1. CHINA GLOBAL ANALYSIS INC
CHINA GLOBAL ANALYSIS INC.
BANGLADESH – A RISKY BUSINESS?
Considering setting up banking business in
Bangladesh, many risks have to be analyzed.
With trust and reliability playing a great role in
the business of financial institutions, we see a
difficult situation regarding these vital aspects.
As read in many different reports from Euler
Hermes, EKN and World Bank, it is very
difficuly to have confidence in Bangladeshi
law and in contract enforcement. These are
major concerns a bank should keep in mind.
Secondly, a bank could not seek for
government support as it could be done in
other countries. Bangladesh budget is so weak
that there are no chances for a failing bank to
be bailed out.
Looking at big financial institutions with
operations in Bangladesh (HSBC, Citi,
Standard Chartered), the results were never
enough considering the risk occurred.
Source: Doing business 2016, World Bank
0 10 20 30 40 50 60 70 80 90
Bangladesh (Rank 174)
Pakistan (Rank 138)
Regional Average (South Asia)
India (Rank 130)
Sri Lanka (Rank 107)
UK (Rank 6)
Ease of setting up a business
IN BRIEF
• Great concerns about Bangladesh political
turmoil, with possible violent repressions.
• Forecasts see export growing, paving the
way for the growth of the low income.
• However we still see risk in the low
diversification, with the garment sector
accounting for about 80% of total export.
• The country has strategic relevance,
contrasting Indian supremacy in the region.
• Moody’s B3 rating reflects a high country
risk, raising the equity risk premium.
• Relative Standard Deviation analysis reveals
weak and inefficient markets, with a total
volatility 3 times greater than USA one.

2. CHINA GLOBAL ANALYSIS INC
The People’s Republic of Bangladesh obtained its
independence from Pakistan in 1971. It is a relatively
young country that has experienced an exponential
growth in both population (becoming one of the most
crowded country in the world) and economy (the CGR
of GDP is 22,880% between 1971 and 2016).
The most important economic activity of the country is
agriculture, a sector in which half of the population is
committed. The onshore and offshore gas reserves
leave some hope for future economic prosperity of the
country, although there is still no clear strategy of the
government for their exploitation.
A crucial data is that regarding exports of Bangladesh,
which grew by 3.3% in 2015 in contrast with the
dramatic increase of the previous year (12.1% in 2014).
Undoubtedly, garments represented the major share
amongst goods sold abroad, even though remittances
had the highest impact on potential development of the
country.
With reference to imports, the Bangladeshi demand
was principally of raw materials, edible oil and
industrial machinery. Importations’ raise of 11.2%
overwhelmed the lower exportations’ expansion of
2015 resulting in a negative trade balance.
Finally, there are optimistic forecasts for 2016: a
recover in exports over imports, an even more relevant
growth of GDP, an efficient control of foreign reserves
- to obstacle capital outflows and sustain Bangladeshi
currency – and, above all, the banking system reform
that will support future evolution.
Data from Euler Hermes Group and World Bank.
6.0%
6.5%
7.0%
7.5%
8.0%
1 2 3 4 5 6
Real GDP Growth
Developing South Asia Bangladesh
32%
33%
34%
35%
36%
37%
2010 2011 2012 2013 2014
Debt/GDP
• Population:
162,910,864.
• GDP per capita: 795
USD.
• Exchange rate:
1USD=79.139 BDT
(Taka).
• CPI Inflation: on
average 7% during the
period 2013-2015
• Current account
balance: 0.9 % of GDP
in 2014 and -0.5 % in
2015.
• M2 Growth: 16.1% in
2014 and 15.7 in 2015.
• Global Competitiveness
ranking: 109 out of 144.
MACROECONOMIC
OVERVIEW

3. CHINA GLOBAL ANALYSIS INC
Bangladesh, under the leadership of Prime Minister
Sheikh Hasina, has strengthened its economic relations
with Beijing with the aim of encouraging the
development of its energy sector.
The Sino-Bangladeshi relationship has intensified
especially since 2002, when the commercial and
military agreements between the two nations have
increased significantly, far surpassing those between
Dhaka and New Delhi. This has led China to become
the largest trading partner of Bangladesh, both in
economic-technological fields and in the military.
In the economic sphere, China is involved in several
infrastructure projects designed to foster the
development of the country, such as Cox's Bazar airport
expansion that could bring enormous benefits also to the
tourism industry of the nation.
New Delhi is suspicious about the intensification of
relations between the two States, because it considers
this as part of Beijing's policy strategy to limit the
Indian development in South Asia and to increase
Chinese influence in this area.
Regarding of energy sector, Beijing is especially
interested in the energy reserves in the region. In fact,
the Bangladeshi territory is very rich in natural
resources, such as coal, oil and gas while Beijing is
constantly looking for new sources of energy supply to
satisfy the growing demand for nation's electricity.
BANKING SYSTEM
The Banking System of Bangladesh is based upon its central bank, the Bangladesh Bank, and its 56
banks. In addition to the four state-owned banks, other ten foreign institutions have opened
branches in this territory like Citibank, HSBC and Standard Chartered. The last two international
groups have both reached modest results in terms of profitability if we consider the risks.
From our analysis, we can look at their Net Interest margin: HSBC Bangladesh recorded poor
performances of 4.34% in 2013 and 2.70% in 2014 while Standard Chartered reached a net interest
margin of 5.78% in 2013 and 5.57%.
In addition, if we consider the non-performing loans over total loans, foreign banks are able to
better handle the credit risk that characterizes Bangladeshi borrowers in contrast with local banks.
In fact, the NPL ratio stands at 7.3% in 2014 for the ten foreign banks operating in Bangladesh
whereas the average level in the Bangladesh Banking System is 9.7%, a worrying number that has
further increased from 2013 (8.9%).
• Strategic location.
• To contrast supremacy
aspirations of India.
• To take advantage of
natural resources of the
Country.
• To dominate commerce
routes.
• To enhance its
connection with
Muslim ethnicity.
• To increase
exportations towards
this South-Asian nation.
CHINESE INTERESTS IN
BANGLADESH

4. CHINA GLOBAL ANALYSIS INC
BANGLADESH COUNTRY & EQUITY RISK PREMIUM
Rating-based assessment
Examining Bangladesh and its comparables, we find the country risk premium substantially
high. The chances of a political meltdown are too high to let investors sleep soundly.
Moody’s Ba3 rating drives equity risk premium as high as 11.81%, among the highest in
developing asian countries.
Moody’s rating Country Risk
Premium
Equity Risk
Premium
Korea, Rep. Of Aa2 0.77% 7.02%
China Aa3 0.93% 7.18%
Malaysia A3 1.85% 8.10%
Indonesia Baa3 3.40% 9.65%
India Baa3 3.40% 9.65%
Bangladesh Ba3 5.56% 11.81%
Pakistan B3 10.05% 16.30%
Source: Damodaran, Moody’s. USA assumed as default risk-free country.
The rating reflects the fear of a medium-long period country default, following the expected
unrest. Bangladesh has some structural problems that could make difficult to establish
branches here for financial intitutions: difficulties can be found when trying to enforce
contracts, resolve insolvency, pay taxes and get credit (Doing Business, World Bank 2016).
Relative Standard Deviation-based assessment
The Relative Standard Deviation compares a country’s SD to a developed country’s one.
Assuming the USA as a stable basis, Bangladesh shows the highest RSD, meaning that its
financial markets are far from efficiency and stability.
Annual Standard
Deviation (5 Years)
Relative Standard
Deviation
Equity Risk Premium
Korea, Rep. Of 13.22% 1.39 8.69%
Malaysia 15.78% 1.66 10.37%
Pakistan 19.77% 2.08 12.99%
Indonesia 22.42% 2.36 14.73%
China 22.54% 2.37 14.81%
India 24.00% 2.52 15.77%
Bangladesh 28.55% 3.00 18.76%
Source: MSCI Investable Market Indexes (IMI), our analysis. RSD is relative to USA volatility.
Bangladesh’s financial markets are with no doubts too volatile to be considered safe.
Implementing operations by raising capital in this country will be expensive, since the
investors could ask for a higher return than in the other countries.

5. China Global Analysis inc®, 2016. For professional and institutional investors only
CHINA GLOBAL ANALYSIS INC
RISK OVERVIEW
Political turmoil and uncertainty cast bad forecasts over Bangladesh’s future. Current
situation is the worst in decades, with growing expectations of a violent clash between the
radicalised parties Awami League and Bangladesh Nationalist Party. Law is bend to
enhance punishments and death sentences for political crimes, and domestic terrorism could
increase dramatically.
The predominance of garment sector makes commerce too exposed to eventual shock in
that sector, as it covers as much as 80% of total export, possibly suffering from future
intense competition with countries like Cambodia, Indonesia and potentially Myanmar.
Thus we consider Bangladesh economy over-reliant on this unique sector.
Very low fiscal revenues further complicate this unstable situation. Despite the Extended
Credit Facility support granted by IMF, we are still highly concerned about the country’s
fiscal situation. Structurally insufficient taxes income produce a weak government budget,
not even covering basic infrastructural expense. However some fiscal reforms appear
underway, and a moderate public debt mitigate the negative situation.
CHINA GLOBAL ANALYSIS INC.
THE COUNTRY RISK ASSESSMENT TEAM
Andrea D’Oro
Enrico Astegiano 1 March 2016