Home ›› 14 Dec 2021 ›› Front
The country’s banking sector has over the years grown large with currently 61 scheduled banks proving to be the lifeline for the fast-growing economy of Bangladesh.
After the independence, Bangladesh had six nationalised commercial banks, three state-owned specialised banks and nine foreign banks.
Now the country has six state-run commercial banks, three state-run specialised banks, nine foreign banks and 43 private commercial banks.
In the mid-seventies, the total number of bank branches was around 1,600 which is now 10,812.
With the increase in the number of banks, there has been a revolution in this sector through modernisation and digitisation facilitating banking activities for clients.
In the 50 years of independence, the banking system has gone through a paradigm shift, which could not be imagined at the beginning of independence, said a seasoned banker Mohammad Nurul Amin, who entered the banking industry in 1977.
He told The Business Post that banking has become super easy now through online system, ATM, debit card, credit card, MFS and other digital banking platform.
Now the total deposit in the banking industry stands at Tk 13,75,677.4 crore, which was Tk 18,751.4 crore in 1989.
The banks’ total credit (advance, bill and investment) stands at Tk 15,50,606.10 crore as on September this year which was Tk 18,741 crore in 1989, as per the central bank data.
Banking industry in post-independence period
After the independence, the six nationalised banks were formed by merging 12 pre-independence banks. Sonali Bank was formed by liquidating the National Bank of Pakistan, Premier Bank and Bank of Bhwalpur; Agrani Bank by merging Habib Bank Ltd and Commerce Bank Ltd.
Janata Bank started its journey by merging the United Bank Ltd and Union Bank Ltd; Rupali Bank was constituted with the merging of three erstwhile commercial banks -- Muslim Commercial Bank Ltd, Australasia Bank Ltd and Standard Bank Ltd.
Pre-independence Eastern Mercantile Bank Ltd was renamed Pubali Bank while Eastern Banking Corporation Uttara Bank.
Then the activities of three specialised banks started to achieve the goal of industrial and agricultural development.
The state-run banks of independent Bangladesh got off the ground to expand their branches for lending to rural economy in the seventies.
Industry insiders said there was a marked lack of administrative skills in the management of banks in its early stage.
The base of independent banking system in Bangladesh was formed through the establishment of Bangladesh Bank in 1972 by the Presidential Order No. 127 of 1972.
The eastern branch of the former State Bank of Pakistan at Dhaka was renamed the Bangladesh Bank.
The primary function of the banking system was mainly to finance trade and public sector in the 1970s, which was 75 per cent of the total loans.
Privatisation and de-nationalisation of banks
The banking industry saw a significant expansion with the entrance of private banks in the 1980s when the foundation of modern banking system had been laid.
Arab Bangladesh (AB) Bank is the first private sector bank in Bangladesh which was set up in 1982. Then National Bank Ltd emerged in 1983. Five more commercial banks popped up in 1983 and initiated a moderate growth in banking financial institutions.
The Islami Bank Bangladesh was also founded in 1983 as the first Islamic Bank in the South East Asia. In the same year, state-run Uttara and Pubali Bank were de-nationalised as private banks.
The branches of the banks started to grow in 1980s with the development of the country’s economic structure.
The number of banks in the country grew in the 1980s due to the de-nationalisation of banks that increased to 21 in 1985, including eight private commercial banks, and then to 49 (including 27 private banks) in 2000.
The first generation bank was introduced in 1983, second generation banks during 1983-1996, third generation banks during 2000-2021 and fourth generation banks in 2013.
Automation and digitalisation in banks
The automation and digitalisation in banks started since 1990 and private commercial banks were first do so.
Then the central bank overcame the private banks in just five years in automation and digitalisation through a World Bank Project -- “Bangladesh central bank strengthening project” in 2003, said Nurul Amin, former president of Association of Bankers, Bangladesh (ABB).
After the implementation of the World Bank project to strength the central bank, automation and digitalisation activities went up in a fast pace since 2010.
At that time, the BB introduced Bangladesh Automated Cheque processing Systems (BACPS); Bangladesh Electronic Funds Transfer Network (BEFTN) and National Payment switch Bangladesh (NPSB) for automation and digitalisation.
Then the banking regulator put pressure on all the banks for automation.
Major challenges in banking industry
There were no complete laws for the country’s banking industry till 1990. The banks had been running under the central bank circulars and the law formulated during the Pakistani regime, said industry insiders.
The tendency to not repay bank loans still existed at the beginning as there were no strict laws and regulations for the banking industry. The term “default” did not exist as there was no definition of loan defaulter at the earlier period.
Many groups of companies were born in the country in the 1980s.
Then the banks disbursed a lot of loans and there had been a lot of expenses and waste. Businessmen bought flat, land and car by taking loans in the name of business.
The banking system came under discipline following another World Bank project titled “Financial Sector Reform Project” in 1989.
Two years later the bank company Act 1991 was formed to watch the bank operations.
However, the culture of not repaying the bank loans had started since 1980s and is still in practice, said Mohammad Nurul Amin, former managing director of Meghna Bank.
The default loans in the banking sector in Bangladesh have surpassed Tk 1 lakh crore now.
In the post-independence period, bank loans have been misused due to lack of laws and regulations but now they are being misused by shying away from laws and regulations, according to the sector people.
