Bangladesh banks have weak cushion against risks

Bangladeshi banks’ strength in terms of capital to losses is the lowest among the major South Asian countries, according to the first-ever Financial Stability Report (FSR) released yesterday.

The capital adequacy ratio (CAR), which sets the minimum cushion of capital a bank must keep to absorb losses and promote stability, was 9.3 percent in Bangladesh at the end of 2010. The CAR of Indian banking industry was 14.6 percent as of end-March 2010, 14 percent in Pakistan and 14.9 percent in Sri Lanka.

“Banks’ CAR must increase from the present level,” SK Sur Chowdhury, executive director of Bangladesh Bank, told reporters at the launch of the report.

The CAR has to go up to 14 percent under Basel-II requirements. The major three South Asian countries have more capacity than the regulatory need under the Basel-II.

The BB released the FSR 2010 yesterday at its office. The FSR has checked the health of the Bangladesh financial system and accordingly, advised the banks and non-banks to enhance capacity to absorb shocks.

The report was based on the data of 2010, but it used stress-tests of 2011 to assess the resilience of the financial system to adverse domestic and global macroeconomic developments.

The FSR observed that the domestic financial system remained stable in 2010 despite an adverse international backdrop. Market participants and stakeholders reposed their confidence in the stability of the domestic financial system and stress testing. The FSR, however, pointed out some weaknesses that need to be addressed.

Though the report found a resilient local financial system supported by congenial macroeconomic environment in 2010, it identified a risk arising from the global economic vulnerabilities and its spillover impacts on the economy.

“The financial sector has to make buffer in the wake of a deteriorating global financial condition. The banks should have a liquidity contingent plan,” Chowdhury said.

He cited an example of cash withdrawal during the Eid festivals. “Can a bank remain liquid if it faces 2 percent more withdrawal than that of normal transactions?” he questioned.

He also asked the banks to be more vigilant on the asset-liability mismatch.

The report found banking sector’s balance sheet recorded a sizeable growth in 2010. Assets and loans were not concentrated among a small number of banks. The provision shortfall was also reduced significantly, it said.

Banking industry’s operating and net profit increased by about 47 percent and 54 percent respectively in 2010 than 2009. The return on assets and equity also increased in line with net profit.

Though the non-performing loan ratio has been on a downward trend, the banks have to pay due attention to bring down the ratio to the minimum level, said the report.

The FSR found no big risk in the equity and currency markets during the period under review. However, the local currency was devalued by nearly 15 percent in 2010.

Islamic banks showed a remarkable growth in 2010. Its asset base grew by 27.35 percent, deposits by 25.69 percent and investments by nearly 30 percent in 2010 than 2009. The CAR of five Islamic banks out of seven was higher than the regulatory requirement of 9 percent.

Non-bank financial institutions have also been growing. The total assets of the NBFIs increased by 30 percent in 2010 compared to 2009. The volume of term financing by the NBFIs rose by more than 61 percent in 2010 than the previous year.

However, the non-performing assets (NPA) of the NBFIs increased by over 8 percent in 2010. But provisions maintained against the NPA showed a surplus over required provisions, said the FSR.

The payment and settlement systems in Bangladesh remained resilient and continued to operate smoothly throughout 2010. There was a remarkable shift from paper-based payments to the electronic form, but cash and cheques remain popular, said the report.

On the capital market, the report blamed lower pace of investment activities, reduced interest rates on deposits and savings certificates and over-crowding for the huge flow of capital in the stockmarket in 2010.

Expansion of Sharia Banking in Bangladesh

In Britain, Islamic and Sharia banking has been spreading wings, especially in past five years. A report by International Financial Services London reveals that Britain’s Islamic banking sector is now bigger than that of Pakistan. The study says that the UK now has by far the largest number of banks for Muslims of any western country.

The UK now has five fully ‘Sharia-compliant’ banks -– providing products which prohibit interest payments and investment in alcohol or gambling firms in accordance with Islamic Sharia law -– while another 17 leading institutions including Barclays, RBS and Lloyds Banking Group have set up special branches or subsidiary firms for Muslim clients.

Expansion of Sharia Banking in Bangladesh

The $18 billion [£12bn] in assets of Britain’s Islamic banks are said to dwarf those of Muslim states such as Pakistan, Bangladesh, Turkey and Egypt. There are also 55 colleges and professional institutions in Britain, offering education in Islamic finance –- more than anywhere else in the world. This development has been actively pushed by the government. As Chancellor of the Exchequer, Gordon Brown declared that he wanted London to become the global centre of Islamic banking.

The spread of Sharia banking in Britain and America is a significant part of the attempt to Islamise Britain and America. Acceptance of Sharia finance furthers the Islamist objective of gradually legitimising Islamic Sharia law more generally in the West. Continue reading

Expansion of Sharia banking in Bangladesh

Islamic politics will soon be banned in Bangladesh – third largest Muslim nation with 150 million populations. According to government sources, government is on the process of restoring secularist democracy in the country by scrapping several provisions in the Constitution of the country, which were incorporated mostly by former military regimes.

Expansion of Sharia banking in Bangladesh

As possible pre-action of this plan, government recently banned publication and distribution of books by Moulana Abul Ala Moududi, who is the founder and formulator of Jamaat-e-Islami’s politics in the region as well in the world.

Once the government revives Constitution of 1971, all forms of Islamist politics as well as formation of any groups on the basis of religion will turn illegal. Moreover, the government will remove Islam from being the ‘State Religion’ of Bangladesh as per the later amended constitutional provisions by the military dictators. At this junction, may are raising question, as to whether the secular Bangladesh will also ban Islamic or Sharia banking in the country. Continue reading