borrowed Liabilities and Total

Deposits less Fixed Deposits. The ratio measures a bank’s ability to meet its short-term obligations

with its most liquid assets. Higher the ratio, better the performance. The indicator is computed as:

Liquid Assets to ST Liabilities = [Liquid Asset ÷ Short Term Liabilities] ×100

PEC 1- Indicator 4: Borrowing liability to Total Liability: Banks should mainly rely on

deposit liabilities as a source of fund to create their assets. Higher borrowing liabilities indicate greater

dependency on money market and lack of strength and soundness required to attract adequate

deposits. The indicator shows the proportion of borrowing liability of the total liabilities of a bank.

Lower ratio indicates better performance. The indicator is computed as:

Borrowing Liability to Total Liability = [Borrowed Liability ÷Total Liability] × 100

PEC 1- Indicator 5: Advance Deposit Ratio: Banks should maintain a balance between the

volume of advances and deposit. Advance deposit ratio is used to measure the degree of balance

between advance and deposit. High value of this ratio may increase bank income but may increase

liquidity risk and vice-versa.

Advance Deposit Ratio = [Total Advances ÷ Total Deposit] ×100

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PEC 2: Size and Growth

Bank size affects profits of banks and ensures greater financial access. Relatively big banks have

greater opportunity to minimize risks and may enjoy economies of scale. Growth is recognized as one

of the prime indicators of the performance of any institution. Under this head, four indicators related

to size and four indicators related to growth are considered to assess the performances of banks.

PEC 2 - Indicator 1: Number of Deposit Account: Higher number of deposit account

indicates greater market share and bigger size of the bank. Absolute number of deposit accounts has

been used to assess the banks in terms of size. Larger the number of deposit accounts, better the

performance.

PEC 2 - Indicator 2: Number of Branch: Higher number of branches indicates greater market

share and bigger size of the bank. Absolute number of branches has been used to assess the banks in

terms of size. Larger the number of branches, better the performance.

PEC 2 - Indicator 3: Total Revenue: Higher volume of total revenue indicates greater volume

of activities and bigger size. Absolute volume of total revenue has been used to evaluate the banks in

terms of size. Higher the volume of total revenue, better the performance.

PEC 2 - Indicator 4: Total Asset: Higher volume of total assets indicates greater market share.

Absolute volume of total assets has been used to assess the banks in terms of size. Higher the volume

of total assets, better the performance.

PEC 2 - Indicator 5: Total Deposit Growth: Deposit growth indicates increase in sources of

funds by banks. Higher the growth rate of deposits, better the performance. The indicator is

computed as:

Deposit Growth = [(Current Year Deposit – Previous Year Deposit) ÷ Previous Year Deposit] ×100

PEC 2 - Indicator 6: Total Advance growth: Advance growth indicates increase in uses of

funds by banks. Higher the growth rate of advances, better the performance. The indicator is

computed as:

Advance Growth = [(Current Year Advance–Previous Year Advance)÷Previous Year Advance] ×100

PEC 2 - Indicator 7: Net Profit Growth: Growth in Net Profit is the most crucial indicator to

evaluate growth performance of any commercial institution. Higher the growth rate of net profits,

better the performance. The indicator is computed as:

Profit Growth = [(Current Year Profit – Previous Year Profit) ÷ Previous Year Profit] ×100

PEC 2 - Indicator 8: Net Interest Income Growth: Net Interest Income is generally the major

income of banks. Higher the growth rate of net interest income, better the performance. The indicator

is computed as:

Net Interest Income Growth = [(Current Year NII – Previous Year NII) ÷ Previous Year NII] ×100


PEC 3: Profitability and Efficiency

Profitability and Efficiency analyses are essential for the evaluation of performances of any

commercially run organization. Profitability is a concept associate with the objective of assessing a

bank's results from efficiency point of view for entire activities. It represents the modality to achieve

the major goal of bank's activity. The profitability and efficiency analyses are based on the following

four indicators to rank the banking performances.

PEC 3 - Indicator 1: Return on Assets (ROA): This indicator is also known as profit to assets

and measures the management capacity to use the financial and real resources of a bank in order to

generate profit. Higher the ratio, better the performance. The indicator is computed as:

Return on Assets: (Net Income after Tax ÷ Total Assets) × 100

PEC 3 - Indicator 2: Return on Equity (ROE): Return on Equity or profit to equity is a

recognized indicator of profitability which is used to measure the management efficiency in all its

dimensions. Higher the ratio, better the performance. The indicator is computed as:

Return on Equity: [Net Income after Tax ÷ Total Equity] × 100

PEC 3 - Indicator 3: Total Expense to Total Revenue: A measure of the total expenses

associated with earning of revenue by banks. It indicates efficient use of scarce resources by banks to

attain their goals. Lower the ratio, better the performance. The indicator is computed as:

Total Expense to Total Revenue = [Total Expenses ÷ Total Revenue] × 100

PEC 3 - Indicator 4: Profit per Employee: It is a ratio which indicates the productivity of the

employee of a bank. The higher the number, the more efficient the bank uses its employees to attain

its goal. Higher the ratio, better the performance. The indicator is computed as:

Profit per Employee = [Net Income after Tax ÷ Total Employees]

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PEC 4: Asset Quality

Assets are the sources of earning for any organization. If the quality of assets deteriorates, it adversely

affects the earning potentials which eventually reduce the value of the firm. The largest category of

earning assets of a bank is loans and advances. So the consideration of the quality of loans is necessary

while performing the ranking. In evaluating asset quality, evaluators look at the existing and potential

loss exposure, primarily in the loan portfolio. Under this head, four indicators related to asset qualities

are considered to rank performances of banks.

PEC 4 - Indicator 1: Growth in Gross NPL: Growth in gross NPL indicates the change in the

performance of a bank in terms of asset quality. Lower the growth rate of Gross NPL, better the

performance. The indicator is computed as:

Gross NPL Growth = [(Current Year CL – Previous Year CL) ÷ Previous Year CL] ×100

PEC 4 - Indicator 2: Gross NPL to Total Advances: The ratio, Gross NPL to Total Loans and Advances,

indicates the portion of total advances that are non-performing. Lower the Gross NPL to Total

Advances, better the performance. The indicator is computed as:

Gross NPL to Total Advances = [Classified Loan ÷ Total Loan and Advances] ×100

PEC 4 - Indicator 3: Credit Concentration by Loan Size: Credit concentration has been measured in

terms of large loans. A loan has been considered as large loan if the outstanding loan amount is more

than 10% of its capital. Lower the Large Loan to Total Loans and Advances, better the performance.

The indicator is computed as:

Credit Concentration = [Total Large Loan ÷ Total Loan and Advances] ×100

PEC 4 - Indicator 4: Credit Concentration by Division: A good credit portfolio is one that is well

diversified in terms of allocation of advances or credit. High credit concentration increases credit

portfolio risk and vice versa. High concentration of bank advances to a particular division or region

may endanger a bank if that division or region is affected by natural calamity or other external event.

Credit Concentration = [Total Loans to a Division ÷ Total Loan and advances] ×100Pa

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PEC-5: Inclusive and Online Banking

Inclusive banking is concerned with sustainable or ethical banking and is part of a larger societal

movement toward more social responsibility. This movement should include ethical investment and

distribution of resources and corporate social responsibility. In Bangladesh, inclusive operation of

banks should be connected with the distribution of banks resources to rural economy, the agricultural

sector, and micro and small enterprise sector. Online banking operation is another sustainable way of

offering quality banking services. It is said that online banking is the starting point of green or

environmental banking. Under this head, six indicators related to inclusive and online banking are

considered to rank performances of banks.

PEC 5 - Indicator 1: Rural Bank Branch to Total Branch: Higher number of Rural Bank Branch

indicates greater access to finance by the under privileged people. However, small banks have

limitation of setting up greater number of bank branches. Therefore, performance based on absolute

number of bank branches would be biased towards big banks. Thus two indicators have been used:

ranks based on absolute number of branches (higher the number of branches, better the

performance) and ranks based on the ratio of Rural Branch to Total Branch (higher the ratio, better the

performance).

PEC 5 - Indicator 2: Micro and Small Credit to Total Loans: Higher volume of Micro and Small Credit

to Total Credit indicates greater access to finance by the under served enterprises of Bangladesh.

Larger the volume of Micro and Small Credit to Total Loans and Advances, better the performance.

Micro and Small Credit to Total Loans = [Micro and small credit ÷ Total Loan and advances] ×100

PEC 5 - Indicator 3: Agricultural Credit to Total Loans: Higher volume of Agricultural Credit to Total

Loans and Advances indicates greater access to finance by the under privileged farmers or small rural

investors of Bangladesh. Larger the volume of Agricultural Credit to Total Loans, better the

performance.

Agricultural Credit to Total Loans = [Agricultural Credit ÷ Total Loan and advances] ×100

PEC 5 - Indicator 4: CSR Expense to Total Asset: Higher volume of CSR Expenditure to Total Assets

indicates greater contribution of a bank to community development and environmental activities.

Larger the ratio, better the performance.

PEC 5 - Indicator 5: Number of ATM Booth: Greater number of ATM booths indicates greater and

easier access of banking activities by the clients. Larger the number of ATM booth, better the

performance.

PEC 5 - Indicator 6: Number of Any Branch Bank to Total Bank: Greater number of branches under

Any Branch Banking indicates better status and networking of banks. Larger the number of branches

under Any Branch Banking, better the performance.

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Limitations of the Report

The report is based on 36 banks. A few commercial banks and specialized banks have been excluded

from the study mainly because of non-availability of required data or different nature of operations.

Selection of right indicators could always be a matter of debate. For assessing the performances of

banks, a total number of 30 indicators have been identified under five broad Performance Evaluation

Indicators (PECs). This is not an exhaustive list.

Organization of the Report

The report is organized into four chapters. Chapter 1 discusses background and methodological

issues. Chapter 2 discusses the governance, activities, and operations of banks. Health of the banking

sector is examined based on some indicators in chapter 3. Chapter 4 summarizes the observations of

the report and offers concluding remarks. A general assessment of the specialized banks of the

country is attached as appendix to the report.

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Chapter Two

Governance, Activities and Operations of Banks


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The banking sector of Bangladesh comprises of 4 state-owned commercial banks (SOCBs)4,

4 specialized banks (SPB)5, 30 domestic private commercial banks (PCBs)6, and 9 foreign commercial

banks (FCBs)7. The FCBs are operating in Bangladesh as the branches of the banks which are in

operation abroad. PCBs can be categorized into conventional PCBs (28 conventional PCBs) that

perform the banking functions in conventional fashion i.e interest based operations; and Islamic

Shariah based PCBs (7 Islamic Shariah based PCBs) that execute banking activities according to Islamic

Shariah based principles. Other than these, there are nine newly licensed banks8. Of these, three have

already started operations and others are preparing to launch their operations. Other than these

scheduled banks9, there are 4 non-scheduled10 banks in the country. Over the years, the competitive

structure of the banks has changed; however, the operational and competitive environment of all

categories of banks is not the same. Full commercially motivated operational environment is mainly

enjoyed by the PCBs and FCBs. Government directed expansion of credit and some other relevant

services are performed by SOCBs and specialized banks of the country. In recent time though the

government has corporatized SOCBs and made them more autonomous to operate under better

commercial environment, no visible impact is observed.

As the regulatory and supervisory authority of the banking sector in Bangladesh, Bangladesh Bank

discharges its responsibility through a regulatory and supervisory framework. In regard to governance

framework, the ‘Prudential Regulations for Banks’11 published by the Bangladesh Bank is

a comprehensive and crucial document. It covers policies, rules, guidelines and requirements of the

governance of banks like capital adequacy, loan classification, core risk management; responsibilities

of chief executive officers, board of directors; disclosure requirements etc. In connection with

regulatory and supervisory changes, some recent initiatives of the Bangladesh Bank are remarkable.

Bangladesh Bank adopted financial sector regulatory and supervisory frameworks with sharper risk

and systemic stability focus in line with post-global crisis revisions of international best practice

standards. The more stringent loan classification norms formulated by the Bangladesh Bank are being

implemented in the country. Currently the central bank is implementing Basel II capital regime, and

preparations are on for phasing in Basel III capital and liquidity standards. Bangladesh Bank sharpened

its supervisory vigilance for improving corporate governance, risk management and disclosure

4 SBL, JBL, ABL, RBL

5 BASIC, BDBL, BKB, RAKUB

6 AAIBL, ABBL, BAL, BCBL, BRAC, City, DBBL, Dhaka, EBL, EXIM, FSIBL, IBBL, ICB Islamic Bank, IFIC, Jamuna, Mercantile, MTBL, NBL, NCCBL, ONE, PBL, Premier, Prime, SEBL, SIBL, SJIBL, StBL, Trust, UBL, UCBL.

7 Bank Alfalah, CBC, Citi, HBL, HSBC, National Bank of Pakistan, SBI, SCB, Woori Bank.

8 In April, 2012 Bangladesh Bank approved licensing of nine new commercial banks (three with NRB and six with indigenous sponsors).

9 The banks which get license to operate under Bank Company Act.

10 Ansar VDP Unnayan Bank, Karmashangosthan Bank, Probashi Kollyan Bank and Jubilee Bank that are established for special and definite objective and operate under the acts that are enacted

for meeting up those objectives, are termed as Non-Scheduled Banks. These banks cannot perform all functions of scheduled banks.11

Last published (updated version till September 2011).

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practices in the financial sector. Bangladesh Bank started publishing Financial Stability Reports since

2011 to identify the risks that could affect individual bank, financial sector, and/or the economy.

Scheduled banks were instructed to establish a separate Risk Management Unit to develop risk

management capacity among them to manage the risks that can cause systemic threats and

jeopardize the stability of the entire financial system. Periodical stress testing has also been made

mandatory to bring out vulnerabilities of banks and financial institutions. Initiatives are also

undertaken to upgrade BB’s regulatory and supervisory capabilities continually to meet the emerging

new challenges. In addition to enacting and amending various prudential measures with the existing

acts, Bangladesh Bank examines the activities of the banks on a continuous basis with the ultimate

objective of establishing and maintaining a high level of professionalism in the banking sector.

The supervision by Bangladesh bank takes two forms- off site and on site. While off-site supervision is

carried through the report and statements submitted by the banks- on site goes the other way i.e.

examining or assessing the financial condition and compliance with the laid down rules and

regulations through directly visiting and observing the operations of the banks. These two

approaches are complementary to each other and if properly synchronized reduces the possibility of

large scale banking irregularities. To support the strengthening of prudential controls and increase

the effectiveness of supervision, BB adopted a new organizational structure in May 2012 aimed at

consolidating management of on-site and off-site supervision activities. In Bangladesh, Bangladesh

Bank is the true supervisor of the private sector and foreign banks only. Traditionally, Bangladesh

Bank does not have enough supervisory grips over the state owned commercial banks. That is a grey

area in our system and one of the major obstacles to ensure the proper functioning of the state

owned banks. The recently finalized draft of 'The Bank Company (Amendment) Act, 2013', with a view

to strengthening the country's banking system is a notable initiative. The amendment of the act is

aimed at bringing about 'discipline' in the management of banks. The previous act did not mention

the number of board of directors and the new version mentioned the number of bank directors not to

exceed 20. And out of them four directors will be independent. The tenure of the directors will be for

three years and none of them can be director for two consecutive terms. As per the new version, the

CEO can be removed by the Bangladesh Bank. The amendment is expected to bring positive changes

in improving regulatory and governance environment of banks.

Collection of deposits and offering credit are the core activities of banks. With the passage of time,

banks are facing growing competition in mobilising their expected volume of deposits and thus

effective marketing of deposit products is receiving increasing importance in banks as part of their

operational strategies. As of end February 2012, the total volume of deposits of all banks was close to

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BDT 4500 billion of which 80 percent were time deposits (MOF, 2012)12 . Private sector is the prime

source of deposits and rural economy contributes around 13 percent of total deposits. Credit is the

main asset component of banks. According to a recent BIBM Review study (2012)13 , credit and

investment assets of scheduled banks amounted to a minuscule Taka 7.07 billion in December 1972

which stood 654 fold higher at over BDT4625 billion as of December 2011. And the total volume of

domestic credit of the country stood at around BDT 5548 billion as of February 2013 . According to BB

(2013)14 data on a year-on-year basis, the domestic credit recorded 13.37 percent growth at the end of

February 2013 of which 13.96 percent growth was in the private sector and 11.33 percent in the

private sector.

After running through a number of reform programs related to credit operation of banks, the banking

activities have reached a stage of reliability. Banks have been given almost full freedom for their own

credit operation. Selection of borrowers and appraisal of projects/economic activities are crucial

components of the credit operations of banks. In this connection, CRM is used by the banks for

handling credit risks in their lending operations. In addition, availability of different tools like online

Credit Information Bureau (CIB), legal support both for credit operation and loan recovery,

accessibility to tailored software and, most importantly, injection of a pool of talented bankers in the

banking sector truly upgraded the credit operation of commercial banks. Availability of these do not

only help a bank in the process of creating good quality loans but also help to maintain the quality of

the loans through proper monitoring, close supervision and frequent follow up. One indicator may be

the status of classified loan that came down to around 7 percent (of total outstanding loans) in June

2012 as compared to 27 percent in 1990. It is to be mentioned here that the improvement may even

be considered greater as over the years the loan-classification norms have been made more and more

stringent. The increase in the classified loans of the banking sector in 2013 is attributed mainly to the

implementation of the new classification norms (implemented from end December 2012) of the

central bank. Increase in risk taking activities is also evident in some instances. Different types of credit

concentration (such as urban concentration, trade concentration, etc.) are evident from the BIBM

review study (2012). Such inequitable distribution of advance by banks are not only creating

12 MOF (2012) Activities of Banks, Non-Bank Financial Instituations and Insurance Companies 2012, Ministry of Finance Government of Bangladesh.

13 BIBM (2012) Banking Review Series- an annual publication of BIBM, Dhaka, Bangladesh.

14 BB (2013) Bangaladesh Bank Quarterly, Vol-X, No-3, Bangladesh Bank.

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economic disparity, but also adding credit concentration risk to the risk profile of the banks, requiring

additional capital under Basel-II. Slow recovery has been observed in the real estate, RMG and

commodity sector since mid 2011, compelling the entrepreneurs to reschedule their repayment. In

many instances, there are evidences of the compromise of loan quality in an atmosphere of ambitious

profit and intense competition. Moreover, some operational difficulty in connection with the effective

use of CRM is observed. As per the CRM guideline, a bank needs to have its own credit policy, risk

rating model, data base and checklists. Though CRM requires updating of the lending guidelines at

least annually, but a number of banks do not follow it meticulously. Banks use CRG scoring for all

types of lending other than consumer financing, small enterprise financing, short term agricultural

credit and micro credit. The banks are not maintaining any electronic database of the CRG score of the

borrowers although it is required by the CRM. Maintaining data base can help banks in developing

more rigorous internal risk rating model as required by Basel-II for switching over to advance

approach. Though required by the CRM, in some of the banks, effective segregation among

relationship management, credit administration and approval function has not been found (BIBM

Review 2012).

In regard to the sectoral distribution, the disbursement and recovery status of agricultural and rural

credit marked some improvement in recent period. According to the BB (2013) data, both

disbursement and recovery of the agricultural credit by the banking sector increased by over 15

percent during July 2012- February 2013 (relative to the same period of the previous year). In spite of

the improvement, the credit exposure of banks to the agricultural sector and rural economy remained

very limited. The contribution of agriculture sector to GDP is almost 20 percent but the flow of credit

to this sector in Bangladesh was only around 5.59 percent of total advance as of end 2011. To ensure

greater credit flows to the agricultural sector, Bangladesh Bank has made it mandatory for all banks to

disburse at least 2 percent of their total loans to the agricultural sector. About industrial credit, it is

well known that medium and large industrial units have been the main targets of the banks.

According to BB statistics (as of end 2011), of the industrial credit, over 85 percent goes to the large

and medium industries. Small enterprises get relatively less importance. However, though slowly, the

situation is improving over the years. According to BB (2003) update, outstanding position of SME

loans stood at BDT 1008 billion as of end December 2012. The specialized banks and private sector

banks have attained notable growth in the sector in recent period. Bangladesh Bank has undertaken

notable initiatives and introduced refinancing facilities to promote greater credit flows to the SME

sectors. The BB data show that small and cottage industries accounts for less than 5 percent and flows

of banks credits to the rural areas remained very limited.

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In the area of international banking, banks offer trade payment, trade finance and foreign exchange

services. Trade payment is at the heart of international banking activities of banks in Bangladesh.

Letter of Credit (LC) is the most widely used method of payment both in import and export

transactions mainly because of the regulatory restrictions. According to BIBM Review Studies (2012

and 2013), in 2011 (January-December), 97 percent (number of cases) import payments from the

country were made through LC that has gone down to 86 percent in 2012. In case of export the figure

was 66 percent in 2011 that decreased to 60 percent in 2012. In spite of the change, documentary

credit remains the most widely used international trade payment methods in the country.

Documentary collection is the second most popular method. In contrast to most global economies,

the use of open account is very low. Cash in advance is used in a very limited number of cases both in

imports and exports. However, the use of documentary collection and open account is significantly

higher within EPZs of the country where the restrictions of the trade policies of the county are not

applicable. In regard to facilitation of trade payment, ‘delay in payment’ has been found as a common

practice by the trade service providing banks, which do not only harm institutional reputations of

banks but also the country’s image. As the LC is the most commonly used method of payment, UCPDC

is particularly relevant and important for the practitioners. Bangladesh Bank accepted UCP 600 as the

regulatory framework for LC operation for cross border trade in 2007. However, there has so far been

no such circular about URR725 or URC522. No guideline is there for ISP98 and URDG758. Sometimes it

creates confusion among practitioners. As mentioned earlier, banks offer financing facilities to the

exporters and importers. Though generally interest rate is not regulated by the Bangladesh Bank, in

export financing banks interest rates cannot exceed 7 percent. Back-to-back is a very popular trade

financing technique used by the banks to support garments exporters of the country. It is well known

that the regulatory provisions related to trade services in the EPZs are different. The trade payment

related restrictions of the trade policies are not applicable for EPZs of the country. Practically, there are

confusions among bankers about the provisions applicable for the EPZs. Instead of scattered and

piecemeal directives, a comprehensive master guideline on trade service practices of EPZ might help

bankers to act uniformly and correctly. Some other common procedural difficulties faced by the banks

are related to the timely receipt of bill of entry (from customs) and delay in the disbursement of EDF

fund. Several instances of non-repatriation of export proceeds, non-reporting, and malpractices in

trade services are concerns of the regulatory authority of the banking system. However, the cases of

non-payment of the accepted bills in local LCs became a grave concern for all quarters.

As observed by the BIBM Review (2012), remarkable changes may be observed in the operational

efficiency of the trade services departments of banks. Information technology is rapidly changing

the nature of international trade services in the country. ICT based activities like internet banking on

trade services, online reporting to BB, and new avenues for remittance can be identified as adaptation

of advanced ICT by the banking sector. Basically, it has enabled them to go for faster decision making,

prompt documentation and processing. Internally, quite a few banks are fully relying on software

based operations. It is a remarkable achievement that almost all executives working in the trade

services departments of different banks have training exposures. A considerable number of

employees of the concerned departments have received training from BIBM. A remarkable

improvement in connection with the development of professional bankers in the trade services area

reflects the growing number of Certified Documentary Credit Specialist (CDCS) in the banking sector

of the country. The number of CDCS holders in the country was only 1 till 2008, which increased to

over 100 by the end of 2011.

Treasury management function of banks received importance in the country only in recent years.

Liberalization of interest rates, exchange rates, and currency convertibility necessitate establishment

of treasury management unit in the commercial banks of the country. Considering the paramount

importance of the treasury operations, Bangladesh Bank has issued a guideline to establish a separate

treasury department in each bank. In Bangladesh money market is still very thin, because of lack of

diversified market participants and market instruments. Foreign exchange market is basically the spot

market. Very limited transactions take place in the market. Though, commodity swap has been

permitted to facilitate exporter to handle price risk, the product is hardly in use. Absence of secondary

market forces the bond market to stay at a budding stage. As a result, banks especially PD banks were

suffering from liquidity problem. To overcome the situation, the dealer banks were seeking immediate

operational and policy supports from the central bank. Bangladesh Bank was very active throughout

the year (2011) for managing the liquidity pressure of banks. BB has allowed PDs to enjoy assured

liquidity support (ALS) for a period of 75 days against their holdings of T-bills and T-bonds. The

illiquidity of financial markets may also be attributed to heavy government borrowing, huge L/C

payments of BPC by SOCBs and over lending by the banks, especially PCBs. Very recently (April 2013),

Bangladesh Bank has moved to introduce a new system to help commercial banks that face a liquidity

problem by adjusting the shortfall with another bank having surplus funds with the central bank.

Under the system, BB will be allowed to adjust a bank’s shortage in the cash reserve requirement

(CRR) and statutory liquidity ratio (SLR) with another bank with surplus funds with BB. Primary dealer

banks that have an obligation to invest in government securities and bonds may handle their CRR

shortfall using the provisions.

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Banking sector in Bangladesh has started giving due emphasis on HR only in the recent years.

According to BIBM survey (2012), the banks have their individual HR policy but in many cases these

are not up to date and fully implemented. Two broad areas of HR, training and career development,

are getting growing importance in a good number of banks. The survey also shows that about

two-third of the banks have their separate training institute; others operate their training activity with

having a training cell along with other job. However, for training activities most banks heavily rely on

BIBM and external trainers. Major challenges for many banks are to develop the core competencies

and skills for different operational areas like credit appraisal, risk management and handling trade and

treasury activities. Even for most of the banks, there is no scientific method of selection of trainees.

Though performance appraisal is done jointly in many banks, yet in reality subordinates hardly

contradict bosses. Compensation discrepancies, and recruitment and retention of qualified

employees are other HRM challenges of the banks.

Notable improvement has taken place in the country in regard to e-banking services in Bangladesh.

Bangladesh Bank has been playing an active role to maintain and promote smooth and secured

e-banking operations. Banks have been allowed to make online money transactions, payment of

utility bills, transfer of funds, payments for trading goods and services through e-channels like

Internet, ATM, Mobile phone, etc. BB has issued Mobile Banking guidelines to facilitate and oversee

these initiatives in the financial sector. Considering the importance of information systems security in

banks BB has issued ICT security guidelines for banking and financial institutions. In regard to the use

of ICT in the banking operation, online access to Credit Information Bureau (CIB), installation of

Bangladesh Automated Clearing House (BACH), introducing MICR cheques and EFT are remarkable

events. As a part of stepping towards online banking, the FCBs have played the pioneer role with the

adoption of modern technology in retail banking since the early 1990s, whereas the SOCBs and PCBs

came forward with such services on a limited scale since the late 1990s. At present, several PCBs and

FCBs of the country offer limited Tele banking, Internet banking, and M-banking services.

Expansion of CSR and inclusive banking activities is a notable change in the banking sector in recent

years. Bangladesh Bank has been guiding banks and financial institutions into mainstreaming

Corporate Social Responsibility (CSR) in their institutional goals and objectives in line with inclusive

growth objectives of the country. The basic target is to engage the entire financial sector in

a sustained financial inclusion campaign to reach out to the unserved and underserved population. In

response to these, the expenditure of banks on CSR activities increased by over four times in the last

three years. As part of inclusion campaign, priority attention of the Bangladesh Bank has been

directed to adequacy of credit flows to agriculture, SMEs, renewable energy generation and women


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entrepreneurship. Currently, banks may sanction loan of BDT 2.5 million to women entrepreneurs

without collateral but against personal guarantee under refinance facilities by BB if the borrower is

a women entrepreneur or if 51 percent shareholders of the borrowing enterprise are women. In order

to include large number of women micro entrepreneurs in the SME credit facilities, a policy of group

based lending of up to BDT 50,000 or above has been adopted. In response to the inclusion campaign

SOCBs have by now opened over ten million new bank accounts in favor of small farmers and other

low income groups with a nominal Taka ten initial deposits, enabling them to receive government

agricultural input subsidies/social safety net payments in these accounts, besides making other

transactions.

Banking sector of Bangladesh initiated green banking activities in recent period as part of their social

and environmental responsibilities. To foster green banking practices in the country, BB formulated

the ‘Green Banking Policy and Strategy framework’ and ‘Environmental Risk Management Guidelines’

in a consultative manner. Many banks are now financing environmental friendly projects. BB has also

introduced a refinance scheme worth BDT 2 billion refinance loans for effluent treatment plants

(ETPs), solar panels, bio-gas plants and HHK technology in brick making industry at a 5 percent

interest rate provided by banks. It is to be noted that banking sector of Bangladesh responded

remarkably by undertaking a number of initiatives in regard to in-house environment management,

environmental risk management and environmental reporting. Recently, honorable Governor of BB

has been adorned as ‘Green Governor’ in recognition of the green initiatives undertaken by the

central bank in the Doha Climate Change Conference.

The Internal Control & Compliance (ICC) department of banks is responsible for risk identification of

various activities of a bank. ICC is to recognize and assess all of the material risks that could adversely

affect the achievement of the bank’s goals. As narrated in the BIBM review study (2012), the head of

the internal control is responsible for the both compliance and control related tasks which include

compliance with laws and regulation, audits and inspection, monitoring activities and risk assessment.

The head of internal control unit should have a reporting line with the bank’s board. The audit

committee of the board can be the contact point for the internal control unit. This unit must also have

a reporting line with the Managing Director (MD) of the bank. Generally, the ICC of banks comprises

the following three units-Internal Audit & Inspection Unit, Monitoring Unit and Compliance Unit. The

audit team of the ICC assesses the effectiveness of the internal control system of the bank through

periodic internal audit. The monitoring unit is responsible to monitor the operational performance of

various branches. The compliance unit of ICC is to ensure that bank complies with all regulatory

requirements while conducting its business. BIBM review (2012) reveals that in spite of rapid changes


in banking operations due to technological developments, ICC manuals of individual banks are not

reviewed regularly. Even some of the banks have not yet introduced risk based audit plan. The

personnel of ICC department actually do not have the freedom to take corrective actions. The review

also finds that most of the banks have Risk Management Units (RMU) which is separate from ICC.

However, in reality, a close cooperation between ICC and RMU is supposed to improve risk

management capacity of a bank. Some of recent experiences and cases of unethical practices and

irregularities reassert the importance of the ICC in the context of the banking sector of the country.

The frequency and magnitude of such fraudulent activities inflicted huge burden on the banking

sector and has impacted the public confidence and reputation of the banking sector- a sector which

has shown significant growth, strength and discipline for a long period of time. The occurrence of

fund embezzlement also raised serious doubt in the minds of the depositors, regulators and other

stakeholders of the banking sectors about the financial discipline and operational standards. It is

generally recognized that such types of unscrupulous activity cannot take place without the active

collaboration or passive approval of the concerned bankers. Practically, the incidences reflect the

importance as well as failure of internal control mechanism of banks.

Success of the banking operation and performance of the banking sector heavily depend upon the

enabling and supportive environment to handle the growing complexity and challenges in the

banking sector. Enforcement of the prudential guidelines and effective risk based supervision is the

need of the time. Having a set of prudent regulatory measures, effective supervision depends upon

adequate power, sufficient resources and independence to foster good supervision. Central bank

needs strong support from the government to enforce its authority and supervisory power. Recent

evidences of irregularities demonstrate that Bangladesh Bank is not in a position to take corrective

measures on its own. Incidentally, Bangladesh Bank does not have enough supervisory grips over the

state controlled commercial banks. The way out of the fund misappropriation that is observed in

recent times in the banking sector rests upon a comprehensive and risk focused internal control and

internal audit in banks, sufficient autonomy of Bangladesh Bank, and zero tolerance by the

government and the central bank against any major violations of the banking norms. Only these can

offer an enabling environment where a risk based supervision approach by Bangladesh Bank with

a set of skilled central bankers can truly deliver. This is a necessity for improving the performance and

ensuring a sustainable banking sector of the country.

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Chapter Three

Health Report of the Banking Sector of Bangladesh

Strength

&

Soundness

Size&

Grow

th

PerformanceEvaluation

Criteria

Profit

ability

&Effi

ciency

Asset Quality

Inclu

sive &O

nlin

eB

ankin

g

Performance Evaluation Criteria

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PEC

-5

PEC-4

PEC-3

PEC-1

PEC-2

Strength&

Soundness

Performance Evaluation Criteria (PEC) -1: Strength & Soundness

Indicator-1:Capital Adequacy Ratio

Ind

icat

or-

2:

NP

L to

Equ

ity

Rat

io

Indicator-3:

Liquid Assets

to

Short - term

Liabilities

Indic

ator 5

:

Advance

Deposit (

AD)

Ratio (%

)

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A strong and sound financial system is very much essential for ensuring the long-run financial stability

of a country. Bank is a highly leveraged financial institution which greatly depends on public’s money

for their business. Because of the nature of the banking business it is highly dependent on the trust of

the customer. To ensure the customer’s confidence, a financially strong and sound banking system is

very important. The indicator ‘strength and soundness’ is very crucial to measure the shock absorbtion

capacity of a bank under any adverse economic scenario. The strength of a bank means the capacity to

withstand against all types of odds which is measured by the capital of a bank. Bank capital stands as

a protection against loss for bank customers, creditors, and shareholders. Regulators place a high

degree of importance upon assessments of capital and assign regulatory benchmarks. The soundness

is a major determinant of the viability of any banking institution. A bank can be considered as sound

when it follows all the rules, regulations and norms set by the regulators. By assuring the high level of

compliance to the regulation, a bank can not only ensure the increased financial soundness but it also

reduces the probability of bankruptcy. Five indicators have been considered for assessing the strength

and soundness of banks: (1) Capital Adequacy Ratio, (2) NPL net of provisions to Total Equity, (3) Liquid

Asset to Short-term Liabilities, (4) Borrowing Liability to Total Liability and (5) Advance to Deposit Ratio.

Indicator-4:

Borrowing

Liability to

Total

Liability

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S&S – Indicator 1: Capital Adequacy Ratio (%)

Figure-1.1.1 Capital to Risk Weighted Assets Ratio of Banks [Average]

Strength & Soundness

Banks operating in Bangladesh are maintaining capital since 1996 on the basis of risk-weighted assets

in line with BCBS capital framework published in 1988. To cope with the international best practices

and to make the bank’s capital more risk sensitive as well as more shock resilient, ‘Guidelines on Risk

Based Capital Adequacy (RBCA) for Banks’ (Revised regulatory capital framework in line with Basel II)

have been introduced by BB from 2009. Subsequently, a revised guideline was suggested by central

bank during August and December 2010. Since then banks are required to maintain Capital Adequacy

Ratio (CAR) of not less than 10.0 percent with at least 5.0 percent in core capital.

Source: Authors’ Calculation Based on Bangladesh Bank Data

The average CAR for banks improved in between CY 2010 and CY 2011. Figure 1.1.1 shows that as of

December 2010, the SOCBs, PCBs and FCBs maintained CAR of 9.12, 10.37 and 14.90 percent respectively,

which increased to 11.87, 11.64 and 20.45 percent respectively in December 2011 for 3 different

categories of banks.

Looking at the group-wise CAR position, it is evident that all categories of banks are successful in

maintaining required CAR of 10 percent in 2011. The state-owned commercial banks achieved

significant improvement in terms of their capital adequacy ratio in 2011 as compared to that of 2010.

All the private commercial banks have attained their target level. Although both SOCBs and PCBs are

successful in maintaining the minimum capital requirement set by the central bank, more needs to be

accomplished by these banks. By fulfilling the CAR of 10 percent, banks are only maintaining the

minimum capital as prescribed in Pillar-I of Basel-II. Now it is time to concentrate to increase their

capital base further to fulfill the additional capital requirement as per Pillar-II of Basel-II.

9.12

11.87 10.37

11.64

14.9

20.45

10.74 12.65

0

5

10

15

20

25

2010 2011

CA

R (%

)

SOCBs PCBs FCBs All Banks


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The average CAR of foreign commercial banks (FCB) was 20.45 percent as of end CY 2011, the way above

the requirement. As a whole, all the banks in the sector have crossed the target, which eventually helped

to reach the average CAR at 12.65 percent in 2011. The following table (1.1.1) shows the change in

capital adequacy ratio in between 2010 and 2011.

Table-1.1.1: Change in Capital Adequacy Ratio in between CY 2010 and CY 2011

(Figure in Percent)

Category of Banks 2010 2011 Cnange

SOCBs 09.12 11.87 2.75

PCBs 10.37 11.64 1.27

FCBs 14.89 20.45 5.56

All Banks 10.74 12.65 1.91


The following table (1.1.2) represents the top performer bank, average of top two banks and average of

top three banks in terms of their capital adequacy ratio in 2010 and 2011 for all categories of banks. It is

already mentioned that FCB maintained a healthy capital adequacy ratio. The scenario is also reflected

in the table as FCB holds top three positions in terms of CAR.

Table-1.1.2: Status of Top Performers in Terms of Capital Adequacy Ratio

(Figure in Percent)

Top Performers: Top Performers: Top Performers: TopPerformers: All Banks SOCBs PCBs FCBs

2010 2011 2010 2011 2010 2011 2010 2011

Top Bank 19.08 28.06 09.83 12.84 14.80 14.87 19.08 28.06

Top Two Banks (Average) 17.63 26.20 09.57 12.70 13.60 14.25 17.63 26.20

Top Three Banks (Average) 16.69 22.76 09.40 12.41 13.18 14.02 16.05 22.76


S&S – Indicator 2: NPL Net of Provisions to Total Equity (%)

A non-performing asset may be termed as an asset not contributing to the income of a bank. A loan is

nonperforming when payments of interest and principal are past due by certain amount of time

depending on the type of loan as decided by the central bank. High NPL ratio reduces the profitability

as the bank has to maintain the certain amount of provisioning against those nonperforming loans. So

the ratio NPL net of provisioning to total equity represents the bank’s capacity to absorb credit risk.


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Table-1.2.1: NPL Net of Provision to Total Equity Ratio of Banks [Average]

Categories of Banks 2010 2011 Change (%)

SOCBs 43.58 29.30 -14.28

PCBs 13.04 13.37 0.33

FCBs 0.82 2.04 1.22

All Banks 15.08 13.88 -1.20

Source: Authors’ Calculation Based on Annual Report of Banks

From the table (1.2.1) it can be seen that on an average the ratio declined by 1.20 percent in 2011

which indicates a comparatively better performance by the banking sector. The ratio for all banks was

15.08 percent in 2010 which decreased to 13.88 percent in 2011. Except the state-owned commercial

banks (SOCB), a slight increase in percentage was observed by all other category of banks as

compared to the previous year. The major improvement was observed in case of State-Owned

Commercial Banks (SOCB) which reduced from 43.52 percent to 29.30 percent. This might be the

outcome of the continuous effort by these banks to improve their financial performance. Government

has already corporatized these banks to strengthen their soundness and stability. Even after this, the

performances by the SOCB have not changed much. The SOCBs should continue their effort to

improve their performance in order to reduce the indicator at a reasonable level. In case of PCB and

FCB, the ratio slightly increased in 2011. The ratio for FCB lies within a reasonable limit but it is not

within a comfortable zone for PCBs. So in order to ensure higher sustainability, some private

commercial banks (PCBs) require greater efforts and consentrations.

The following table (1.2.2) represents the top performing bank, average of top two banks and average

of top three banks in terms of their NPL Net of Provisions to Total Equity ratio in 2010 and 2011 for all

categories of banks. FCB maintained their good performance by maintaining a low ratio which is also

reflected the table. SOCBs and PCBs performance is improving as compared to the previous year. But

the effort should be continued in order to make it sustainable in the long-run.

Table-1.2.2: Status of Top Performers in Terms of NPL to Equity Ratio

(Figure in Percent)

Top Performers: Top Performers: Top Performers: Top Performers: All Banks SOCBs PCBs FCBs

2010 2011 2010 2011 2010 2011 2010 2011

Top Bank -0.67 01.22 21.43 04.99 04.15 03.71 -0.67 01.22

Top Two Banks (Average) -0.24 01.45 21.90 13.96 04.35 04.24 -0.24 01.45

Top Three Banks (Average) -0.21 01.74 25.82 23.57 04.54 04.77 -0.21 01.74



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S&S – Indicator 3: Liquid Assets to Short Term Liabilities (%)

Bank usually mobilizes fund from the depositor and invest the amount in different business entity. They

always create a mismatch by doing this which sometimes put them in liquidity crisis. Liquidity is the

ability to meet obligations when they come due without incurring significant losses. For mitigating this

scenario, bank sometimes borrow from the call money market and other sources for a very short period

of time. The ratio measures a bank’s ability to meet its short-term obligations with its most liquid assets.

Higher ratio of liquid assets to short-term liabilities indicates the high ability of the bank to meet its

obligations which in turn indicates stability and soundness of the bank.

Table-1.3.1: Liquid Assets to Short Term Liabilities of Banks [Average]

Categories of Banks 2010 2011

SOCBs 58.99 73.67

PCBs 69.86 76.31

FCBs 69.19 89.66

All Banks 68.58 77.50


From the table (1.3.1) it is evident that the ratio has improved significantly for all categories of banks.

As a result, the aggregate has also increased in 2011 from the previous year. The reason behind the

outcome is pretty simple. The banking sector has observed a severe liquidity crisis in 2010 in the history

of Bangladesh. The call money rate reached to highest ever in December 2010 (to 33.54 percent against

3.33 percent in July 2010) due to increase in demand for fresh fund in the inter-bank market following

the increase in CRR in mid-December 2010. Bangladesh Bank raised both CRR and SLR in mid-December

2010 to contain inflationary pressure. The weighted average call money rate declined after December,

2010 and the market remained stable at a tolerable level because of the timely intervention by the

Bangladesh Bank in the market. The liquidity pressure gradually eased in 2011 which helped all types of

banks to improve their ratio significantly.

Performance of top bank, average of top two banks and average of top three banks in terms of their

Liquid Asset to Short-term Liability ratio in 2010 and 2011 for all categories of banks is given in the

following table (1.3.2). In terms the ratio, performance of PCB is in top position among all types of banks

followed by FCBs and SOCBs.

Table-1.3.2: Status of Top Performers in Terms of Liquid Asset to Short Term Liability

(Figure in Percent)


2010 2011 2010 2011 2010 2011 2010 2011

Top Bank 163.69 198.52 132.51 95.60 163.49 198.52 106.37 32.99





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S&S – Indicator 4: Borrowing liability to Total Liability (%)

The indicator shows the proportion of borrowing liability in the total liabilities of the bank. A bank is

supposed to rely more on deposit in order to create its assets. Higher borrowing liability to total liability

indicates greater dependency on money market for mobilizing fund. Usually, lower ratio is desirable

which specifies the soundness of the bank.

Table-1.4.1: Borrowing liability to Total Liability of Banks [Average]

Categories of Banks 2010 2011

SOCBs 0.69 2.39

PCBs 3.41 4.30

FCBs 1.89 0.97

All Banks 2.94 3.72


The result of the above ratio is mixed for different categories of banks which is observes form the table

(1.4.1). As the ratio increased for majority of the banks, so the average for all banks reached to 3.72

percent in 2011. SOCBs and PCBs have observed an increase in the ratio in 2011 (2.39 and 4.30 percent

respectively) which indicates weakness in managing the liquidity although the change is not

significant. Alternatively this means their lack of strength and soundness to attract deposits to manage

their liquidity. The ratio declined for FCBs because of their low reliance on borrowed fund from call

market. This could be the outcome of their liquidity management efficiency by not depending on the

money market for mobilizing funds.

Top performances of all categories of banks in terms of Borrowed Liability to Total Liability in 2010 and

2011 are given in the following table (1.4.2). From the table, it is evident that top performer banks hardly

rely on borrowed liability. It is observed from the individual data that a number of banks do not have any

borrowing liability which is a good indication for the entire banking sector.

Table1.4.2: Status of Top Performers in Terms of Liquid Asset to Short Term Liability

(Figure in Percent)


2010 2011 2010 2011 2010 2011 2010 2011

Top Bank 0.00 0.00 0.01 0.02 0.00 0.00 0.00 0.00





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S&S – Indicator 5: Advance Deposit (AD) Ratio (%)

Advance deposit (AD) ratio, typically calculated as the ratio of loans against deposits, is the most

common way to see a bank’s liquidity position. In an ideal scenario, loan/advance deposit ratio should

not exceed 81% (as 19% of demand and time liability is required for statutory requirements). A high

loan/advance deposit ratio (excessive lending) may expose a bank in serious liquidity and interest rate

risk as the market liquidity may tighten any time. A low loan/advance deposit ratio (idle fund) indicates

the fund management in efficiency which ultimately leads to lower profitability and growth.

Table1.5.1: Advance Deposit (AD) Ratio of Banks [Average]

(Figure in Percent)


SOCBs 72.55 71.25 -1.30

PCBs 90.31 87.14 -3.17

FCBs 81.44 72.74 -8.70

All Banks 87.35 83.77 -3.58


Table (1.5.1) shows the position of the AD ratio by different categories of banks. From the table, it can

be stated that the average of the all banks in 2010 and 2011 are in line with the regulatory guideline

(80% to 85%). But individual figure shows that some banks are exposed to liquidity risk either in the

form of liquidity deficit (PCBs) or in the form of liquidity surplus (SOCBs and FCBs). The situation for PCBs

is a cause for concern as the ratio for this category of banks crossed the regulatory limit in both the

years. As liquidity has a negative correlation with profitability so both the situation might have had an

impact on their profitability and efficiency. Because of the continuous monitoring by the central bank

the situation has improved in recent period.

Advance Deposit ratio position of the top performing banks in 2010 and 2011 is given in the following

table (1.5.2). Usually bank maintains AD ratio of 80 to 85 percent in order to become sufficiently liquid.

But in some cases, the situation may vary. Table shows that only 10 banks are in the acceptable range.

The remaining 26 lies outside the range which represents some sort of liquidity problem by those banks.

Table1.5.2: Status of Top Performers in Terms of Advance Deposit Ratio

(Figure in Percent)

Number of Banks Top Performers: Top Performers: Top Performers: Top Performers: All Banks SOCBs PCBs FCBs

2010 2011 2010 2011 2010 2011 2010 2011

Within 80% to 85% 10 10 0 0 7 9 3 1

Less Than 80% 5 10 4 4 1 3 0 3

More Than 85% 21 16 0 0 20 16 1 0


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A big bank may not be sustainable without achieving desired level of growth in different dimensions.

On the other hand, a small bank may sustainably run its operation having desired growth in desired

dimensions. So, knowledge about both size and growth is really important for understanding health of

banks. Size is important as it indicates the ability of banks to provide financial services to multiple

categories of customers having presence in multiple locations and markets. Besides, big banks have

greater opportunity to minimize risks and may enjoy economies of scale. Size of banks may be

understood by using many criteria. Four criteria have been used in this case for understanding the size

of banks and these are number of deposit account, number of branch, total revenue and total assets.

Growth is also important as it indicates performance and dynamism of banks. Besides, no growth

means decay. In a healthy and performing bank, growth is experienced in many areas of operations. In

this case, deposit growth, advance growth, net interest income growth and net profit growth have

been used.

Size and Growth

Size&

Growth

Indicator-1:Number of

DepositAccount

Indicator-2:

Number of

Branch

Ind

icator-3

:To

talR

evenu

e

Indicato

r-4:

Total

AssetIndicator-5:

TotalDepositGrowth

Indicator-6:

Total Loanand

Advance (TLA)

Growth (%)

Ind

icat

or-

7:

Net

Inte

rest

In

com

e G

row

th (%

)

Indicato

r-8:

Net Pro

fit/

Net Incom

e

Growth

(%)

Performance Evaluation Criteria (PEC) – 2: Size and Growth (S&G)

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Size and Growth

S&G - Indicator 1: Number of Deposit Account

Number of deposit account indicates the size of a bank and is used to understand relative market share.

Bank uses deposit accounts to accumulate small scattered savings of the people and converts savings

into investment by giving loans to borrowers. Volume of loans of a bank is tied up with deposit

mobilization through deposit accounts in two ways: one, deposit is the largest source of funds; and two,

banks are not allowed to cross loan-deposit ratio ceiling. So, number of deposit account is a very useful

indicator of bank size, market share, and also regulator of volume of revenue generating activities.

Table-2.1.1 shows that the number of deposit account of the banks has increased by 12.95 percent in

the year 2011 over the year 2010. This growth is mostly contributed by the PCBs that experienced 24.84

percent growth on a large base of 16119 thousand deposit accounts. FCBs, on the other hand, achieved

lowest growth in deposit accounts in the year 2011. Similar picture is also evident from the average

growth rates of the banks. SOCBs, as shown is Figure-2.1.1, hold the leading position in terms of market

share of deposit accounts in 2011 with 53.09 percent of total deposit accounts of all banks. It is also

evident that the market share of SOCBs and FCBs has decreased and the same of the PCBs has increased

in 2011 compared to 2010. Such increase in the number deposit account of the banks will allow more

people to have access to the banking network of the country. This is also expected to mobilize more

funds for creating new loans.

Table-2.1.1: Number of Deposit Account of Banks

(Figure in Thousands)

Categories of Banks 2010 2010 (%) 2011 2011(%) Growth(%) Average

Growth Rate (%)

SOCBs 22230 57.37 23237 53.09 4.53 5.08

PCBs 16119 41.60 20123 45.98 24.84 26.78

FCBs 398 1.03 406 0.93 2.01 0.94

All Banks 38747 100 43766 100 12.95 21.50


Figure-2.1.1: Share of Deposit Account of Banks in 2011

Source: Based on Bangladesh Bank Data

SOCBs, 53.09%

PCBs, 45.98%

FCBs, 0.93%

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Size and Growth

Average number of deposit accounts of different bank groups during the year 2010 and 2011 are

depicted in the table (2.1.2) given below. SOCBs hold highest number of average deposit accounts in

both the years where as FCBs hold lowest number of average deposit accounts.

Table-2.1.2: Overall Performance of Banks in Terms of Number of Deposit Account (Average)


Category of Banks 2010 2011

SOCBs 5558 5809

PCBs 576 719

FCBs 99 101

All Banks 1076 1216


Following table (2.1.3) presents the position of top performing bank in terms of number of deposit

account in different bank groups. From the table, it is evident that all bank top performer belongs to

SOCBs. It is also observed that there is a huge performance gap between the number of deposit

accounts of all banks, top performer and performing banks of FCBs.

Table-2.1.3: Status of Top Performers in Terms of Number of Deposit Account (Average)



2010 2011 2010 2011 2010 2011 2010 2011

Top Bank 9176 9580 9176 9580 4940 6005 207 191

Top Two Banks (Average) 7450 7797 7450 7797 3115 4015 182 183

Top Three Banks (Average) 6671 7199 6671 6944 2413 3098 132 135

Source: Authors’ Own Calculation Based on Bangladesh Bank Data

Size and Growth

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SOCBs, 52.72%

PCBs, 46.50%

FCBs, 0.78%

S&G - Indicator 2: Number of Branch

Number of branch indicates the presence of a bank in different places. Higher number of branches

indicates greater market share and bigger size. Bank uses branch network for accelerating financial

intermediation process. Table-2.2.1 confirms that the bank branches have increased by 4.52 percent in

the year 2011 over the year 2010. This growth is mostly contributed by the PCBs that experienced 10

percent growth on a large base of 2770 branches. However, FCBs shows a slightly negative growth.

Similar picture is also evident from the average growth rates of the banks. SOCBs, as portrayed in

Figure-2.2.1, hold the leading position in terms of market share of branches in 2011 with 52.72 percent

of total branches of all banks. It is also evident that the market share SOCBs is decreasing and the same

of PCBs is increasing. Better profitability, lower NPL might have motivated the PCBs to increase their

branch network. Increase in the number branch may help to include more people in the banking

network and it will increase bank revenue and accelerate financial intermediation process.

Table-2.2.1: Number of Branch of Banks



Growth Rate (%)

SOCBs 3447 54.98 3454 52.72 0.20 1.66

PCBs 2770 44.19 3047 46.50 10.00 14.47

FCBs 52 0.83 51 0.78 -1.92 -0.93

All Banks 6269 100 6552 100 4.52 11.34


Figure-2.2.1: Share of Number of Branch of Banks in 2011


Size and Growth

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Average number of branches of different bank groups during the year 2010 and 2011 are depicted in

the table (2.2.2) given below. SOCBs hold highest number of average branch in both the years where

as FCBs hold lowest number of intra-group average branch.

Table-2.2.2: Overall Performance of Banks in Terms of Number of Branch (Average)


SOCBs 852 864

PCBs 98 109

FCBs 13 13

All Banks 173 182


Following table (2.2.3) presents the position of top performer banks in terms of number of branch in

different bank groups. From the table, it is evident that all bank top performer bank belongs to SOCBs.

It is also observed that there is a huge performance gap between the number of deposit accounts of

all bank top performer and smallest group top performer.

Table-2.2.3: Status of Top Performers in Terms of Number of Branch (Average)


2010 2011 2010 2011 2010 2011 2010 2011

Top Bank 1227 1196 1227 1196 399 406 27 26



Source: Authors’ Own Calculation Based on Bangladesh Bank Data

S&G - Indicator 3: Total Revenue

Volume of total revenue indicates the size of a bank and is used to understand the volume of revenue-

generating activities of a bank. Higher revenue indicates better performance. Table-2.3.1 shows that

banks have increased their revenue by 28.54 percent in the year 2011 over the year 2010. SOCBs hold

the leading position with 34.59 percent average growth rate. As represented in Figure-2.3.1, PCBs hold

the leading position in terms share of revenue with 70.66 percent of the total revenue of all banks,

followed by SOCBs and FCBs. Despite good growth in number of bank branch and number of deposit

accounts in 2011, PCBs failed to increase share of revenue. However, during the year, FCBs and SOCBs

managed to increase share of revenue slightly.

Size and Growth

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SOCBs, 22.53%

SPBs, 70.66%

PCBs, 6.81%

Table-2.3.1: Total Revenue of Banks

(in Million Taka)

Categories of Banks 2010 2010 (%) 2011 2011(%) Growth(%) Average Growth Rate (%)

SOCBs 102605 22.42 132558 22.53 29.19 34.59

PCBs 324465 70.90 415665 70.66 28.11 30.63

FCBs 30588 6.68 40069 6.81 31.00 27.23

All Banks 457658 100.00 588292 100 28.54 30.69


Figure-2.3.1: Share of Total Revenue in 2011


Average total revenue of the three bank groups during the year 2010 and 2011 are depicted in the table

(2.3.2) given below. SOCBs hold highest amount of average revenue in both the years where as FCBs

hold lowest amount of intra-group average revenue.

Table-2.3.2: Overall Performance of Banks in Terms of Number of Branch [Average]


SOCBs 25651 33140

PCBs 11588 14845

FCBs 7647 10017

All Banks 12713 16341

Source: Annual Report of Banks, Various Issues

The following table (2.3.3) presents the position of top performer banks in terms of total revenue of

different bank groups. From the table, it is evident that all top performing banks belong to SOCBs. It is

also observed that smallest group top performer earns less than 50 percent of the total revenue of all

bank top performers.

Size and Growth

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SOCBs, 30.36%

SPBs, 63.70%

PCBs, 5.94%

Table-2.3.3: Status of Top Performers in Terms of Total Revenue

(Figure in Taka)


2010 2011 2010 2011 2010 2011 2010 2011

Top Bank 39720 46131 39720 46131 30184 38525 16664 21304




S&G - Indicator 4: Total Assets

Volume of total assets indicates the size of a bank and is used to understand relative market share.

Largest category of bank asset is loans and advances. So, high volume of assets is expected to generate

more revenue. As exposed in Table-2.4.1, total assets of the banks have increased by 22.52 percent in

the year 2011 over the year 2010. PCBs experienced slightly higher growth rate than average growth

of all banks, whereas SOCBs and FCBs achieved lower growth than the average of all. Similar picture is

also evident from the average growth rates of the banks. Lion’s share of total assets of banks, as

portrayed in Figure-2.4.1, belongs to PCBs in 2011. Share of total assets of SOCBs has decreased to

30.36 percent in 2011 from 30.89 percent in 2010. However, during the same period, PCBs managed to

increase their share of total assets slightly.

Table-2.4.1: Total Assets of Banks

(in Million Taka)


Growth Rate (%)

SOCBs 1383788 30.89 1666147 30.36 20.40 24.13

PCBs 2825923 63.08 3496507 63.70 23.73 25.39

FCBs 270148 6.03 326070 5.94 20.70 17.40

All Banks 4479859 100 5488724 100 22.52 24.36


Figure-2.4.1: Share of Total Assets of Banks in 2011

Source: Based on Annual Report of Banks

Size and Growth

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Average total assets of all three bank groups during the year 2010 and 2011 are depicted in the Table

(2.4.2) given below. SOCBs hold highest amount of average assets in both the years where as FCBs hold

lowest amount of average assets.

Table-2.4.2: Overall Performance of Banks in Terms of Total Asset [Average]

(Figure in Million Taka)


SOCBs 345947 416537

PCBs 100926 124875

FCBs 67537 81517

All Banks 124441 152465


Following table (2.4.3) presents the position of top performing banks in terms of total asset in different

bank groups. From the table, it is evident that all top performers belong to SOCBs. It is also observed

that smallest group top performer owns less than 25 percent of the total assets of the top performer of

all banks.

Table-2.4.3: Status of Top Performers in Terms of Total Asset

(Figure in Million Taka)


2010 2011 2010 2011 2010 2011 2010 2011

Top Bank 649268 695605 649268 695605 330785 389376 136436 167415




S&G - Indicator 5: Total Deposit Growth

Deposit growth indicates increase in sources of funds by banks. A bank can give more credit and earn

more profit in a year if it is successful in collecting more and more deposits provided that there is

demand for credit in the market. So, deposit growth is an important determinant of growth of bank

credit. As shown in Table-2.5.1, total bank deposit has increased by 22.93 percent in the year 2011 over

the year 2010 which is 1.13 percent higher than the average deposit growth of the last year. During the

year 2011, FCBs achieved 16.38 percent higher growth over the year 2010 whereas the other bank

groups have experienced slightly declining growth. Figure-2.5.1 shows that PCBs achieved the highest

growth in the year 2011 followed by FCBs and SOCBs. Although PCBs achieved the highest average

growth rate, it declined by 0.69 percent in the year 2011. This decline in average growth rate may be due

to the unusual growth in the previous year.

Size and Growth

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0

5

10

15

20

25


Gro

wth

Rat

e (%

)

2010 2011

Table-2.5.1: Average Deposit Growth of Banks (%)

Categories of Banks Average Growth (%) Average Growth (%) Change (%)

2010 2011

SOCBs 20.76 19.41 -1.35

PCBs 24.99 24.30 -0.69

FCBs 0.45 16.83 16.38

All Banks 21.80 22.93 1.13


Figure-2.5.1: Average Deposit Growth of Banks


The following table (2.5.2) presents the position of top performer banks in terms of total deposit

growth in different bank groups. From the table, it is evident that all top performers belong to PCBs.

During the period, PCBs and FCBs experienced increase in total deposit growth rate where as SOCBs

experienced decrease in total deposit growth rate. It is also observed that average deposit growth rate

of SOCBs is less than 50 percent of the deposit growth rate of the top performing bank.

Table-2.5.2: Status of Top Performers in Terms of Total Deposit Growth

(Figure in Percent)


2010 2011 2010 2011 2010 2011 2010 2011

Top Bank 52.47 55.64 42.47 26.22 52.47 55.64 15.04 27.62




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Size and Growth

S&G - Indicator 6: Total Loan and Advance (TLA) Growth (%)

Advance growth indicates increase in uses of funds by banks. Higher the growth rate of advances,

better the performance. Besides, profitability of banks depends greatly on the ability to increase good

quality loans and advances for productive purpose. Loans for productive economic activities also

increase domestic production and hence increase GDP growth. As noted in table 2.6.1, total loans and

advances of banks have increased by 18.19 percent in the year 2011 over the year 2010 which is 13.70

percent lower than the average growth rate of the previous year. During the year 2011 all bank groups

have experienced declining average growth in compared to average growth rate of the previous year.

Figure-2.6.1 shows that PCBs achieved highest average growth in the year 2011 followed by FCBs and

SOCBs. Although PCBs achieved highest average growth rate, it has decreased by 14.26 percent in the

year 2011.

Table-2.6.1: Average Loan and Advance Growth of Banks(%)


2010 2011

SOCBs 27.01 17.70 -9.31

PCBs 34.32 20.06 -14.26

FCBs 19.72 5.59 -14.13

All Banks 31.89 18.19 -13.70


Figure-2.6.1: Average Loan and Advance Growth of Banks


Following table (2.6.2) presents the position of top performer banks in terms of total loan and advance


During the period, all bank groups experienced decrease in total loan and advance growth rate. It is also

observed that total loan and advance growth rate of SOCBs is less than 50 percent of the total loan and

advance growth rate of all bank top performer.

0

5

10

15

20

25

30

35


Gro

wth

Rat

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)

2010 2011

Size and Growth

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Table-2.6.2: Status of Top Performers in Terms of Total Loan and Advance Growth

(Figure in Percent)


2010 2011 2010 2011 2010 2011 2010 2011

Top Bank 58.37 46.97 58.37 21.67 58.16 46.97 52.22 27.09




S&G - Indicator 7: Net Interest Income Growth (%)Net interest income, also known as the spread, is the single largest determining factor for bank income.

Higher the growth rate of net interest income, better the performance. It is observed from table 2.7.1

that banks except FCBs experienced a declining average growth rate in net interest income. Net interest

income of all banks has increased by 28.13 percent in the year 2011 which is 21.88 percent lower than

the net interest income average growth rate of the previous year. As shown in figure 2.7.1, SOCBs

achieved highest average growth in the year 2011 followed by FCBs, and PCBs. Such decline in the net

interest income average growth rate in 2011 may be due to the unusual growth in the previous year.

Table-2.7.1: Average Net Interest Income Growth of Banks (%)


2010 2011

SOCBs 61.38 56.85 -4.53

PCBs 52.57 23.78 -28.79

FCBs 20.71 29.89 9.18

All Banks 50.01 28.13 -21.88


Figure-2.7.1: Average Net Profit/Net Income of Banks


0

10

20

30

40

50

60

70


Gro

wth

Rat

e (%

)

2010 2011

Size and Growth

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Following table (2.7.2) presents the position of top performer banks in terms of net interest income


During the period, all bank groups experienced increase in net interest income growth rate. It is also

observed that net interest income growth rate of SOCBs is less than 50 percent of the net interest

income growth rate of all bank top performer.

Table-2.7.2: Status of Top Performers in Terms of Net Interest Income Growth

(Figure in Percent)


2010 2011 2010 2011 2010 2011 2010 2011

Top Bank 139.65 297.67 97.00 101.95 139.65 297.67 24.67 68.62




S&G - Indicator 8: Net Profit/Net Income Growth (%)

Net profit growth is the most recognized indicator to evaluate performance of any commercial institution.

Higher the growth rate of net profit, better the performance. As exposed in table 2.8.1 net income of the

banks has increased by 28.42 percent in the year 2011 which is 31.84 percent lower than average net

income growth of the year 2010. During the year 2011 SOCBs achieved 290.76 percent average growth

in net income which is the highest rate of growth of the year. It is interesting to note that in 2011 PCBs

experienced a negative growth in net income which is 84.79 percent lower than the net income growth

rate of the year 2010. Figure 2.8.1 clearly depicts the volatile nature of net income growth of banks

during the period. It is mentionable here that the banks made unusually high profit in the year 2010

from their exposures in capital market. Subsequently in 2011 such profits from capital market exposure

dried up. As a result, PCBs marked a negative growth in net profit in the year 2011.

Table-2.8.1: Average Net Interest Income Growth of Banks (%)


2010 2011

SOCBs 13.61 290.76 277.15

PCBs 75.27 -9.52 -84.79

FCBs 1.85 31.65 29.80

All Banks 60.26 28.42 -31.84


Size and Growth

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Figure-2.8.1: Average Net Profit/Net Income Growth of Banks


The following table (2.8.2) presents the position of top performing banks in terms of net profit growth

in different bank groups. From the table, it is evident that all top performers belong to SOCBs. During

the period, SOCBs and FCBs experienced increase in net profit growth rate where as PCBs experienced

a decline in net profit growth rate. Top three bank average growth rate of SOCBs is highest in the year

2011 which speaks about the good performance of the SOCBs in the year.

Table-2.8.2: Status of Top Performers in Terms of Net Interest Income Growth

(Figure in Percent)


2010 2011 2010 2011 2010 2011 2010 2011

Top Bank 230.04 1124.3 217.27 1124.3 230.04 61.29 24.18 63.71




-50

0

50

100

150

200

250

300

350


Gro

wth

Rat

e (%

)

2010 2011

Bank profitability and efficiency is critical to building capital, establishing adequate loss reserves,

managing expenses and providing dividends to shareholders. Like any other profit generating

institutions, the bottom line objective of a bank manager is to implement financial decisions that

maximize shareholders value. Hence it can be expected that highly profitable banks should have higher

value. Financial ratio analysis is a very useful diagnostic tool that can be used to assess the profitability

and efficiency of a bank. Profit margin reflects the percentage of each taka of income remaining after all

costs and expenses are paid. The ratio is also used as a measure of expense control which ultimately

provides the efficiency of the banking sector. Both profitability and efficiency measurements are essential

for the evaluation of performances of any financial institution. To assess the profitability and efficiency

of banks, four indicators have been used: (1) Return on Asset, (2) Return on Equity, (3) Total Expense to

Total Revenue and (4) Profit Per Employee.

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Profitability&

Efficiency

Performance Evaluation Criteria (PEC)– 3: Profitability and Efficiency (P&E)

Indicator-1:Return on

Asset

Ind

icator-2

:R

eturn

on

Equ

ity

Indicator-3:Total

Expense toTotal

Revenue

Ind

icator-4

:P

rofit P

erEm

plo

yee

Profitability and Efficiency

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0.91

2.24 3.04 2.18

0.95 1.53

3.39

1.67

0

0.5

1

1.5

2

2.5

3

3.5

4


Retu

rn o

n As

set (

%)

2010 2011

P&E - Indicator 1: Return on Asset (ROA) (%)Return on Asset (ROA) indicates the amount of profit earned for each taka of assets invested in the

business. ROA is an indicator to measure how profitable a company is relative to its total assets. It gives

an idea as to how efficient management is using its financial and real resources to generate earnings.

Calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a percentage.

Higher ROA indicates better performance of the company in terms of profitability and management

efficiency.

Figure-3.1.1: Average Return on Asset of Banks


Figure (3.1.1) shows the ROA in different categories of banks for 2010 and 2011. From the figure, it can

be noted that except private commercial banks (PCB) ROA has increased in both the years for other type

of banks. But a decline in ROA of PCBs was observed mainly because of the government borrowing to

finance budget deficit from the primary dealer (PD) banks. It needs to be mentioned that a number of

PCBs are performing as a primary dealer whose major task is to support government borrowing. As a

result, those banks suffered a lot due to the lack of investable fund which might have been a reason for

such decline in ROA. Another important reason could be the implementation of risk based capital

adequacy (RBCA) guideline, which forces all the banks to increase their capital base. This increase in

capital was not properly supported by the assets which could have been the sources of income and

ultimately would increase the ROA. As the PCBs have a significant contribution in the overall banking

sector, a decline in ROA of this sector causes to decrease in aggregate. ROA of other type of banks

increased marginally in 2011.

Table-3.1.1: Overall Performance of Banks in Terms of Return on Asset [Average]

(Figure in Percent)

Category of Banks 2010 2011 Change

SOCBs 0.91 0.95 0.04

PCBs 2.24 1.53 -0.71

FCBs 3.04 3.39 0.35

All Banks 2.18 1.67 -0.51



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The following table 3.1.2 represents the top performer bank, average of top two banks and average of

top three banks in terms of Return on Asset (ROA) in 2010 and 2011 for all categories of banks. The

outcome is dominated by the FCB as they are usually very efficient in utilizing their assets. FCB holds the

top two positions whereas the third position goes to PCB. The performance of SOCB in terms of ROA is

way behind as compared to that of their competitors.

Table-3.1.2: Status of Top Performers in Terms of Return on Asset

(Figure in Percent)


2010 2011 2010 2011 2010 2011 2010 2011

Top Bank 5.10 4.24 1.42 1.44 5.10 3.63 3.32 4.24




P&E – Indicator 2: Return on Equity (ROE) (%)

The return on equity (ROE) ratio is extremely important to the owner of the enterprise because it

indicates the rate of return that management has earned on the capital provided by stockholders after

accounting for payments to all other capital suppliers i.e. the ratio reflects the rate of return on the

stockholder’s capital. Generally, higher the ROE, better the profitability of bank or financial institution.

Figure-3.2.1: Average Return on Equity of Banks

Source: Based on Annual Report of Banks, Various Issues

It is expected that the banking sector should observe a declining trend in case of ROE as the sector has

implemented the risk based capital adequacy (RBCA) guideline. As per the guideline, all the banks are

required to increase their capital base. The ROE ratio given in figure-3.2.1 provides the outcome of 2010

and 2011 which shows that ROE of majority of the banks have declined as expected. But this decline is

a temporary phenomenon as it emerges because of the compliance of the regulatory guide

14.17

23.69

22.16

22.46

12.16 16.13

22.79

16.43

10

15

20

25

30


Retu

rn o

n Eq

uity

(%)

2010 2011


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line by the banking sector which helps them to strengthen their capital base and ensures a sustainable

growth in the long run.

Table-3.2.1: Overall Performance of Banks in Terms of Return on Equity [Average]

(Figure in Percent)

Category of Banks 2010 2011 Change (%)

SOCBs 14.17 12.16 -2.01

PCBs 23.69 16.13 -7.56

FCBs 22.16 22.79 0.63

All Banks 22.46 16.43 -6.03


Data on top performers of all categories of banks in terms of Return on Equity (ROE) in 2010 and 2011 is

given in table 3.2.2. The ROE of FCB is in very strong position and it holds the top two positions. The

overall position of PCBs is also compatible with FCBs. But the performance of SOCB in terms of ROE is

not upto the mark. The reason behind this decline is already explained. It is expected that the situation

of SOCB will improve in the coming year.

Table-3.2.2: Status of Top Performers in Terms of Return on Equity

(Figure in Percent)


2010 2011 2010 2011 2010 2011 2010 2011

Top Bank 38.80 34.27 24.07 17.79 38.80 28.35 31.33 34.27




P&E – Indicator 3: Total Expense to Total Revenue (%)

The ratio, total expense to total revenue is an efficiency indicator which measures the proportion of

total revenue which is used to meet a bank’s overall expenses. It indicates efficient use of resources by

banks to attain their goals. Obviously, lower ratio expresses better performance as lower percentage use

of the revenues fulfills its costs.

Table-3.3.1: Total Expense to Total Revenue of Banks


SOCBs 67.91 65.16 -2.75

PCBs 63.16 71.38 8.22

FCBs 47.87 48.35 0.48

All Banks 61.99 68.13 6.14



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Looking at the figure in the table 3.3.1, one can conclude that the trend is mixed for this ratio. For analyzing

the reason we need to segregate the components of the total expenses and total revenues. Usually, total

expense is categorized into two parts: interest expense and non-interest expense. Similarly revenues

can also be segregated into interest income and non-interest income. Fluctuation of all these

components might have an impact on the overall ratio. In case of private commercial banks (PCB), both

interest expense (cost of fund) and non-interest expense (operating cost) are relatively high as

compared to that of state owned commercial banks (SOCB) which causes the ratio to increase

significantly in 2011. Specially, the operating cost for PCBs is really very high because they offer high

salary and benefits to their employees. The cost of fund for SOCB is by and large low as well as the cost

of operation. Apart from these, SOCBs have already initiated some restructuring measures like closure of

the non-profitable branches which also helped them to reduce their operating cost. As a result, the ratio

of total expense to total revenue for this segment of bank declined in 2011 (65.16 percent) from 2010

(67.91 percent). However, the ratio has changed marginally for FCBs and it is the lowest among the lot

which indicates high management efficiency by this group of bank.

The ratio ‘Total Expense to Total Revenue’ for top performer banks is given in the following table 3.3.2.

Lower the ratio indicates higher expense management efficiency. From the table it can be concluded

that FCB is highly efficient in this regard. As a result, all the top positions are secured by the FCB group.

SOCBs and PCBs need to improve their efficiency in minimizing different costs.

Table-3.3.2: Status of Top Performers in Terms of Total Expense to Total Revenue

(Figure in Percent)


2010 2011 2010 2011 2010 2011 2010 2011

Top Bank 39.13 37.84 54.77 55.34 52.04 56.05 39.13 37.84




P&E – Indicator 4: Profit Per Employee

The ratio profit per employee indicates the amount of net profit generated by each employee of a bank.

It is a ratio which indicates the productivity of the employee of a bank. The higher the number, the more

efficient the bank uses its employees to attain its profit target.

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Table-3.4.1: Profit Per Employee of Banks

(Figure in Thousand Taka)

Categories of Banks 2010 2011 Change

SOCBs 2,35,715 2,90,622 54907

PCBs 11,76,063 8,88,208 -287855

FCBs 32,71,329 43,85,676 1114347

All Banks 13,04,387 12,10,417 -93970


Table 3.4.1 shows that except private commercial banks (PCB), profit per employee for all other group

of banks have increased significantly. But a declining trend in the ratio was found in case of PCBs. This

is mainly because of the increased competition among the PCBs in order to generate business. Usually,

PCB incurs huge amount of expenses because they offer high amount of salary and other benefits to

their employees. They also employ a big amount of money in order to decorate their office with modern

equipments and other facilities. Even after all these activities, they fail to generate high amount of

business to increase their profit because of the high level of competition in the market place which

causes them to observe a decline in the per employee profit. The main reason of increased profit per

employee by SOCBs could be their ability to mobilize low cost fund. Foreign commercial banks (FCB)

are always highly efficient in generating profit which is also reflected in the figure.

A comparative scenario of the ratio ‘profit per employee’ is given in the following table. Table (3.4.2)

shows that FCBs are successful in generating higher amount of profit per employee as compared to that

of the SOCBs and PCBs.

Table-3.4.2: Status of Top Performers in Terms of Profit per Employee of Banks

(Figure in Percent)


2010 2011 2010 2011 2010 2011 2010 2011

Top Bank 5473 5264 678 456 2571 2102 5473 5264




Assets are the resources owned and controlled by a business. Assets are also the sources of revenue for

all businesses. Banks are not an exception to this. Moreover, assets in bank generate much needed cash

flow alongside revenue. The largest category of earning assets of a bank is loans and advances. If the

quality of loans and advances deteriorates, it adversely affects the earning potential, cash flow and the

value. A healthy bank must create good quality loans and advances and maintain the quality. In

evaluating asset quality of banks, evaluators need to look at the existing and potential loss exposure in

the loan portfolio. For understanding quality of loans and advances four indicators have been used

which are growth in gross NPL, gross NPL to total advances, credit concentration by size and credit

concentration by division.

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PEC-4Asset Quality

Indicator-1:Growth inGross NPL

Ind

icat

or-

2:

Gro

ss N

PL

toTo

tal

Ad

van

ces

Indicator-3:Change in NPL to

Change inTotal

Advances

Ind

icator-4

:C

redit

Co

ncen

tration

Performance Evaluation Criteria (PEC) – 4: Asset Quality

Asset Quality

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AQ– Indicator 1: Growth in Gross NPL

A non-performing loan is a loan that is in default or close to being in default. A loan is non-performing

when payments of interest and principal are past due by 90 days or more. Non-performing loan is the

best indicator for measuring the asset quality of bank as the lion’s share of a bank’s earning is generated

from the loans. An increase in the growth of the ratio indicates the deterioration of the asset quality.

Table-4.1.1 shows that NPL as a whole in our banking sector increased by 53.09 percent in 2011. Only

SOCBs experienced decline in NPL in 2011 by 10.58 percent. The growth rate of NPL was highest in case

of FCBs in 2011. The performance of FCBs in this regard deteriorated significantly as the NPL grew by

more than 268.08 percent from the previous year. This is mainly due to the huge increase in the NPL

ratio of one of the FCBs in 2011.

Table-4.1.1: Growth in Gross NPL of Banks


SOCBs -14.51 -3.93 10.58

PCBs 20.38 30.03 9.65

FCBs 3.54 271.62 268.08

All Banks 14.63 53.09 38.46


The following table 4.1.2 represents the top performer bank, average of top two banks and average of

top three banks in terms of Growth in Gross NPL in 2010 and 2011 for all categories of banks. The

performance is mixed for different types of banks. FCBs performance is comparatively poor in terms of

the growth in gross NPL. SOCBs have done a tremendous job in this regard. The performance of PCB is

mixed

Table-4.1.2: Status of Top Performers in Terms of Growth in Gross NPL

(Figure in Percent)


2010 2011 2010 2011 2010 2011 2010 2011

Top Bank -50.01 -42.47 -27.23 -42.47 -30.91 -12.33 -50.01 28.52

Top Two Banks (Average) -40.46 -27.40 -21.93 -26.16 -0.24 -11.35 -36.43 38.77

Top Three Banks (Average) -36.24 -21.72 -18.44 -16.70 -0.20 -10.83 -17.92 62.08


Asset Quality

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AQ – Indicator 2: Gross NPL to Total Loans & Advances

Usually bank invests their exposure in different productive sector to maximize profit. But bank may not

be able to achieve their profit maximization target when NPL ratio increases. The ratio, Gross NPL to

Total Loans and Advances, indicates the portion of total exposure of a bank that is non-performing.

High ratio indicates poor performance in terms of credit risk management which ultimately impedes

the growth and profitability of the bank. One good thing observed in 2011 (Table-4.2.1) is that the NPL

ratio in the banking sector declined to 3.59 percent from the level of 3.86 percent in 2010. Only SOCBs

among different categories of banks registered a decline in gross NPL ratio by 3.29 percent. The ratio

increased slightly both for PCBs and FCBs. However, the gross NPL ratio remained at a very satisfactory

level for PCBs and FCBs in 2011 with a rate well below 3%. Despite the recent improvement the NPL

ratio, SOCBs stood at 10.13 percent in 2011 which is far above the internationally acceptable / tolerable

range of 2-3%.

Table-4.2.1: Gross NPL to Total Loans & Advances


SOCBs 13.42 10.13 -3.29

PCBs 2.87 2.89 0.02

FCBs 1.27 1.94 0.67

All Banks 3.86 3.59 -0. 27


Top performance of different categories of banks in terms of their NPL ratio in 2010 and 2011 is given in

the following table (4.2.2). The outcome of the table shows a mixed trend. The positions are shared by

both FCBs and PCBs. But the ratio for SOCBs is alarming. SOCB should continue their effort to improve

the ratio in order to become efficient in their performance.

Table-4.2.2: Status of Top Performers in Terms of Gross NPL to Total Loans & Advance

(Figure in Percent)


2010 2011 2010 2011 2010 2011 2010 2011

Top Bank 0.07 0.74 4.83 5.83 1.14 1.02 0.07 0.74




Asset Quality

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AQ – Indicator 3: Credit Concentration

Concentration of exposures in credit portfolios is an important aspect of credit risk. Credit concentration

risk is calculated using a “concentration ratio” which explains what percentage of the outstanding

accounts each bank loan type represents. It may arise from two types of imperfect diversification. The

first type, ‘name concentration’, relates to imperfect diversification in the portfolio either because of its

small size or because of large exposures to specific individual obligors. The second type, ‘sector

concentration’, relates to imperfect diversification across systematic components of risk, namely

sectoral factors such as geographic regions, industries or products. In this case, concentration has been

measured in terms of large loans where the loan is defined as large when the outstanding amount is

more than 10 percent of its capital. Overall credit concentration risk in our banking sector decreased as

the percentage of large loan to total loans decreased in 2011 to 24.86 percent from 31.15 percent in

2010 (Table-4.3.1). All the categories of banks made improvement in reducing the concentration risk.

The largest decline is observed in case of SOCBs followed by FCBs.

Table-4.3.1: Credit Concentration


SOCBs 43.88 16.73 -27.15

PCBs 27.49 24.82 -2.67

FCBs 44.04 33.25 -10.79

All Banks 31.15 24.86 -6.29


Figure-4.3.1: Credit Concentration of Banks


A comparative scenario of the ratio ‘credit concentration’ is given in the following table (4.3.2). Table

shows that PCBs are more successful in diversifying their credit portfolio as compared to that of the

SOCBs and FCBs. SOCBs are also improving in this regard. But FCBs credit portfolio is usually less diversified

and the scenario is reflected in the table. To improve the condition, FCB should focus on diversifying their

portfolio.

43.88

27.49

44.04

31.15

16.73

24.82

33.25

24.86

0

5

10

15

20

25

30

35

40

45

50


Cred

it Co

ncen

trati

on (%

)

2010 2011

Asset Quality

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Table-4.3.2: Status of Top Performers in Terms of Credit Concentration

(Figure in Percent)


2010 2011 2010 2011 2010 2011 2010 2011

Top Bank 0.17 0.0 14.56 4.73 0.17 0.0 29.08 12.65




AQ – Indicator 4: Geographic Concentration

Geographic concentration risk can arise from uneven distribution of exposures to particular regions.

Loans disbursed heavily in a specific region would create a higher concentration ratio than evenly

distributed across the regions because the evenly spread loans would serve to offset the risk of shock

specific in a particular region. Geographic concentration also leads to disparity in resource allocation in

different regions which eventually hampers the overall development of the country.

Table-4.4.1: Division Wise Share of Total Advances

Divisions 2010 2011

SCBs PCBs SBs FCBs All Banks SCBs PCBs SBs FCBs All Banks

Dhaka 66.20 67.06 49.05 83.11 66.56 65.55 67.44 48.59 84.46 66.75

Chittagong 13.56 22.83 16.69 15.09 19.92 14.97 22.28 17.68 13.75 19.94

Rajshahi 4.15 3.37 8.54 0.39 3.72 4.41 3.42 8.11 0.35 3.76

Khulna 9.30 3.44 8.93 0.19 4.91 7.95 3.41 9.20 0.19 4.58

Sylhet 1.04 1.73 3.51 1.22 1.67 1.12 1.65 3.43 1.26 1.63

Barisal 1.67 0.51 4.64 0.00 1.02 1.77 0.57 4.77 0.00 1.07

Rangpur 4.09 1.07 8.64 0.00 2.19 4.23 1.23 8.22 0.00 2.26

Total 100 100 100 100 100 100 100 100 100 100

Source: Bangladesh Bank. Scheduled Banks Statistics

From table 4.4.1 it is evident that out of total advances of all banks, 66.75 percent is disbursed in Dhaka

division in 2011 compared to 66.56 percent in 2010. About 86.69 percent of advances of all banks are

concentrated in Dhaka and Chittagong division in 2011 which means only 13.31 percent of total

advances are made in five other divisions. This trend is acute in case of FCBs as this group advanced upto

98.20 percent of its total loan in these two divisions. Banks gave least priority on distributing advances

in Barisal division and Sylhet division in both the years. In Barisal and Rangpur divisions FCBs disbursed

no advances. Such inequitable distribution of advances by the banks may create regional economic

disparity. Also high concentration of advances in two regions (Dhaka and Chittagong) of the country

will add concentration risk to the risk profile of the banks and will require them to maintain additional

capital under Basel-II.

Inclusive banking is concerned with sustainable or ethical banking and is part of larger societal

movement toward more social responsibility. This movement should include ethical investment and

distribution of resources and corporate social responsibility. In Bangladesh, inclusive operation of banks

should be connected with the distribution of banks resources to rural economy, the agricultural sector,

and micro and small enterprise sector. Online banking operation is another sustainable way of offering

quality banking services. It is said that online banking is the starting point of green or environmental

banking. Five indicators have been used in this case and these are rural bank branch to total branch,

micro and small credit to total loans, agricultural credit to total credit, CSR expense to total asset and

number of ATM booth.

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Inclusive&

Online Banking

Performance Evaluation Criteria – 5: Inclusive and Online Banking

Indicato

r-1:

Rural B

ank

Branch to

Total

Branch

Indicator-2:

Micro &

Small

Credit to

Total Credit

Ind

icator-3

:A

gricu

ltural

Cred

it toTo

tal Cred

it

Indicato

r-4:

CSR

Expenses

to

Total A

sset

Indicator-5:

Number of

ATM Booth

Ind

icat

or-

6:

Bra

nch

esu

nd

er

An

y B

ran

chB

anki

ng

to

Tota

l Bra

nch

Inclusive and Online Banking

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I&O - Indicator 1: Rural Bank Branch to Total Branch

Higher number of Rural Bank Branch indicates greater access to finance by the under privileged people.

The ratio of Rural Bank Branch to Total Branch indicates the relative proportion of rural branch expansion.

Table-5.1.1 shows that rural bank branch in the year 2011 accounts for 28.10 percent of total branches

of all banks which is 2.37 percent lower than the year 2010. It is interesting to note that all bank groups

have experienced decline in the ratio of rural bank branch to total branch. Such decline in the proportion

of rural bank branch is an indication of the reluctance of the banks to increase rural branch in the same

proportion as the increase in urban branch. This may be due to the poor rural infrastructure, insufficient

rural security, lack of new banking product suitable for rural market, non-availability of skilled

manpower in rural branches and lower profitability. Surprisingly, FCBs don’t run any branch in the rural

areas. SOCBs, as shown is Figure-5.1.1, hold 68.24 percent of total rural bank branch in 2011. It is also

evident that PCBs hold 31.76 percent and FCBs hold no rural branches. But recent central bank initiative

to allow one urban branch for one rural branch may help to improve the situation.

Table-5.1.1: Rural Branch (RB) to Total Branch (RB)

Bank Categories RB to TB (%) Change (%)

2010 2011

SOCBs 55.35 53.23 -2.12

PCBs 31. 27 28.53 -2.74

FCBs 0.00 0.00 0.00

All Banks 30.47 28.10 -2.37


Figure 5.1.1: Share of Rural Branch in 2011

Source: Based on Bangladesh Bank data

Following table 5.1.2 presents the position of top performing banks in terms of rural bank branch to

total branch of different bank groups. From the table, it is evident that all top performers belong to

SOCBs. It is also observed that there is a huge performance gap between all bank top performer and top

performer of other bank groups. It is interesting to note that foreign banks do not own any rural branch.

SOCBs 68.24%

PCBs 31.76%

FCBs 0%


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Table-5.1.2: Status of Top Performers in Terms of Credit Concentration

(Figure in Percent)


2010 2011 2010 2011 2010 2011 2010 2011

Top Bank 72.05 71.32 72.05 71.32 46.98 47.83 0.0 0.0




I&O - Indicator 2: Micro and Small Credit to Total Loans

Higher volume of Micro and Small Credit to Total Credit indicates greater access to finance by the under

privileged enterprises of Bangladesh. As shown in Table-5.2.1, Micro and Small Credit as a percentage of

Total Credit of the banks has increased by 5.58 percent in the year 2011 over the year 2010. This increase

is largely contributed by the PCBs that experienced 6.72 percent increase in Micro and Small Credit to

Total Credit ratio in 2011 over the year 2010. As depicted in Figure-5.2.1, PCBs hold the lion’s share of

total Micro and Small Credit of all banks in the year 2011 which is 87.70 percent. In this regard, share of

SOCBs and PCBs account for 10.09 percent and 2.21 percent respectively. Compelling regulatory

requirement might have helped to improve the scenario.

Table 5.2.1: Micro & Small Credit (MSC) to Total Credit (TC) (%)

Bank Categories RB to TB (%) Change (%)

2010 2011

SOCBs 1.26 2.95 1.69

PCBs 0.83 7.55 6.72

FCBs 0.07 1.51 1.44

All Banks 0.79 6.37 5.58


Figure-5.2.1: Share of Micro & Small Credit in 2011


SOCBs 10.09%

PCBs 87.7%

FCBs 2.21%

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The following table 5.2.2 presents the position of top performing banks in terms of micro & small credit

to total credit of different bank groups. From the table, it is evident that all top performers belong to

PCBs in 2011 and SOCBs in 2010. It is also observed that there is a huge performance gap between all

bank top performer and top performer of other bank groups.

Table-5.2.2: Status of Top Performers in Terms of Micro & Small Credit to Total Credit

(Figure in Percent)


2010 2011 2010 2011 2010 2011 2010 2011

Top Bank 13.48 32.79 13.48 4.19 3.65 32.79 0.29 4.45




I&O - Indicator 3: Agricultural Credit to Total Credit

Higher volume of Agricultural Credit to Total Credit indicates greater access to finance by the under

privileged farmers or small rural investors of Bangladesh. Larger the volume of Agricultural Credit to

Total Credit, better it is from sustainable banking point of view. Higher volume of Micro and Small Credit

to Total Credit indicates greater access to finance by the under privileged enterprises of Bangladesh. As

demonstrated in table-5.3.1, Agricultural Credit as a percentage of Total Credit of the banks has

decreased by 1.11 percent in the year 2011 over the year 2010. During the year 2011 SOCBs experienced

4.04 percent, the largest rate of decline in Agricultural Credit to Total Credit ratio over 2010. This might

be because of recent rapid growth of large industrial loans by SOCBs rather than rapid growth of

Agricultural Credit. As depicted in figure-5.3.1, PCBs hold the lion’s share of total Agricultural Credit of all

banks in the year 2011 which is 54.59 percent. In this regard, share of SOCBs and PCBs account for 41.39

percent and 4.02 percent respectively.

Table 5.3.1: Agricultural Credit (AgC) to Total Credit (TC)

Bank Categories AgC to TC (%) Change (%)

2010 2011

SOCBs 5.20 1.16 -4.04

PCBs 1.00 0.57 -0.43

FCBs 3.91 0.93 -2.98

All Banks 1.79 0.68 -1.11


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Figure-5.3.1: Share of Agricultural Credit in 2011


The following table 5.3.2 presents the position of top performing banks in terms of agricultural credit to

total credit in different bank groups. It is evident from the table that all top performers belong to SOCBs

both in 2011 and 2010. All bank groups have disbursed agricultural credit almost at equal ratio in 2011.

Range of the ratio of agricultural credit to total credit of the bank groups is only 0.13 percent.

Table-5.3.2: Status of Top Performers in Terms of Agricultural Credit to Total Credit

(Figure in Percent)


2010 2011 2010 2011 2010 2011 2010 2011

Top Bank 8.13 1.88 8.13 1.88 3.02 1.75 0.77 1.83




I&O - Indicator 4: CSR Expense to Total Asset

Higher volume of CSR Expenditure to Total Assets indicates greater contribution of a bank to community

development and environmental activities. Larger the ratio, better it is from corporate social responsibility

point of view. The ratio of CSR Expenses to Total Asset of all banks, as shown in Table-5.4.1, has declined

by 0.058 percent in the year 2011 from the year 2010. All bank groups have experienced a decline in the

ratio except FCBs that experienced 0.005 percent increase in 2011 over 2010. Largest decline is found in

case of PCBs which may be due to the decline in the profit figures of the individual banks of the group.

However, Figure-5.4.1 shows that PCBs contributed the lion’s share of the total CSR expenses of all banks

in the year 2011 with 85.01 percent. In this regard, share of SOCBs and PCBs account for 9.22 percent and

5.77 percent respectively.

SOCBs 44%

PCBs 21%

FCBs 35%

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Table 5.4.1: CSR Expenses to Total Asset

Bank Categories CSR to TA (%) Change (%)

2010 2011

SOCBs 0.024 0.018 -0.006

PCBs 0.119 0.045 -0.074

FCBs 0.030 0.035 0.005

All Banks 0.099 0.041 -0.058


Figure-5.4.1: Share of CSR Expenses in 2011


The following table 5.4.2 presents the position of top performer banks in terms of CSR expenses to total

asset in different bank groups. It is evident from the table that all bank top performer belongs to PCBs

both in 2011 and 2010. There is large performance gap among the bank groups in terms of CSR

expenses to total asset.

Table-5.4.2: Status of Top Performers in Terms of CSR Expenses to Total Asset

(Figure in Percent)


2010 2011 2010 2011 2010 2011 2010 2011

Top Bank 1.12 0.28 0.05 0.04 1.12 0.28 0.05 0.04




SOCBs 18%

PCBs 46%

FCBs 36%


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I&O - Indicator 5: Number of ATM Booth

Greater number of ATM booths indicates greater and easy access of banking activities by the clients.

Larger the number of ATM booth, better the performance. As reported in table-5.5.1 total number of

ATM booths of the banks in the country is 3574 at the end of the year 2011 which 1457 more than total

ATM booths of the year 2010. ATM booths of the SOCBs have decreased to 52 from 65 whereas the ATM

booths of the PCBs have increased to 3375 from 1915. As depicted in figure-5.5.1, PCBs owns the lion’s

share of the total ATM booths of all banks in the year 2011 with 94.43 percent.

Table 5.5.1: Number of ATM Booth

Bank Categories Number of ATM Booth Change

2010 2011

SOCBs 65 52 -13

PCBs 1915 3375 1460

FCBs 137 147 10

All Banks 2117 3574 1457


Figure-5.5.1: Share of ATM Booth


The following table 5.5.2 presents the position of top performing banks in terms of number of ATM

booth in different bank groups. It is evident from the table that all top performers belong to PCBs both

in 2011 and 2010. There is large performance gap among the bank groups in terms of number of ATM

booth. In this case, top performer of SOCBs owns only 41 ATM booths where as all bank top performer

owns 1940 ATM booths.

SOCBs 2%

PCBs 94%

FCBs 4%


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Table-5.5.2: Status of Top Performers in Terms of Number of ATM Booth


2010 2011 2010 2011 2010 2011 2010 2011

Top Bank 1100 1940 40 41 1100 1940 82 87




I&O - Indicator 6: Number of Any Branch Banking Branch to Total Branch

Greater number of branches under Any Branch Banking indicates better status and networking of

banks. Larger the number of branches under Any Branch Banking, better the performance. Table-5.6.1

.shows that 56 percent of the branches of all banks are under the any branch banking at the end of year

2011. This is largely contributed by the PCBs and FCBs. SOCBs have only 16 percent branch under any

branch banking. The situation of SOCBs calls for immediate action in this regard. Without improving the

situation of the SOCBs online payment system cannot be implemented in the banking sector successfully.

Table 5.6.1: Number of Any Branch Banking Branch to Total Branch

Bank Categories No. of ABBB to TB Change (%)

2010 (%) 2011(%)

SOCBs 3 16 13

PCBs 83 100 17

FCBs 100 100 00

All Banks 41 56 15


Chapter Four

Observations and Concluding Remarks

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The study attempts to assess the commercial banking industry by reviewing quantitative information

related to strength and soundness, size and growth, profitibility and efficiency, asset quality, and

inclusive and online banking. The observations of the study based on the above mentioned evaluation

criteria are summarized below.

One, Strength and soundness of the commercial banking sector, judged in terms of holding of capital,

NPL net of provisions, liquid assets, borrowing liabilities and advance-deposit ratios, shows improving

trend in between CY 2010 and CY 2011. Status of the commercial banking sector as a whole improved

in terms of holding of capital CY2010 and CY 2011. It is a matter of comfort that excepting one, all banks

of the country were maintaining the minimum capital ratio of above 10 percent. FCBs were found to be

relatively strong in terms of holding of capital as per the available data for CY 2011. In CY2010, of the

commercial bank, around 57 percent banks had the ratio of above 10 percent, 35 percent had in

between 9 to 10 percent and 8 percent had below 9 percent; however 97 percent banks had the ratio

of above 10 percent and 75 percent banks had above 11 percent as of end CY 2011.

As a whole the commercial banking sector of the country registered improvement in terms of the

‘Strength & Soundness’ indicator ‘Average NPL net of Provisions to Total Equity’. The ratio decreased

marginally by 1.20 percent in between end CY2010 and CY2011. In regard to the status, FCBs were

better positioned as compared to other bank groups. However, as a whole performance of the FCBs in

terms of the indicator deteriorated. As of the end CY 2011, the Average NPL net of Provisions to Total

Equity for SOCBs, PCBs and FCBs were 29.30 percent, 13.37 percent, and 2.04 percent respectively.

The data indicate notable improvement in the SOCBs that registered over 14 percent decline; however

still the existing level of the ratio remained a matter of concerns. In CY2010, about 65 percent banks had

the ratio of above 10 percent, and 8 percent banks had above 30 percent; however in CY2011, 58

percent banks had the NPL ratio of above 10 percent, and 6 percent had above 30 percent. In terms of

liquidity position, statuses of bank groups were not significantly different. The average Liquid Assets to

Short Term liabilities of SOCBs, PCBs and FCBs were 58.99 percent, 69.86 percent and 69.19 percent

respectively in the CY 2010. The average ratios of all categories of banks improved in between CY2010

and CY2011 mainly because of the initiatives undertaken in response to the liquidity problems in

CY2010. In CY 2010, 19 percent banks had the ratio of above 100 percent whereas for 30 percent banks

it was below 50 percent; however, 14 percent banks had the ratio of above 100 percent and for 8

percent it was below 50 percent in CY 2011.

The commercial banks’ reliance on borrowed fund as a whole increased in between CY2010 and

CY2011. Borrowed Liability as percentage to Total Liability was significantly higher for PCBs as compared

to that of SOCBs and FCBs as of year-end CY2011. The ratio was 3.41 percent for PCBs in CY 2010

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that increased to 4.30 percent in CY2011. It is an indication of growing reliance on borrowed funds by

some PCBs. The data reveal that around 30 percent PCBs were maintaining the ratio at the range from

5 percent to as high as unusual 21 percent. It might also indicate to the inefficient liquidity

management on the part of a few PCBs. In terms of the ratio, SOCBs experienced remarkable change

(from 0.69 percent to 2.39 percent) in between end CY2010 and CY2011. The ratio for FCBs was 0.97

percent in CY2011 that declined from 1.89 percent in CY2010. Of the total banks, 19 percent did not

have any Borrowed Liability whereas another 19 percent had above 5 percent of their respective Total

Liabilities.

In terms of Advance-Deposit ratio, the overall status of the banks improved in CY2011 as compared to

CY2010. The average ratio of the commercial banks declined from over 87 percent to around 83

percent. Especially, the ratio for the PCBs was unusually high as of end CY2010. Even after declining, the

average ratio remained higher than the limit set by the regulatory authority. Over 20 percent PCBs had

AD ratio of over 90 percent as of end CY2011. As the data show, SOCBs were maintaining liquidity

surplus as of both the year end. These trends point to the inefficient liquidity management on the part

of a number of PCBs and SOCBs. The data reveal drastic fall of the AD ratio of FCBs in between CY2010

and CY2011 because of the fall of the ratio of a single FCB.

Two, Size and growth of the commercial banking sector were judged in terms of the number of deposit

accounts and branches; volume of assets and revenues; and growth of advances, income and deposits,

shows changing trend in between CY 2010 and CY 2011. As an indicator of size, in terms of number of

Deposit Accounts, SOCBs hold the leading position. Though the market share in terms of the indicator

declined, still SOCBs collectively were holding over 53 percent of the total deposit accounts maintained

in the commercial banks as of end CY2011. PCBs collectively attained notable growth of around 25

percent in between CY2010 and CY2011 and was maintaining market share of around 46 percent as of

end CY2011. In terms of number of deposit accounts, PCBs attained around 27 percent average growth

in contrast to around 5 percent and 1 percent average growth by SOCBs and FCBs respectively. Over 40

percent PCBs of the country attained over 30 percent growth; and only five PCBs collectively

maintained around 60 percent of the total deposits accounts of PCBs.

In terms of size, the operations of banks expanded. As of end CY2011, the country had 6552 Bank

Branches of which 52 percent belonged to SOCBs and 47 percent to PCBs. As a whole there was around

4.5 percent growth in the bank branches of the country. FCBs had less than 1 percent market share in

terms of Bank Branches in the country. As a whole 10 percent bank branches of the PCBs increased in

between CY2010 and CY2011. There was only marginal growth of bank branches of SOCBs, however,

PCBs attained notable average growth of around 15 percent. Only top five (4 SOCBs and 1 PCB) had

around 60 percent market share as of end CY2011.

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The size of the banking sector expanded in terms of the volume of Total Revenue and Total Assets. Total

Revenue and Total Expenditure reached BDT588 million and BDT5488 million respectively as of end

CY2011. Total Revenue and Total Assets increased by 31 percent and 22 percent respectively in

between CY2010 and CY2011. PCBs hold the maximum market share of 70 percent of Total Revenue

and 64 percent of Total Assets. As of end CY2011, the market shares of Total Revenue and Total Assets

were 23 percent and 30 percent for the SOCBs. Top seven banks collectively owned about 40 percent of

banking industry’s Total Revenue of which four were PCBs and three were SOCBs. Of the Total Assets,

seven big banks collectively owned about 45 percent of which three were SOCBs, three were PCBs and

one was FCB.

Banks attained average Deposit Growth of around 23 percent and average Advance Growth of about 18

percent in CY2011. Though the Deposit Growth improved marginal (mainly because of the FCBs), there

was notable decrease in the Advance Growth. This might be explained by the very high growth rate of

the previous year and the liquidity difficulties of the banking sector during 2010-2011. All the three

broad groups of banks experienced decline in Advance Growth. SOCBs and PCBs also had marginal

decline in Deposit Growth. Of the bank-groups, PCBs attained relatively higher Deposit and Advance

Growth over the period. During the period, five PCBs attained remarkably high growth rates of over 40

percent both in volume of Deposits and Advances.

Growth figures for CY2011 may offer a misleading picture. After attaining an unusually high profit

growth in CY2010, PCBs suffered decline in CY2011. FCBs attained reasonably high profit growth in CY

2011 in contrast to a marginal growth in CY2010. The data for SCOBs shows unusually high profit

growth in CY2011 which was because of the notable negative growth of five banks in CY2011. Thus the

calculated figure for average growth of profit for the banks for CY2011 does not indicate the true

picture. In terms of Interest Income, banking sector experienced negative growth; however, still SOCBs

were better positioned with about 57 percent growth in CY2011. The growth rates of Net Interest

Income were relatively less for PCBs and FCBs. Practically, Non-Interest Income constitutes reasonably

high proportions for both PCBs and FCBs.

Three, Profitability and Efficiency, judged in terms of Return on Assets, Return on Equity, Total Expenses

to Total Revenue, and Profit per employee, shows mixed outcome. As a whole, the ROA and ROE of the

banks declined. Alongside decrease in income of the banks the changes may be attributed to the

increase in assets and equity due to asset revaluation by several banks. There were also growing

tendency among banks to offer bonus in the form of equity to their employees as a drive to improve

their volume of capital. Of the different bank groups, average ROA and ROE of PCBs declined as of end

CY2011 as compared to that of the CY2010. Especially, average ROE of the PCBs declined by about

one-third during the period. Of the different bank groups, FCBs average Return on Assets and equity

were reasonably good with above 3 percent and 22 percent respectively. Of the total, 25 percent

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banks were having above 2 percent ROA and 16 percent banks were maintaining more than 20 percent

Return on Equity as of end CY2011.

In regard to the operational efficiency, the performance of banks deteriorated. The ratio of Total

Expenses to Total Revenue increased while Profit per Employee declined in between CY2010 and

CY2011. About the performance of banks, FCBs are found to be well ahead of the PCBs and SOCBs in

terms of both the indicators. Though the average ratio of Total Expenses to Total Revenue of FCBs

increased marginally still it was much lower than the other groups. Surprisingly, the ratio of PCBs

increased remarkably and was over 6 percent higher than that of the SOCBs as of CY2011. As the data

for CY2011 indicate, the ratio for about 40 percent PCBs were above 70 percent. In terms of average

Profit per Employee, situations improved for both SOCBs and FCBs. FCBs experienced around

35 percent growth of Profit per Employee in monetary terms, on the contrary PCBs came across decline

of about 24 percent.

Four, Asset Quality of banks, judged in terms of the status of Non-Performing Loans, shows marginal

improvement in between CY2010 and CY2011. The ratio of Gross NPL to Total Loans and Advances

decreased, however, average Growth of the gross NPL increased remarkably mainly due to increase in

the average Growth of the Gross NPL of FCBs. Of the different bank categories, SOCBs had considerably

high NPL as of end CY2010. Average Gross NPL to Total Loans and Advances for PCBs and FCBs were

around 3 percent and 1 percent respectively in CY2011. Of the SOCBs 50 percent and of the PCBs 40

percent banks had the ratio of above 10 percent and around 4 percent of their respective loans and

advances. Average Growth of NPL increased remarkably in CY2011 mainly because of the very high

growth experienced by a single FCB; however, still FCBs as a whole were better positioned in terms of

the NPL indicators.

Concentration of the exposure of credit of banks improved in CY2011. SOCBs attained remarkable

improvement and were better positioned in terms of Credit Concentration. On an average, the status of

credit risk, as indicated by the data on Credit Concentration, improved marginally for PCBs. Though the

FCBs attained remarkable improvement in terms of Credit Concentration, the big loans for FCBs

constitute over 33 percent of their total outstanding loans as of end CY2011. Of the total banks, around

30 percent were having big loans that were above 30 percent of their respective loans and advances.

Loans and advances of the banks have been concentrated in Dhaka division. Especially FCBs heavily

concentrate in Dhaka. Though SOCBs have relatively less geographic concentration as compared to

PCBs and FCBs, still about two-third of the SOCBs’ credit facilities have been concentrated in the Dhaka

divisions. Of the PCBs, 90 percent credit facilities were offered in Dhaka and Chittagong division.

Five, Some notable changes have taken place in the banking sector in terms of Inclusive and Online

Banking in response mainly to the remarkable initiatives on the part of the Bangladesh Bank. Micro and

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Small Credit of the commercial banks increased remarkably from less than 1 percent to more than

6 percent in between CY2010 and CY2011. However, still MSCs constitute an insignificant portion of the

total credit disbursed in the Micro and Small enterprise sector. A few PCBs attained remarkable

improvement in this connection. In regard to agricultural credit, commercial banks’ contribution

deteriorated. As of end CY2011, average Agricultural Credit to the Total Credit of the banks was less

than 1 percent. Though SOCBs account for more than half of the total credit disbursed to the

agricultural sector by the commercial banks, there was significant decrease of the agricultural credit by

the SOCBs in between CY2010 and CY2011. As a whole rural branches of the commercial banks as

proportion of their total braches also declined. In Bangladesh, SOCBs and PCBs have rural bank

branches, but FCBs do not have any. Proportion of rural branches for both the broad categories of

banks declined. As another indicator of inclusive measures, CSR Expenses of banks as percentage of the

Total Assets remained insignificant as of CY 2011. The CSR expenditure of the commercial banks

increased in terms of absolute figure, however, the figure declined as proportion to the total assets.

PCBs were the major contributors of the total CSR expenditures by banks. The status of online banking

in the countries improved remarkably over the years. In between CY 2010 and CY2011, the number of

ATM booths maintained by the banks increased by around 70 percent. And of these a single PCB holds

significantly high market share. The status of online banking in terms of Any Branch Banking also

improved mainly because of the remarkable initiatives by some FCBs and PCBs of the country.

The review of the banks comes up with mixed results. The banking sector expanded and activities

increased. Considering the global economic situation, profitability situation of banks is not at all

disheartening. There is no reason to be pessimistic in regard to the improving efficiency and strength,

however, proactive initiatives on the part of commercial banks especially SOCBs and some PCBs are the

need of the time for ensuring quality assets for the sustainability of the sector. Online banking activities

are also receiving due attention of the banking communities. However, a lot needs to be done to attain

the expected level of financial inclusion in the country. In spite of the remarkable initiatives by the

central bank of Bangladesh, collective responses remained inadequate. Expenditure on quality CSR

activities also requires more attention. There is no doubt that performance of the banking sector would

heavily depend upon the corporate governance practices and supportive regulatory environment in a

growing complex and challenging environment. Irrational expectation of profits and compromising

tendency with the quality of assets on the part of some banks could prove to be dangerous that are

clearly connected with the corporate governance practices of the banking sector of the country. And it

is more or less recognised that as a measure to handle some recently observed malpractices,

Bangladesh Bank needs strong support from the government to enforce its authority and supervisory

power.


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Appendix One: A Short Review of the Specialized Banks of Bangladesh

Currently, there are four specialized banks in Bangladesh. Following liberation, two specialized banks

were nationalized and renamed as Bangladesh Krishi Bank and Bangladesh Shilpa Bank. But Bangladesh

Krishi bank was divided in 1987 and Rajshahi Krishi Unnayan Bank (RAKUB) was created for Rajshahi

Division to promote agricultural development in that region and Bangladesh Krishi bank for the rest of

part of the country. In 1988, another specialized bank named Bank of Small Industries and Commerce

Bangladesh Ltd. (BASIC) was established as a joint venture bank to promote small and medium

entrepreneurship. In 1993, the then Government of Bangladesh took the control of BASIC and was

declared it as a specialized bank. Bangladesh Shilpa Bank was merged with Bangladesh Shilpa Rin

Sangsta(BSRS) in 2010 and renamed as Bangladesh Development Bank Limited(BDBL). Thus, currently

there are four specialized banks which are also termed as Development Financial Institutions (DFIs).

Since its inception, BKB has been offering financial services in the agricultural sector of the country.

Though, agricultural and rural finance programs are being participated by the PCBs and FCBs through

their branch network or in collaboration with NGOs and specialized banks, however, still BKB alone

disbursed most of the total agriculture credit offered by the banking sector. Following the regional

approach, RAKUB is engaged in offering intensive financing services to agriculture of Rajshahi and

Rangpur administrative divisions providing livelihood to over 35 million people of the area considering

the fact that the region is less developed compared to other parts, yet full of potentials in agriculture.

BKB and RAKUB perform functions like financing agri-business and agro-based industries and poverty

alleviation programs. These banks also perform limited commercial banking activities.

BASIC Bank was established as the policy makers of the country felt the urgency for a bank in the private

sector for financing small scale Industries. The bank is unique in its objectives. It is a blend of development

and commercial banks. The bank offers term loans to industries especially to small-scale enterprises,

full-fledged commercial banking service including collection of deposit, short term trade finance,

working capital finance in processing and manufacturing units and financing and facilitating

international trade. It also offers technical support to small scale industries in order to enable them to

run their enterprises successfully. In addition to that Basic Bank serves urban poor through linkage with

NGOs with a view to facilitating their access to the formal financial market for the mobilization of

resources. BDBL offers commercial banking services and provides financial and technical assistance to

broaden the private as well as public sector industrial base of the country. In regard to offering financing

services, BDBL prioritizes export oriented industrial units, efficient import substitution, commercialization

of local technology and promotion of agro-based industry. These banks are engaged in offering

reasonably good amount in SME sector of the country.

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Appendix Figure 1.1: Market Share of Specialized Banks in Advances, Deposits, Assets and Branches [in percentage]

Deposit Loans

Assets BranchesSource: Based on MOF and Annual Reports of Banks

Of the specialized banks, BKB is the market leader having significant market shares in terms of total

deposits, advances, assists and branch networks [appendix figure 1.1]. BKB was holding more than half

of the total market share in all categories. Specialized banks attained notable growth in terms of total

deposits and number of branches mainly because of the very high deposit growth attained by the BDBL

and notable increase in the number of branches of the BASIC bank in between 2010 and 2011. Growth

rates of the loans and advances remained far behind the growth of deposits, a situation matches with

that of the commercial banking sector mainly in response to the liquidity difficulty faced by the banking

industry [appendix figure 1.2]. Average operating profits of the specialized banks decreased and

classified loans remained a matter of concern mainly because of the very high classified loans of BKB

and RAKUB [appendix figure 1.3].

Appendix Figure 1.2: Average Growth Rates of Selected Expansion Indicators of the Specialized Banks [Average in %]

Source: Based on MOF and Annual Reports of Banks%]

29.20

2.21 59.55

9.05

BASIC

BDBL

BKB

RAKUB

24.54

4.33

56.83

14.30

BASIC

BDBL

BKB

RAKUB

23.73

8.78

53.32

14.18 BASIC

BDBL

BKB

RAKUB

2.42 1.50

69.28

26.02 BASIC

BDBL

BKB

RAKUB

20.62

13.49

10.43

1.97

14.44

0.00

5.00

10.00

15.00

20.00

25.00

Deposit Total Loansand Advance

Total Assets TotalEmployees

Number ofBranch

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Appendix Figure 1.3: Average Growth Rates of Selected Performance Indicators of the Specialized Banks [Average in %]

Source: Based on MOF and Annual Reports of Banks

Tables 1.1 and 1.1 show the indicators related to the expansion and performance of the specialized

banks of the country in 2010 and 2011. Rural economy of the country has been receiving benefits

mainly from the BKB and RAKUB. The tables show that BKB and RAKUB had notable outstanding

volumes of agricultural credit both in 2010 and 2011. Three specialized banks, BKB, RAKUB, and BASIC

disbursed considerable amount targeting poverty eradication. According to the available information

for 2011, other than BASIC, the classified loans of the specialized banking sector was at very high level.

Practically, BKB and RAKUB have mainly been engaged in implementing government’s policy initiative

to ensure greater access of the rural and agricultural economy to the formal sector banks, and thus

asset quality received less priority in disbursing credit. These banks have also been distributing credit at

relatively lower interest rates.

Appendix Table 1.1: Status of Deposits, Loans, Branches and Employees for the Year 2010

[in million BDT]

BASIC BDBL BKB RAKUB

Deposit 49259 3254 110225 20672

Total Loans and Advance 46341 9906 106289 31328

Total Assets 61500 27519 159847 46431

Total Employees 964 757 9718 3387

Number of Branch 34 17 954 365

Agricultural Loans 0 0 65858 20722

Poverty Eradication Loans 989 0 4134 1000

Classified Loans 2237 3101 28082 13131

Classified Loan to Total Loans 4.83 38.5 26 42

Operating Profit 1717 823 144 -247


4.69 -4.81

-235.97

-250

-200

-150

-100

-50

0

50

Classified Loans Classified Loan Ratio Operating Profit

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Appendix Table 1.2: Status of Deposits, Loans, Branches and Employees for the Year 2011 [in million BDT]


Deposit 62651 4733 127777 19417

Total Loans and Advance 56886 10045 131754 33156

Total Assets 78023 28850 175276 46604

Total Employees 1132 741 9166 3328

Number of Branch 45 21 972 365

Agricultural Loans 338 0 71883 22537

Poverty Eradication Loans 4471 0 3178 1137

Classified Loans 2489 3100 30283 13089

Classified Loans to Total Loans 4.83 38.28 23 39

Operating Profit 2336 867 -1543 -707


Appendix Table 1.3: Selected Growth Indicators of Specialized Banks

[Growth Rates in % between 2010 and 2012]


Deposit 27.19 45.45 15.92 -6.07

Total Loans and Advance 22.76 1.40 23.96 5.84

Total Assets 26.87 4.84 9.65 0.37

Total Employees 17.43 -2.11 -5.68 -1.74

Number of Branch 32.35 23.53 1.89 0.00

Classified Loans 11.27 -0.03 7.84 -0.32


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