Financial Institution Main

5/20/2018 Financial Institution Main

1/19

Financial Institutions/Intermediaries:

An organization which borrows funds from lenders and lends them to borrowers onterms which are better for both parties than if they dealt directly with each other.Financial institutions as intermediaries:

As a general rule, financial institutions are all engaged to some degree in what is

called intermediation. Rather obviously intermediation means acting as a go-betweenfor two parties. The parties here are usually called lenders and borrowers orsometimes-surplus sectors or units, and deficit sectors or units.

As a general rule, what financial intermediaries do is: to create assets for savers andliabilities for borrowers which are more attractive to each than would be the case ifthe parties had to deal with each other directly.There are two general consequences of financial intermediation. The first is that therewill exist more financial assets and liabilities than would be the case if the communitywere to rely upon direct lending.The second general consequence of the intervention of financial institutions is thatlending and borrowing have become easier. It is now no longer necessary for saversto search out borrowers with matching needs. In this sense financial intermediaries

have lowered the transaction costs of lending and borrowing.

Banks:

Banking is essentially based on the debtor-creditor relationship between thedepositors and the bank on the one hand and between the borrowers and the bankon the other. Interest is considered to be the price of credit, reflecting theopportunity cost of money.

The commercial banking system dominates Bangladesh's financial sector. BangladeshBank is the Central Bank of Bangladesh and the chief regulatory authority in the

sector. The banking system is composed of four Public commercial banks, fivespecialized development banks, thirty private commercial Banks and nine foreigncommercial banks.Out of 6562 scheduled bank branches operating in the country, up to end December2006 the NCBs operate 3384 branches, of which 2146 are in rural areas and 1238 arein urban areas; SBs have 1354 branches of which 1200 are in rural areas and 154 arein urban areas; PCBs have 1776 branches of which 488 are in rural areas and 1288are in urban areas; and FCBs have 48 branches exclusively in urban areas. Out of 30PCBs, six have been operating as Islamic banks. After the year 2006 that totalnumber of branches are increasing rapidly up to 2009.List of All types of banking sectors are:

Central Bank Private Commercial Banks

Public Commercial Banks

Foreign Commercial Banks

Specialized Development Banks

Private Commercial Banks:


2/19

Even with all the provisions at hand, during the interviews many experts opined

that there could be separate agencies to regulate and supervise the private

sector banking activities in Bangladesh. A number of agencies can be set up and

each would look into a number aspects related to private sector banking. Under

the current system, the commercial banks and financial institutions have to

report to and are to a certain extent supervised by the Securities and Exchange

Commission, when they register with the stock exchange.

Private banks are the highest growth sector due to the dismal performances of

government banks (above). They tend to offer better service and products.

AB Bank Ltd

BRAC Bank Limited

Eastern Bank Limited

Dutch Bangla Bank Limited

Dhaka Bank Limited

Islami Bank Bangladesh Ltd

Pubali Bank Limited

Uttara Bank Limited

IFIC Bank Limited

National Bank Limited

United Commercial Bank Limited

NCC Bank Limited

Prime Bank Limited

SouthEast Bank Limited

Al-Arafah Islami Bank Limited


3/19

Social Islami Bank Limited

Standard Bank Limited

One Bank Limited

Exim Bank Limited

Mercantile Bank Limited

Bangladesh Commerce Bank Limited

Mutual Trust Bank Limited

First Security Islami Bank Limited

The Premier Bank Limited

Bank Asia Limited

Trust Bank Limited

Shahjalal Islami Bank Limited

Jamuna Bank Limited

ICB Islami Bank

Moon Bank Limited

United Commercial Bank Limited

Aziz Co-op Commerce & Finance

Bank Ltd.

Eastern Bank Limited

Social Investment Bank Limited

Uttara Bank Limited

STRUCTURE OF FINANCIAL SYSTEM IN BANGLADESH

7

b) Public Commercial Banks:


4/19

The Basel Committee on Banking Supervision published guidance in 1999 to assist

banking supervisors in promoting the adoption of sound corporate governance

practices by banking organizations in their countries. This guidance drew from

principles of corporate governance that were published earlier that year by the

Organization for Economic Co-operation and Development (OECD) with the purpose

of assisting governments in their efforts to evaluate and improve their frameworks

for corporate governance and to provide guidance for financial market regulators

and participants in financial markets at public commercial banks.

Sonali Bank Limited

Janata Bank Limited

Agrani Bank Limited

Rupali Bank Limited

c) Private Foreign Commercial Banks:

The state and nature of corporate governance has been studied under five general

headings. Three types of foreign commercial banks or companies were studied: a)

the public corporations - these are mainly private utility companies operated by the

government with a board of director consisting of the people of Bangladesh and

few experts, b) financial institutions like banks which are listed in the Dhaka Stock

Exchange but related with governmental condition about share distribution and c)

non-financial limited companies also listed in the stock exchanges in the country but

related with governmental condition about share distribution.

Citibank

HSBC

Standard Chartered Bank


5/19

Commercial Bank of Ceylon

State Bank of India

Habib Bank

National Bank of Pakistan

Bank Alfalah

d) Specialized Financial Institutions:

Out of the specialized banks, two (Bangladesh Krishi Bank and Rajshahi Krishi

Unnayan Bank) were created to meet the credit needs of the agricultural sector

while the other two ( Bangladesh Shilpa Bank (BSB) & Bangladesh Shilpa Rin

Sangtha (BSRS) are for extending term loans to the industrial sector. The

Specialized banks are:

Grameen Bank

Bangladesh Krishi Bank

Bangladesh Development Bank Ltd

Rajshahi Krishi Unnayan Bank

Basic Bank Ltd (Bank of Small Industries and Commerce)

Bangladesh Somobay Bank Limited (Cooperative Bank)

Ansar VDP Unnyan Bank

Non-Bank Financial Institutions:

Non-Bank Financial institutions in Bangladesh have been playing a significant role in financial

system of the country. This sector has emerged as an increasingly important segment of the

financial system because of the rapidly rising demand for long term financing and equity type

services. NBFIs added differentiation to the bank based financial market of Bangladesh. The

inevitability of the NBFIs has created a new phase to strengthen the financial system of the

country in parallel with the saturated banking industry. Thus, this sector has become a distinct


6/19

player in maintaining the sound health of our financial and economic sectors. NBFIs in

Bangladesh play major role in filling gaps in financial intermediation by providing diversified

investment instruments and risk pooling services. NBFIs have achieved impressive growth in

recent years reflecting the importance of financial innovation and holding the promise of

deepening financial intermediation through satisfying long term financing need.

Backgrounds of NBFIs in Bangladesh

NBFIs were incorporated in Bangladesh under the Company Act, 1912 and were being regulated

by thr provisions contained in Chapter V of the Bangladesh Bank Order. 1972. Later to remove

regulatory deficiency and also to define a wide range of activities to be covered by the NBFIs, a

new statute titled the Financial Institution Act, 1993 was enacted in 1993 by the Financial

Institution Regulation, 1994. NBFIs have been given license and regulated under the Financial

Institution Act 1993. There are 31 NBFIs licensed under this act. As per the Financial Institution

Regulation, 1994, at present minimum paid up capital for NBFIs is Taka 1.0 billion or 100 Crores.So far, twenty one NBFIs raised capital though issuing IPO, while three are exempted from the

issuance of IPO. Other major sources of funds of NBFIs are term deposit, credit facility from

banks and other NBFIs, call money as well as bond and securitization. The NBFIs business line is

narrow in comparison with banks in Bangladesh. Now a days the NBFIs are working as multi

product financial institutions.

Year 2006 2007 2008 2009 2010 2011 2012

No. of NBFIs 29 29 29 29 29 30 31

Government

owned

1 1 1 1 1 2 3

Joint-venture 8 8 8 8 8 8 10

Private 20 20 20 20 20 20 18

New branches 10 8 8 8 20 53 3

Total branches 64 72 80 88 108 161 164

Source: Department of Financial Institutions and Markets, BB

NBFI Sector Performance

Assets: The asset base of the NBFIs increased substantially in 2911 and 2012. Aggregate

industry assets increased to Taka 288.4 billion 2011 from taka 251.5 billion in 2010, showing a

growth of 14.7 percent. The growth rate for 2012 will probably be higher than that of 2011. By

the end of June 2012 taka asset increased to Taka 309.0 billion.

Investment:NBFIs are investing in different sectors of the economy, ut their investments are

mostly concentrated in industrial sector. In June 2012 the different sectors in which the NBFIs


7/19

invested were industry (42.6%), real estate (18.5%), trade and commerce (10.4%), merchant

banking (1.4%), agriculture sector (1.3%) and others (17.8%)

Liabilities and equity: The aggregate liability of the industry in 2011 increased to Taka 235.7

billion from Taka 206.8 billion in 2010 while equity increased to Taka 52.7 billion in 2011

compared to Taka 44.7 billion in 2010 showing an overall increase of 14.0 and 17.9 percent

respectively. Total liabilities and equity were Taka 252.2 billion and Taka 56.8 billion

respectively at end of June 2012

Deposits:Total deposits of the NBFIs in 2011 rose to Taka 112.6 billion (47.8% of total liabilities)

from Taka 94.4 billion (45.7% of total liabilities) in 2010 showing an overall increase of 19.3

percent. On 30 June 2012 total deposit stood at Taka 124.2 billion (49.2 percent of total

liabilities)

Overall Performance of the NBFIs in terms of CAMELS rating

As of December 2011, out of the 29 NBFIs, the composite CAMEL rating of 2 NBFIs were 1 or

Strong, 16 were 2 or Satisfactory, 10 were 3 or Fair and the rest was 4 or Marginal. On

the other hand, in December 2010, out of the 29 NBFIs, the composite CAMEL rating of 14

NBFIs were 2 or Satisfactory and the rest of the 15 NBFIs rating were 3 or Fair. The CAMEL

rating of the entire industry improved compared to the previous year.


8/19

Different products and services


9/19


10/19


11/19

a) Insurance Companies

The insurance sector is regulated by the Insurance Act, 1938 with regulatory

oversight provided by the Controller of Insurance on authority under the Ministry of

Commerce. A separate Insurance Regulatory Authority is being established. A total of

62 insurance companies have been operating in Bangladesh, of which 19 provide life

insurance and 43 are in the general insurance field. Among the life insurance

companies, except the state-owned Jiban Bima Corporation (GBC) foreign owned

American Life Insurance Company (ALlCO), and the rest of the private. Among the

general insurance companies, state-owned Shadharan Bima Corporation (SBC) is the

most active in the insurance sector. A total of 31 insurance companies are listed in

the capital market, of which 8 offer life insurances.

i) Life Insurance Company (Public)

Jiban Bima Corporation

ii) Life Insurance Company (Foreign)

American Life Insurance Co.

iii) Life Insurance Company (Private)

National Life Insurance Co. Ltd.


12/19

Delta Life Insurance Co. Ltd.

Fareast Islami Life Insurance Co. Ltd.

Homeland Life Insurance Co. Ltd.

Meghna Life Insurance Co. Ltd.

Padma Islami Life Insurance Co. Ltd.

Sandhani Life Insurance Co. Ltd.

Sunflower Life Insurance Co. Ltd.

Baira Life Insurance Co. Ltd.

Golden Life Insurance Co. Ltd.

Progoti Life Insurance Co. Ltd.

Prime Life Insurance Co. Ltd.

Popular Life Insurance Co. Ltd.

Progressive Life Insurance Co. Ltd.

Rupali Life Insurance Co. Ltd.

Sun Life Insurance Co. Ltd.


12

iv) General Insurance Company (Public)

Sadharan Bima Corporation

v) General Insurance Company (Private)

Agrani Insurance Company Limited.

Bangladesh Co-operative General Insurance Ltd.

Bangladesh General Insurance Co. Ltd.

Bangladesh National Insurance Co. Ltd.


13/19

Central Insurance Co. Ltd.

City General Insurance Co. Ltd

Eastern Insurance Co. Ltd

Eastland Insurance Co. Ltd

Federal Insurance Co. Ltd

Green Delta Insurance Co. Ltd

Janata Insurance Co. Ltd

Karnafully Insurance Co. Ltd

Meghna Insurance Co. Ltd

Mercantile Insurance Co. Ltd

Northern General Insurance Co. Ltd

People's Insurance Co. Ltd

Phoenix Insurance Co. Ltd

Pioneer Insurance Co. Ltd

Prime Insurance Co. Ltd

Progoti General Insurance Co. Ltd

Provati Insurance Co. Ltd

Purabi General Insurance Co. Ltd

Reliance Insurance Co. Ltd

Rupali Insurance Co. Ltd

United Insurance Co. Ltd

Takaful Islami Insurance Company Limited

Crystal Insurance Co. Ltd

Republic Insurance Company Limited


14/19

Global Insurance Company Limited

Paramount Insurance Co. Ltd.

Standard Insurance Co. Ltd.

Asia Pacific Insurance Co. Ltd.

South Asia Insurance Co. Ltd.

Express Insurance Ltd.

Continental Insurance Ltd.

Desh General Insurance Ltd.


13

b) Security Firms

Financial institutions that underwrite securities and engage in related activities such

as securities brokerage, securities trading and making a market in which securities

can trade.

Nabiul Karim Securities Ltd.

Haji Mohammad Ali Securities Ltd.

GMF Securities Limited

Quaiyum Securities Ltd.

Dragon Securities Ltd.

TA Khan Securities Co. Ltd.,

Md. Fokhrul Islam Securities Limited.

Shahiq Securities Ltd.

Habibur Rahman Securities Limited

Ershad Securities Ltd.


15/19

Mian Abdur Rashid Securities Ltd.

Khurshid Securities Ltd.

Rapid Securities Limited

Dawn Securities Limited.

Arafat Securities Ltd.

Shahed Securities Ltd.

Tobarak Securities Ltd.

Midway Securities Ltd.

Parkway Securities Ltd.

HR Securities & Investment Limted

Kazi Feroz Rashid Securities Ltd.

MAH Securities Ltd.

DMR Securities Services Ltd.

Alhaj Jahanara Securities Ltd.

RNI Securities Ltd.

GQ Securities Ltd.

Crest Securities Limited.

Asenz Securities Ltd.

Finvest Securities Ltd.

MAH Securities Limited

Nabiul Karim Securities Limited

Jalalabad Securities Limited

Haji Mohammad Ali Securities

Akij Securities Limited


16/19

Mian Abdur Rashid Securities


14

c) Investment Banks

It primarily helps net suppliers of funds transfer funds to net users of funds at a low

cost and with maximum degree of efficiency.

Bay Leasing & Investments Limited.

Union Capital Ltd.

First Lease International Limited

Phoenix Leasing Co. Ltd.

Peoples Leasing & Financial Services Ltd.

d) Financial Companies

The primary function of finance companies is to make loans to both individuals and

business. Finance companies provide such services as consumer lending, business

lending and mortgage financing.

Industrial Development Leasing Company of Bangladesh (IDLC)

Infrastructure Development Company Limited (IDCOL)

GSP Finance Limited

Delta Brac Housing Finance Corporation Ltd.

Fidelity Assets & Securities Company Limited.

Fareast Finance & Investment Ltd.

LankaBangla Finance Ltd.

Prime Finance & Investment Limited

Bangladesh Industrial Finance Co. Ltd.


17/19

e) Mutual Funds

Mutual funds are portfolios of different securities such as stocks, bonds, treasuries,

derivatives, etc. Mutual funds pool money of both individual and institutional

investors allowing the funds to achieve: (i) economies of scale by reducing costs and

increasing investment returns; (ii) divisibility and diversification; (iii) active

management with superior stock picking and market timing; (iv) reinvestment of

dividends, interest and capital gains; (v) tax-efficiency; and (vi) buying and selling

flexibility. There might be varieties of mutual funds that differ in terms of their

investment objectives, underlying portfolios of shares, risks and returns, fees and

expenses, etc.

Mutual funds are professionally managed investment schemes that collect funds

from small investors and invest in stocks, bonds, short term money market

instruments, and other securities. This ensures a diversified portfolio for the

investors at much less efforts than through purchasing individual stocks and bonds.

Fund managers who undertake trading of the pooled money and are responsible for

managing the portfolio of holdings usually manage mutual funds. Generally, mutual

funds are organized under the law as companies or business trusts and managed by

separate entities. Mutual funds fall into two categories: open-end funds and closedend

funds.


15

Some categories of mutual funds are:

ICB, 1st ICB Mutual Fund, 2nd ICB Mutual Fund, 3rd ICB Mutual Fund,

4th ICB Mutual Fund, 5th ICB Mutual Fund, 6th ICB Mutual Fund, 7th


18/19

ICB Mutual Fund

ICB Mutual Fund

1st BSRS Mutual Fund

AIMS First Granted Mutual

Grameen Mutual Fund One

Grameen One: Scheme Two

ICB AMCL 1st Mutual Fund

ICB AMCL Islamic Mutual Fund

ICB AMCL Unit Fund

ICB AMCL Pension Holder Unit Fund

ICB AMCL First NRB Mutual Fund

ICB AMCL Second NRB Mutual Fund

f) Pension Funds

Pension funds are analyzed as financial intermediaries using a functional approach to

finance, which encompasses traditional theories of intermediation. Funds fulfill a

number of the functions of the financial system more efficiently than banks or direct

holdings. Their growth complements that of capital markets and they have acted as

major catalysts of change in the financial landscape. Financial efficiency in this

functional sense is not the only reason for growth. It is also a consequence of fiscal

incentives and benefits to employers, as well as growing demand arising from the

ageing of the population.

Employers, such as companies, public corporations, and industry or trade groups,

typically sponsor pension funds; accordingly, employers as well as employees

typically contribute. Funds may be internally or externally managed. Returns to


19/19

members of pension plans backed by such funds may be purely dependent on the

market (defined contribution funds) or may be overlaid by a guarantee of the rate of

return by the sponsor (defined benefit funds).

Documents

Financial Institution Main