OVERVIEW OF FINANCIAL STRUCTURE OF BANGLADESH

OVERVIEW OF FINANCIAL STRUCTURE OF BANGLADESH.

Financial structure primarily depends on the level of economic and social development of a particular country. It involves through a historical process along with the level of development different kinds of financial institution grow and develop to meet different kinds of needs of economic and social development. Hence financial structure or system varies from one country to another. As for Bangladesh, financial structure is at the formative stage. Its classification is best with problems because rigid classification often becomes unrealistic. However, for academic process, financial institution in Bangladesh may broadly be divided into two groups.

A: Banking institutions and

B : Non-bank financial institutions

Table :-01

A chart showing the above classification is given below:

Classification of BanksClassification of non-bank Financial institutions

A : Functional

A. Central Bank

B. Commercial Bank

C. Industrial Bank

D. Agricultural Bank

E. Specialized Bank

F. Banks Run On Islamic Principles

G. Cooperative Banks

B: Ownership

A. Government Or Nationalized Banks

B. Private Banks

C. Joint Venture Banks

C: Origin

a. Local Banks

b. Foreign Banksa. Insurance companies

b. Investment and Finance companies

c. Leasing companies

d. Merchant banking companies

e. House holding Finance companies

f. Stock exchange.

HISTORICAL BACKGROUND OF BANGLADESH BANKING SYSTEM.

Banking history of Bangladesh starting from British period. It is pre-middle age banking through banking in Bangal by the Subarnabaniks in the middle age; banking underwent many changes in this region interms of both ownership and function.

After a decline in banking by the Bengalese in later middle age, they rose again during British period. This is discussed in brief below.

Bangladeshi banking during British period:

In Presidency Bank of Bengal Sukhomoy Roy-a wealthy merchant was one of the director. Gopimohan Tagor was one of the director of the `Commercial Bank (1819). Raghram Goswami was one of the partners of Calcutta Bank (1824).

In 1829 prince Dwarakanath Tagore-grandfather of Rabindranath Tagore-established the Union Bank in Calcutta along with British Partners. This was the first bank where the Bengalese and British had equal dominance.

In the wake of Swadeshi movement during early twentieth century, Bangalees founded a good number of banks. These are: Comilla Banking Corporation (1922) Pioneer Bank New Standard Bank, Hoogly Bank (1932). Nath Bank. It is said that the district of Comilla Banking institutions in pre-partitioned Bengal. Commila Banking Corporation; was established by Naren Dutta-a Zamindars Industries Dutta and Shantibhusan Duta formed Comilla Union Bank. Akhil Dutta Founded pioneer Bank during the same time. A.T.M. Shaidul Islam of Faridpur and former mayor of Calcutta Zakaria funded Indian Crescent Bank.

Bangladeshi banking during Pakistani period:

During Pakistani period (1947-1971), only two banks were established by the Bengalese in the then East Pakistan (now Bangladesh), Fully Bengalee owned bank in the then East Pakistan was Eastern Banking Corporation Bank Ltd. (1965) and partly Bengalee owned was Eastern Mercantile Bank Ltd. (1959). The prominent sponsors of Eastern Banking Corporation were industrialist Jahural Islam, former chief engineer Abdul Jabbar and captain jagadish Debanath. Among the prominent sponsors of Eastern Mercantile Bank were O.R. Nizam, M.R. Siddiquy, Khan Bahadur Muzibur, industrialist Habibur Rahman and A.H. Khan.

Bangladesh period

When Bangladesh was fully liberate on December 16, 1971 the banking sector was a very small one. It consists of only about 1,100 branches with a total deposit of about Tk. 300 cores only. The Government of Peoples Republic of Bangladesh took over the assets and liabilities of all the branches of Pakistan owned banks operating in Bangladesh and two banks owned by the Bengalese. On nationalization, the position was as follows:

LIST OF OWNED BANKS BY GOVERNMENT AFTER 1971

Before nationalization in 1972Nationalized Banks

National Bank Pakistan

Bank of Bhawalpur Ltd.

Premier Bank Ltd.Sonali Bank

Habib Bank Ltd.

Commercial Bank Ltd.Agrani Bank

United Bank Ltd.

Union Bank Ltd.Janata Bank

Muslim Bank Ltd.

Standard Bank Ltd.

Australia Bank Ltd.Rupali Bank

Eastern mercantile Bank Ltd.Pubali Bank

Eastern Banking Corporation Uttara Bank

It will appear from the above information that banking in independent Bangladesh started with only 06 nationalized commercial banks. In the subsequent years following independence, however, number of banks has substantially increased. As of today (2000-2001) number of commercial banks stands at 4 including 4 Islamic banks and 13 foreign banks in 2000-2001, in addition to these 46 commercial banks, there are 09 specialized banks including 03 agricultural banks, and I cooperative bank. In total more than 6,150 branches were in operation having more than Tk. 81,000 cores of deposits during 2000-2001.

BANK AND BANKING SYSTEM OF BANGLADESH

Bangladesh inherited from the British via banking during Pakistan period the to-days banking structure. It presently consists of several categories or classes of banks excluding bon-bank financial institutions like investment and finance companies, merchant banking companies, housing development finance companies, leasing, companies, and stock exchanges etc. categorization or classification of banks is a very difficult task since no single basis is good enough to classify them appropriately. Despite that and attempt may be made to classify them 0 the basis of:

A: Functions and

B: Ownership and

C: Origin

BANKING SECTOR AND ITS CONTRIBUTION TO THE NATIONAL ECONOMY:

The economic structure of Bangladesh is agriculture based. Most of the industries of our country are depend on agriculture. For savings and formation of capital is normally difficult on view of Bangladesh. Moreover, now days there are various financial institution (government, private and foreign) have been set-up in the country. Various, Side by side, government has also set-up various specialized banks and financial institutions. These banks and financial institutions contribute in different way on your economic development. Especially, bank business plays an important role on contribution criteria are listed below:

a.Creation of medium of exchange

b.Collection of savings and formation of capital

c.Supply of capital

d.Development of home trade.

e.Help of foreign trade

f.Industrial development, agricultural development of small and cottage industries.

g.Increase government revenue.

h.Credit to government, public and private firm etc.

PROBLEMS AND PROSPECT OF BANKING SECTOR IN BANGLADESH.

Introduction

Banks in Bangladesh, in the present from more than half a century old. During this period, they have undergone many changes both qualitatively and qualitatively. Numbers of banks and their branches have increase significantly. Services provided by them have also multiplied. It is by now a mix of both Government banks and banks in the private sector. Despite these changes can it be said that they have played an expected role in economic development? The answer will tend to be negative. The question is why the banks could not initiate the process of problems of banking sector in Bangladesh. These are:

Problems of banking sector in Bangladesh.

1. the operations of the banks were and are still limited to city and commercials areas only. Though, they have to rural areas, yet they are Engaged in transferring funds from rural or less developed areas urban areas instead of investing in the areas of their location.

2. Commercial banks mostly financed the trade and commerce & did not pay adequate attention to small, medium and largely to GDP.

3. Lending operation of banks and are still based on security including collateral. This security oriented lending deprived the creditworthy borrowers who could not offer collateral but had potentialities.

4. When Banks were nationalized after liberation in 1972, they went to rural areas and expended their business both vertically and horizontally. But in doing so they lost control over their operations resulting in increasing number of loosing branches and loan default. The result has been disastrous for the banking sector in the now to sense that they are not in a position now to contribute significantly economic growth by mobilizing more resources for meeting growing in housekeeping.

5. Economic structure of Bangladesh is agriculture based. For this reasons, industrialization is not spread over all the country. As result banking operation in not extend, if banks have a desire to expand their business.

6. Bureaucratic process of country is also barrier for expanding banking business.

7. Government policies & practice, and legal issues are not favorable for banking business.

8. Infrastructure facilities and security systems of our country is also another problem of expanding banking business.

Prospect of banking sector of Bangladesh:

1.Although, Bangladesh is agricultural country, but day by day its economic activities would be increased.

2.Garments Industries is an important economic sector of our country. So It is another sector, where banks can invest their money.

3Banks can established new industry on their own capital, because Bangladesh has low price raw materials and low cost manpower.

4.Banks can provide credit in small sector, i.e. micro credit scheme (cottage industry, handicraft, fishing etc.) and make new entrepreneur. For example Grameen Banks banking system.

5.Mobilization of funds and investment in the desired sectors/ productive sectors. As a result people would be aware of banking sectors and transact with banks.