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Socially-responsible banking: insights from Bangladesh. Atiur Rahman, Ph. D. Governor Bangladesh Bank October 2013. Structure. Key development outcomes in Bangladesh Core goals of Bangladesh Bank and outcomes The rationale for, and promotion of, socially responsible banking in Bangladesh

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socially responsible banking insights from bangladesh

Socially-responsible banking: insights from Bangladesh

Atiur Rahman, Ph. D.


Bangladesh BankOctober 2013

  • Key development outcomes in Bangladesh
  • Core goals of Bangladesh Bank and outcomes
  • The rationale for, and promotion of, socially responsible banking in Bangladesh
  • Concluding thoughts
steady economic growth leading to higher p er c apita i ncomes
Steady economic growth leading to higher per capita incomes

GNI/capita of around $900 using 1995/96 base and with newer 2005/06 base GNI/capita is now $1044

Note: (p) indicates provisional data

Source: Bangladesh Bank

robust growth contributing to significant poverty reduction
Robust Growth Contributing to Significant Poverty Reduction
  • Population in poverty fell from 61.6 million in 2000 to 44.8 million in 2010
  • Inequality measure has stayed constant (consumption Gini 0.33) over ten years promoting social cohesion

Source: HIES 2005, 2010

the objectives of bangladesh bank
The objectives of Bangladesh Bank
  • Inflation management through monetary policy
  • Promote financial sector stability and depth
  • Ensure adequate foreign exchange reserves and avoid excessive exchange rate volatility
  • Contribute to economic growth through appropriate mix of macro-prudential policies
  • Contribute to pro-poor and sustainable growth through socially-responsible policies
responding to growth and inflation risks using monetary policy
Responding to Growth and Inflation Risks Using Monetary Policy
  • Monetary easing in late 2009 due to concerns over impact of global financial crisis
  • Policy tightening began in late 2010 as inflation began to rise – rate rises gradual and then constant for 1 year
  • Daily open market operations, monthly Monetary Policy Committee and twice-yearly consultations leading to Monetary Policy Statements

Source: Bangladesh Bank

monetary stance has contributed to lowering inflation
Monetary stance has contributed to lowering inflation
  • Monetary policy tightening started early 2011 with one year lag impact on inflation
  • Average inflation target of 7.5% for FY13 likely to be met though recent uptick in food inflation needs to be monitored
  • Overall core objective of restraining inflation being met
stronger external balances underpins macro stability
Stronger External Balances Underpins Macro Stability
  • The external balance in FY13 reflects mainly the increasing inflows of remittances, sustained export expansion and declining imports
  • Improved external balances are reflected in the accumulation of international reserves to over $15 billion at the end of FY13, sufficient to cover 4.9 months of projected imports.
  • The Taka appreciated by 2.6% between January 1st-June 30th 2013
  • Overall BB’s objective of maintaining external sector stability is being attained

Source: Bangladesh Bank

financial sector stable but recent trends present new challenges
Financial Sector Stable, but Recent Trends Present New Challenges

Unusual increase in NPLs (and relative decrease in ROA & ROE) in 2012 was largely due to the implementation of new loan classification policy from 2012 and a fraud in a branch of a state-owned bank

All Banks, Capital to RWA Ratio (%)

All Banks, Gross NPL Ratio (%)

New loan classification / provisioning rules have affected profitability

All Banks, Return on Assets (%)

All Banks, Return on Equity (%)

*This has been calculated in line with Basel II guidelines where credit risk has been calculated more conservative with two new risk factors – (Market Risk and Operational Risk) added to the calculation of CRWA. Therefore CRWA show decrease in 2012 despite no overall fall in asset quality or capitalSource: Bangladesh Bank


Measures to Address these Financial Sector Challenges

  • Revised Bank Companies Act provides BB with greater powers over state-owned commercial banks
  • New loan classification/provisioning guidelines introduced in FY13 in line with international best practices will improve financial sector transparency
  • Stepped up inspections by BB have led to increased classification and declining trend in off-balance sheet items
  • Efforts to strengthen bank supervision include staff capacity building and new e-dashboard which provides real-time information on bank transactions to BB
  • Quarterly performance plans (“MOUs”) sets differentiated credit ceilings for the various SOBs and Basic Bank depending on their performance
  • Bangladesh Bank’s anonymous consumer surveys now double-check accuracy of reported data by banks
  • Overall BB’s objective of maintaining financial sector stability being met
context rationale behind socially responsible financing
Context / rationale behind socially responsible financing
  • Recent global financial crisis showed the consequences of excessive risk-taking and greed
  • Stronger regulation is one solution (Basle 3 etc)
  • However underlying ethics, objectives and motivations of financial institutions also need to change to incorporate social returns
  • Socially inclusive financing key steps related to promoting access to savings/credit/payment systems to disadvantaged groups along with emphasis on ‘green banking’ and CSR
policy step 2 promoting access to savings
Policy step 2 – promoting access to savings
  • “Ten-taka” accounts
  • No fees, no minimum balance with initial deposits of only Taka 10
  • 13.1 million (of which 9.6 million are farmers) accounts opened up to March 2013
  • Some subsidy payments are made via these accounts
  • School banking also being promoted with 2.2 million accounts
Overall impressive bank account access with low gender and income gaps relative to other South Asian countries

Source: Global Financial Inclusion (Global Findex) Database, World Bank, April 2012


policy step 3 promotion of faster money transfer via mobile phone banking
Policy step 3: Promotion of faster money transfer via mobile phone banking
  • BB specified this would be a bank-led model in its regulatory guidelines
  • Spectacular growth over past year with around 7 million accounts now from only around 1 million a year ago
  • Many well known benefits (timely transfers, security etc)
  • Risks relate to financial integrity (lower KYC requirements) and consumer protection issues – but no risk to financial stability
  • Over time as customers gain confidence in system these will become more like virtual bank accounts with savings build-up
  • BB is trying to promote greater number of providers to ensure competition in the industry
policy step 4 provision of credit to sharecropper farmers
Policy step 4 – Provision of credit to sharecropper farmers
  • BB set up Taka 5.00 billion (US$70 million) refinancing line for loans to landless sharecroppers via BRAC (NGO)
  • Loan provided without collateral, at a subsidized rate and jointly with extension services to households who previously had little access to formal credit
  • Impact assessment shows positive impact of program on technology adoption and farm productivity
  • Program is in line with promoting pro-poor growth by allocating credit to productive purposes and does not adversely affect other central bank core functions or financial sector stability
policy step 5 promotion of agriculture and sme lending
Policy step 5 – promotion of agriculture and SME lending
  • Agricultural credit targets for commercial banks (2.5% of outstanding with penalties for non-fulfillment)
  • SME lending growth also being actively promoted by BB with concessional refinance lines of credit available and some concessions for classification/provisioning
  • Special emphasis on women entrepreneurs
  • Medium scale industries gained most with their share growing from 23% to 30% FY09-12 while small scale industry share went up from 4% to 7% (overall SME increased from 27% to 37%)
  • Gradually banks are realizing that these market segments are also profitable and over time will not require mandates/targets from BB
financial stability and inclusion links
Financial stability and inclusion links
  • Overall development outcomes, financial stability and inclusion have all improved steadily over time
  • Financial inclusion can contribute to financial stability by strengthening the depositor base, reducing credit concentration etc
  • While micro-credit access is large, both deposits and loans are small relative to overall financial sector minimizing any systemic risks to overall financial stability
  • Supply-side contribution of financial inclusion can also promote financial stability
green banking policy adoption phases

Policy Formulation

& Governance

Incorporation of

Environmental Risk

in CRM

Initiating In-house




Green finance

Online Banking


Timeline: December 31, 2011


Employee Training,

Consumer Awareness &

Green Event

Creation of

Climate Risk Fund


Green Marketing


Green Banking


Green Banking - policy adoption phases
phases of policy adoption cont d

Sector Specific

Environmental Policies

Green Strategic


Setting up

Green Branches

Rigorous Programs to

Educate Clients

Improved In-house




Timeline: December 31, 2012

Disclosure & Reporting


Green Banking


Formulation of

Bank Specific


Risk Management

Plan &Guidelines

Phases of policy adoption..(Cont’d)
incentives for banks to engage in green banking
Incentives for banks to engage in ‘green banking’
  • Improved CAMELS rating.
  • BB publishes the names of the top 10 banks regarding their overall performance in green banking activities.
  • BB considers green banking activities of banks while giving permission for opening new branch.
  • BB gives permission for SME branch subject to installation of solar panel in place.
  • Separate treatment in existing guidelines of RBCA for Environmental Risks in computation of Adequate Capital by BB.
corporate social responsibility in banking sector
Corporate social responsibility in banking sector
  • CSR is actively promoted by BB and CSR guidelines indicate the type of activities banks can classify as CSR (eg elite club contributions are not CSR!)
  • Annual CSR report launched in front of all bank MDs and media ranks banks according to CSR contributions – this creates healthy competition
  • As a result our annual tracking shows that CSR has increased four-fold during the 2009-2012 period
concluding thoughts
Concluding thoughts
  • Bangladesh is now in a position to accelerate progress towards socially responsible financing due to new technology and learning from successful models / policies
  • Socially responsible financing objectives and initiatives can co-exist with other core Central Bank goals if designed appropriately
  • Socially responsible financing needs a catalytic Central Bank role but over time they ought to be ingrained in the business culture of the banks themselves
  • In order for Central Banks socially responsible financing objectives to succeed in the long run we need to be aware that potential trade-offs and concerns exist so that solutions are derived which take these into account
  • Post 2015 SDGs is likely to include socially responsible financial goals