History
Before independence
The first modern bank in Bengal was Bank of Hindustan, established in 1770 in Calcutta. It was an offshoot of trading company Messrs. Alexander and Co. and operated until 1832 when the trading company failed. The circulation of its notes was limited to Calcutta and its immediate environs.
A number of Calcutta-based banks followed, none which survived beyond the middle of the 19th century: General Bank of Bengal and Bihar (1733–75); Bengal Bank (1784–91) (no relation to the later Bank of Bengal); General Bank, later General Bank of India (1786–91); The Commercial Bank (1819–33); The Calcutta Bank (1824–29); Union Bank (1829–48); Government Savings Bank (1833–unknown); and The Bank of Mirzapore (c. 1835 – 1837).
The Bank of Calcutta, established in 1806, is the oldest still in existence in some form. It was renamed Bank of Bengal in 1809, was merged into the Imperial Bank of India in 1921, and became the State Bank of India in 1955.
The first modern bank headquartered in Dhaka was Dacca Bank, established in 1846. It did a very limited business and did not issue banknotes. It was purchased by Bank of Bengal in 1862. Bank of Bengal opened branches in Sirajganj and Chittagong in 1873, and in Chandpur in 1900. In 1947, upon the Partition of Bengal, it had six branches in East Bengal, in Dhaka, Chittagong, Chandpur, Mymensingh, Rangpur, and Narayanganj.
Following the partition, branches of the registered banks started shifting to India or close down their operations in East Bengal. Resulting only 69 branches were left all over the East Pakistan in 1951.
In 1959, Eastern Mercantile Bank Limited was established and had 106 before independence. Consequently, in 1965 Eastern Banking Corporation was established and soon reached 60 just before the liberation war. These two banks were established with the initiation of some renowned Bengali businessmen for providing credit to the local entrepreneurs who had limited access to the credit in those days from other financial institutions of West Pakistan.
After independence
The banking system at independence (1971) consisted of two branch offices of the former State Bank of Pakistan and seventeen large commercial banks, two of which were controlled by Bangladeshi interests and three by foreigners other than West Pakistanis. There were fourteen smaller commercial banks.
Virtually all banking services were concentrated in urban areas. The newly independent government immediately designated the Dhaka branch of the State Bank of Pakistan as the central bank and renamed it the Bangladesh Bank. The bank was responsible for regulating currency, controlling credit and monetary policy, and administering exchange control and the official foreign exchange reserves. The Bangladesh government initially nationalised the entire domestic banking system and proceeded to reorganise and rename the various banks. Foreign-owned banks were permitted to continue doing business in Bangladesh. The insurance business was also nationalised and became a source of potential investment funds. Cooperative credit systems and postal savings offices handled service to small individual and rural accounts. The new banking system succeeded in establishing reasonably efficient procedures for managing credit and foreign exchange. The primary function of the credit system throughout the 1970s was to finance trade and the public sector, which together absorbed 75 percent of total advances.
After the liberation of Bangladesh, the twelve Banking companies who were doing business in Bangladesh, were nationalized by the Government of the People's Republic of Bangladesh.
| Nationalized banks | Before independence | ||
|---|---|---|---|
| Sonali Bank | National Bank of Pakistan | Bank of Bhawalpur | Premier Bank Limited |
| The silver bank | Muslim Commercial Bank | Australia Bank Limited | Standard Bank Limited |
| Agrani Bank | Commerce Bank Limited | Habib Bank Limited | |
| Janata Bank Ltd. | United Bank Limited | Union Bank Limited | |
| Pubali Bank | Eastern Mercantile Bank Limited | ||
| Uttara Bank | Eastern Banking Corporation | ||
The transformation of finance priorities has brought with it problems in administration. No sound project-appraisal system was in place to identify viable borrowers and projects. Lending institutions did not have adequate autonomy to choose borrowers and projects and were often instructed by the political authorities. In addition, the incentive system for the banks stressed disbursements rather than recoveries, and the accounting and debt collection systems were inadequate to deal with the problems of loan recovery. It became more common for borrowers to default on loans than to repay them; the lending system was simply disbursing grant assistance to private individuals who qualified for loans more for political than for economic reasons. The rate of recovery on agricultural loans was only 27 percent in FY 1986, and the rate on industrial loans was even worse. As a result of this poor showing, major donors applied pressure to induce the government and banks to take firmer action to strengthen internal bank management and credit discipline. As a consequence, recovery rates began to improve in 1987. The National Commission on Money, Credit, and Banking recommended broad structural changes in Bangladesh's system of financial intermediation early in 1987, many of which were built into a three-year compensatory financing facility signed by Bangladesh with the IMF in February 1987.
One major exception to the management problems of Bangladeshi banks was the Grameen Bank, begun as a government project in 1976 and established in 1983 as an independent bank. In the late 1980s, the bank continued to provide financial resources to the poor on reasonable terms and to generate productive self-employment without external assistance. Its customers were landless persons who took small loans for all types of economic activities, including housing. About 70 percent of the borrowers were women, who were otherwise not much represented in institutional finance. Collective rural enterprises also could borrow from the Grameen Bank for investments in tube wells, rice and oil mills, and power looms and for leasing land for joint cultivation. The average loan by the Grameen Bank in the mid-1980s was around Tk2,000 (US$25), and the maximum was just Tk18,000 (for construction of a tin-roof house). Repayment terms were 4 percent for rural housing and 8.5 percent for normal lending operations.
The Grameen Bank extended collateral-free loans to 200,000 landless people in its first 10 years. Most of its customers had never dealt with formal lending institutions before. The most remarkable accomplishment was the phenomenal recovery rate; amid the prevailing pattern of bad debts throughout the Bangladeshi banking system, only 4 percent of Grameen Bank loans were overdue. The bank had from the outset applied a specialised system of intensive credit supervision that set it apart from others. Its success, though still on a rather small scale, provided hope that it could continue to grow and that it could be replicated or adapted to other development-related priorities. The Grameen Bank was expanding rapidly, planning to have 500 branches throughout the country by the late 1980s.
Beginning in late 1985, the government pursued a tight monetary policy aimed at limiting the growth of domestic private credit and government borrowing from the banking system. The policy was largely successful in reducing the growth of the money supply and total domestic credit. Net credit to the government actually declined in FY 1986. The problem of credit recovery remained a threat to monetary stability, responsible for serious resource misallocation and harsh inequities. Although the government had begun effective measures to improve financial discipline, the draconian contraction of credit availability contained the risk of inadvertently discouraging new economic activity.
Foreign exchange reserves at the end of FY 1986 were US$476 million, equivalent to slightly more than two months worth of imports. This represented a 20-percent increase of reserves over the previous year, largely the result of higher remittances by Bangladeshi workers abroad. The country also reduced imports by about 10 percent to US$2.4 billion. Because of Bangladesh's status as a least developed country receiving concessional loans, private creditors accounted for only about 6 percent of outstanding public debt. The external public debt was US$6.4 billion, and annual debt service payments were US$467 million at the end of FY 1986.
Islamic banking in Bangladesh
Bangladesh has eight Islamic banks, while several non-Islamic banks offer Islamic-banking services alongside their normal operations. As of 2017, Islamic banking, led by Islami Bank Bangladesh Ltd, controls 20% of deposits in Bangladesh. Bangladesh operates the world's biggest Islamic microfinance scheme. According to Bangladeshi government polling, Islamic banking has an overall approval rating of 84% among the country's population.
Mobile banking in Bangladesh
| Name of service | Bank / service provider | Opening ceremony | Launch the first service in the market | Associate Mobile Operator | Advantage (Charge) | ||||
|---|---|---|---|---|---|---|---|---|---|
| In cash | Cash out | Beating | Mobile recharge | Shopping / Bill Payment | |||||
| DBBL Mobile Banking (Rocket) | Dutch Bangla Bank Limited Bangladesh | December 26th | May 25th | Banglalink (1 March 25), CityCell (1 March 25), Grameenphone (25 November 29), Airtel (12 September 25). | Yes | Yes | Yes | Yes | Yes |
| To develop | BRAC Bank Limited Bangladesh | July 26th | Grameenphone (1 Jan 2012), Banglalink (July 25) | Yes | Yes | Yes | Yes | Yes | |
| Yucash | United Commercial Bank Limited Bangladesh | November 25th | Grameenphone (27 June 26), Banglalink (March 25) | Yes | Yes | Yes | Yes | Yes | |
| My cash | Mercantile Bank Ltd. Bangladesh | February 202 | Grameenphone (1st December 25th) banglalink (27th October 26th) | Yes | Yes | Yes | Yes | Yes | |
| OK mobile banking | One Bank Limited Bangladesh | October 26th | Grameenphone (8 October 25) | Yes | Yes | Yes | Yes | Yes | |
| Cash | Bangladesh Post Office Ltd. | Yes | Yes | Yes | Yes | No | |||
| T-Cash | Trust Bank Ltd. Bangladesh | 1st April 26th | Yes | Yes | Yes | Yes | Yes | ||
| M-Cash | Islamic Bank | Yes | Yes | Yes | Yes | Yes | |||
| Sure Cash | The silver bank | Yes | Yes | Yes | Yes | Yes | |||
Anyanyah different mobile operator bill payment service
| Name of service | Mobile operator / service provider | Opening ceremony | Launch the first service in the market | The cost of service | Services | ||||
|---|---|---|---|---|---|---|---|---|---|
| Mobile recharge | Electricity | Gas | Water | The other | |||||
| Mobile cache | (Banglalink Digital Communications Ltd.) | January 5 | January 5 | Yes | Yes | Yes | Yes | ||
| MobiCash (Bilpay) | (Grameenphone) | 3 December 21 ('BillPay', PDB, Chittagong) 1 March 26 ('Mobitaka', Tickets, Bangladesh Railway) | 3 December 21 ('BillPay', PDB, Chittagong) 1 March 26 ('Mobitaka', Tickets, Bangladesh Railway) | Yes | Yes | Yes | Yes | ||
| Ampe | (Robi) | No | Yes, Greater Comilla | No | No | ||||
| Money | (Robi) | No | No | No | No Dhaka Wasa | ||||
| CityCell wallet | (Citycell) | Yes via SMS (AB Bank), Dial (DBBL) | Yes Desco (via sms, wallet) | No | Yes Dhaka WASA (via SMS, wallet) | Foreign Remittance (References: AB Bank) | |||
Central bank
Bangladesh Bank (Bengali: বাংলাদেশ ব্যাংক) is the central bank of Bangladesh and is a member of the Asian Clearing Union.
The bank is active in developing green banking and financial inclusion policy and is an important member of the Alliance for Financial Inclusion. Bangladesh Financial Intelligence Unit (BFIU), a department of Bangladesh Bank, has got the membership of Egmont Group.
Bangladesh Bank is the first central bank in the world to introduce a dedicated hotline (16236) for the general populace to complain any banking related problem. Moreover, the organisation is the first central bank in the world to issue a "Green Banking Policy". To acknowledge this contribution, then-governor Dr. Atiur Rahman was given the title 'Green Governor' at the 2012 United Nations Climate Change Conference, held at the Qatar National Convention Centre in Doha. But after the death now on his remark led is on MD Unus Ali 2nd Officer Of Bangladesh Bank.
History
On 7 April 1972, after the Independence War and the eventual independence of Bangladesh, the Government of Bangladesh passed the Bangladesh Bank Order, 1972 (P.O. No. 127 of 1972), reorganising the Dhaka branch of the State Bank of Pakistan as Bangladesh Bank, the country's central bank and apex regulatory body for the country's monetary and financial system.
The 1972 Mujib government pursued a pro-socialist agenda. In 1972, the government decided to nationalise all banks to channel funds to the public sector and to prioritise credit to those sectors that sought to reconstruct the war-torn country – mainly industry and agriculture. However, government control of the wrong sectors prevented these banks from functioning well. This was compounded by the fact that loans were handed out to the public sector without commercial considerations; banks had poor capital lease, provided poor customer service and lacked all market-based monetary instruments. Because loans were given out without commercial considerations, and because they took a long time to call a non-performing loan, and once they did, recovery under the erstwhile judicial system was so expensive, loan recovery was abysmally poor. While the government made a point of intervening everywhere, it did not set up a proper regulatory system to diagnose such problems and correct them. Hence, banking concepts like profitability and liquidity were alien to bank managers, and capital adequacy took a backseat.
In 1982, the first reform program was initiated, wherein the government denationalised two of the six nationalised commercial banks and permitted private local banks to compete in the banking sector. In 1986, a National Commission on Money, Banking and Credit was appointed to deal with the problems of the banking sector, and a number of steps were taken for the recovery targets for the nationalised commercial banks and development financial institutions and prohibiting defaulters from getting new loans. Yet the efficiency of the banking sector could not be improved.
The Financial Sector Adjustment Credit (FSAC) and Financial Sector Reform Programme (FSRP) were formed in 1990, upon contracts with the World Bank. These programs sought to remove government distortions and lessen the financial repression. Policies made use of the McKinnon-Shaw hypothesis, which stated that removing distortions augments efficiency in the credit market and increases competition. The policies therefore involved banks providing loans on a commercial basis, enhancing bank efficiency and limiting government control to monetary policy only. FSRP forced banks to have a minimum capital adequacy, to systematically classify loans and to implement modern computerised systems, including those that handle accounting. It forced the central bank to free up interest rates, revise financial laws and increase supervision in the credit market. The government also developed the capital market, which was also performing poorly.
FSRP expired in 1996. Afterwards, the Government of Bangladesh formed a Bank Reform Committee (BRC), whose recommendations were largely unaddressed by the then-government.
At present it has ten offices located at Motijheel, Sadarghat, Chittagong, Khulna, Bogra, Rajshahi, Sylhet, Barisal, Rangpur and Mymensingh in Bangladesh; total manpower stood at 5807 (officials 3981, subordinate staff 1826) as of 31 March 2015.
Branch offices
Motijheel
Sadarghat
Bogura
Chattogram
Rajshahi
Barishal
Khulna
Sylhet
Rangpur
Mymensingh
Functions
The Bangladesh Bank performs all the functions that a central bank in any country is expected to perform. Such functions include maintaining price stability through economic and monetary policy measures, managing the country's foreign exchange and gold reserve, and regulating the banking sector of the country. Like all other central banks, Bangladesh Bank is both the government's banker and the banker's bank, a "lender of last resort". Bangladesh Bank, like most other central banks, exercises a monopoly over the issue of currency and banknotes. Except for the one, two, and five taka notes and coins which are the responsibility of the Ministry of Finance of the Government of Bangladesh. The major functional areas include :
Formulation and implementation of monetary and credit policies.
Regulation and supervision of banks and non-bank financial institutions, promotion and development of domestic financial markets.
Management of the country's international reserves.
Issuance of currency notes.
Regulation and supervision of the payment system.
Acting as banker to the government .
Money laundering prevention.
Collection and furnishing of credit information.
Implementation of the Foreign Exchange Regulation Act.
Managing a deposit insurance scheme .
Organisation
The bank's highest official is the governor (currently Fazle Kabir). His seat is in Motijheel, Dhaka. The governor chairs the board of directors. The executive staff, also headed by the governor, is responsible for the bank's day-to-day affairs.
Bangladesh Bank also has a number of departments under it, namely Debt Management, Law, and so on, each headed by one or more general managers. The Bank has 10 physical branches: Mymensingh, Motijheel, Sadarghat, Barisal, Khulna, Sylhet, Bogra, Rajshahi, Rangpur and Chittagong; each is headed by a general manager or executive director. Headquarters are located in the Bangladesh Bank Building in Motijheel, which has two general managers.
Hierarchy
The executive staff is responsible for daily affairs, and includes the governor and three deputy governors. Under the governors, there are executive directors and an economic advisor.
The general managers of the departments come under the executive directors, and are not part of the executive staff.
The three deputy governors are:
Abu Hena Mohd. Razee Hassan, S. M. Moniruzzaman and Ahmed Jamal .
Board of directors
The board of directors consists of the bank's governor and eight other members. They are responsible for the policies undertaken by the bank.
Publications of Bangladesh Bank
Bangladesh Bank publishes a range of periodical publications, research papers, and reports that contain monetary and banking developments, economic reviews, as well as various other statistical data. These include:
Annual Report
Bangladesh Bank Quarterly
Monetary Policy Review
CSR Initiatives in Banks
BBTA Journal : Thoughts on Banking and Finance
Annual Report on Green Banking
Import Payments
Financial Stability Assessment Report
Governors
Since its conception, the Bangladesh Bank has had 11 governors:
A.N.M. Hamidullah (18 January 1972 – 18 November 1974)
A.K. Naziruddin Ahmed (19 November 1974 – 13 July 1976)
M. Nurul Islam (13 July 1976 – 12 April 1987)
Shegufta Bakht Chaudhuri (12 April 1987 – 19 December 1992)
Khorshed Alam (20 December 1992 – 21 November 1996)
Lutfar Rahman Sarkar (21 November 1996 – 21 November 1998)
Mohammed Farashuddin (24 November 1998 – 22 November 2001)
Fakhruddin Ahmed (29 November 2001 – 30 April 2005)
Salehuddin Ahmed (1 May 2005 – 30 April 2009)
Atiur Rahman (1 May 2009 – 15 March 2016)
Fazle Kabir (20 March 2016 – present)
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