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Central Bank & The Banking Sector

Acts

Bangladesh Bank Order, 1972

Bank Company Act 1991

Bank Company Amendment 2013

Negotiable instrument Act

Foreign exchange regulation

Financial Institutions

Micro credit regulation

Money laundering act

The deposit insurance scheme (DIS) August 1984

Financial System: Financial institutions, instruments and markets facilitating transactions for goods and services and

financial transactions.

Financial Instrument: Issued by a party raising funds, acknowledging a financial commitment and entitling holder to

specified future cash flows.

Flow of Funds: Movement of funds through the financial system between savers and borrowers giving rise to

financial instruments.

Financial System

Attributes of financial assets

Return or yield Risk

Liquidity Time pattern of cash flow

Functions of the Financial System

The financial system facilitates portfolio restructuring The combination of assets and liabilities comprising the desired attributes of return, risk, liquidity

and timing of cash flows

An efficient financial system Encourages savings Ensures savings flow to the most efficient users Implements the monetary policy of governments by influencing interest rates The combination of assets and liabilities comprising the desired attributes of return, risk, liquidity

and timing of cash flows

Financial System: Structure

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Role of markets: Facilitate exchange by Bringing opposite parties together Establishing rates of exchange, i.e. prices

Surplus units: Savers of funds available for lending

Deficit units: Borrowers of funds for capital investment and consumption

Financial institutions permit the flow of funds between borrowers and lenders by facilitating financial transactions

Institutions may be categorized by differences in the sources and uses of funds

Functions of Banks

Asset management Liability management

Sources of Funds

Sources of funds appear in the balance sheet as either liabilities or shareholders funds Banks offer a range of deposit and investment products with different mixes of liquidity, return, maturity

and cash flow structure to attract the savings of surplus entities

Current deposits Call or demand deposits Term deposits Negotiable CDs Debt liabilities: Medium- to longer-term debt instruments issued by a bank

Debenture A bond supported by a form of security, being a charge over the assets of the issuer

(e.g. collateralised floating charge)

Unsecured note A bond issued with no supporting security

Foreign currency liabilities Loan capital

Uses of Funds

Uses of funds appear in the balance sheet as assets The majority of bank assets are loans which give rise to an entitlement to future cash flows, i.e. interest and

repayment of principal

Lending to government Commercial lending Personal finance

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Uses of Funds

Lending to government

Treasury notes: Short-term discount securities issued by the Government Treasury bondsMedium- to longer-term securities issued by the government that pay a specified interest

coupon stream

Low risk and low return Uses of Funds

Commercial lending

Overdraft A facility allowing a businesss operating account into debit up to an agreed limit

Bank bills held Bills of exchange accepted and discounted by a bank and held as assets A rollover facility is where a bank agrees to discount new bills over a specified period as existing bills

mature

Leasing Derivatives Supervision of banks Regulator

Central Bank

Established on December 16, 1971 through the enactment of Bangladesh Bank Order 1972-Presidents Order No. 127 of 1972 (Amended in 2003).

9 members' Board of Directors which is headed by the Governor who is the Chief Executive Officer ofthis institution. BB has 40 departments and 9 branch offices

vision of Bangladesh bankTo develop continually as a forward looking central bank with competent and committed professionals of high

ethical standards, conducting monetary management and financial sector supervision to maintain price stability and

financial system robustness, supporting rapid broad based inclusive economic growth, employment generation andpoverty eradication in Bangladesh.

Functions of BB are (Section 7A of BB Order, 1972) Formulate and implement monetary policy; Implement intervention policies in the foreign exchange market; Give advice to the Government on the interaction of monetary policy with fiscal and exchange rate policy, on

the impact of various policy measures on the economy and to propose legislative measures it considers

necessary or appropriate to attain its objectives and perform its functions;

Hold and manage the official foreign reserves of Bangladesh; Promote, regulate and ensure a secure and efficient payment system, including the issue of bank notes; Regulate and supervise banking companies and financial institutions. Core Policies of Central Bank

Monetary policy

The main objectives of monetary policy of Bangladesh Bank are:

Price stability both internal & external Sustainable growth & development High employment Economic and efficient use of resources Stability of financial & payment system

Monetary Policy Instruments Open Market Operations (OMO), Repurchase agreements (Repo) & Reverse Repo, Statutory Reserve Requirements (SLR & CRR).

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Reserve Management Strategy Interest Rate Policy Regulatory reforms Deposit Insurance

The deposit insurance scheme (DIS) was introduced in Bangladesh in August 1984 to act as a safetynet for the depositors.

All the scheduled banks Bangladesh are the member of this scheme Bank Deposit Insurance Act2000.

The purpose of DIS is to help to increase market discipline, reduce moral hazard in the financialsector and provide safety nets at the minimum cost to the public in the event of bank failure.

Again being transparent supporting public interests have been a priority Regulatory reforms Regulatory reforms Regulatory reforms CB strengthening projects Bangladesh Bank is implementing the Central Bank Strengthening Project (CBSP) with financial assistance of

the World Bank.

The main objective of the projects are to transform Bangladesh Bank into a modern and dynamic centralbank capable of playing appropriate regulatory and supervisory role in the monetary and banking sector.

CSR CSR expenditure by banks (billion BDT)

2008 2009 2010 2011

0.41 0.55 2.33 2.18

The goal of CSR is to embrace responsibility for the company's actions and encourage a positive impact through its

activities on the environment, consumers, stakeholders, communities, public and employees as well.

Sectors of CSR Humanitarian & Disaster relief Education Health Sports Art & culture Environment Banks have been instructed to include gender equality related performance indicators in the CSR reporting. Customers' Interests Protection Centre (CIPC) established by BB.

Objectives? Green banking a new dimension Green banking products are those that help create a favorable impact on environment. The banking sector

can play a significant role in protecting the environment by financing support to high impact environmentally

sensitive sectors.

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