Bangladesh Bank is the central bank of Bangladesh. It issues currency, acts as a bank for the government and other commercial banks, regulates money supply and foreign exchange, and implements monetary policy. As the government's bank, it collects revenues, transfers funds, regulates foreign exchange and maintains accounts. It also regulates commercial banks by setting reserve requirements, auditing accounts, and advising on financial matters. The bank aims to promote economic development and create jobs through its policies.

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Bangladesh Bank:
Bangladesh Bank is the Central bank of Bangladesh and is a member of the Asian Clearing
Union. The bank is active in developing green banking [1]
and financial inclusion policy and is an
important member of the Alliance for Financial Inclusion.[2]
Bangladesh Financial Intelligence
Unit (BFIU), a department of Bangladesh Bank, has got the membership of Egmont Group. This
is the first central bank in the world to introduce a dedicated hotline (16236) for the general
people to complain any banking related problem. Moreover this organization is the first central
bank in the world to issue a "Green Banking Policy". To acknowledge this contribution, current
Governor of this organization, Dr. Atiur Rahman was given the ‘Green Governor’ title in the
2012 United Nations Climate Change Conference, held at the Qatar National Convention Centre
in Doha . After the liberation war, and the eventual independence of Bangladesh, the
Government of Bangladesh reorganized the Dhaka branch of the State Bank of Pakistan as the
central bank of the country, and named it Bangladesh Bank. This reorganization was done
pursuant to Bangladesh Bank Order, 1972, and the Bangladesh Bank came into existence with
retrospective effect from 16 December 1971.
Role of Bangladesh Bank:
The Role of Bangladesh Bank
General role Role as govt. bank Role as a bankers
of others bank
Development Others

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General Role:
IssueofBanknotes
Moneyisakeyofeconomy.Thecentralbankcontrolstheissueofbanknotesandcoins.Mostpaymentthesedays
does not involve cash but cheque standing order, direct debit, credit cards and so on. Nevertheless, cash is
importantasbank’s cash. Holdingsareaconstraintoncreationofcredit,aswehaveseen.
Actingas BankertoOtherBanks
The Central bank will act as banker to the other banks in the country. As well as holding accounts
with international bodies like IMF World bank. It is a common habit for the central bank to insist that the
other banks hold non-interest bearing reserves with in proportion to their deposit.
Acting As BankertoGovernment
Normally a central bank acts as the government’s banker. It receives revenues
For Taxes and other income and pay out money for t
he government’s expenditure.
Usually, it will not lend to the government but will help the government to borrow money by the
salesofitsbillandbonds.
Raising MoneyfortheGovernment
ThegovernmentTreasurybillandbondmarketsarecoveredbythecentralbank.Whilesometimesthetreasuryor
ministryoffinancehandle.
Controlling theNation’sCurrencyReserves
Another main function of Bangladesh Bank is to control the nation’s currency reserves. Again by
controlling the exchanging rate, it protects the value of national currency in international market.
So in a short, Bangladesh Bank always attempts to maintainthevalueofnationalcurrencysteady.
Actingas“LenderofLastResort”
When all kinds of enlisted bank or govt. cannot collect loans in times of their economical crisis from
anywhere, then Bangladesh Bank is only the bank which helps asthelenderoflastresort.
CreditControl
To solve the problem of inflation and deflation, Bangladesh Bank takes the task of
Credit control as the guardian of country’s money market and bank management.
For controlling credit central bank uses the method of opening market policy, credit budgeting
policy.

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Role as govt. bank
ReceivedandTransferOfMoney
As thebankofBangladeshgovernment,BangladeshBankcollects moneyfrom different sectors and deposit
these is various accounts without interest not only deposit these moneybut also transfer these fund from
oneplacetoanotherandonesector to another according to the instruction of Bangladesh government
Money MarketControl
Bangladesh Bank acts as the guardian of country’s money market as the director and controller
of money market. It also controls the money currency, controls credit, stability in money supply
and exchange rate of foreign currency etc. It establishes a country’s well organized and develops
money market.
ForeignExchangeControl
The country’s export and import as well as international trade success rate largely depend on the
good conduct and control of foreign exchange. So foreign exchange system is also controlled by
Bangladesh.
DeterminationofForeignExchangeRate
By purchasing commodities from other country one country paid its value through foreign
currency. The value of all foreign currency is not same, so right determination of foreign
exchange rate is needed by performing this task central bank made easy the foreign trade.
MaintainingForeignExchangeReserve
High level of crisis and abundance of foreign exchange are harmful for economy. So this reason
Bangladesh Bank maintains sufficient foreign exchange, so that there is no problemincaseofexport
andimporttrade.
KeepingtheGoldStandard
The precondition of country’s economic stability is to control countries gold standard. If the
moneymarketisstrandedonthebasisofgoldstandard,themaintaskofcentralbankistokeepgoldstandard.
MaintainofGovernment’sFund
As Bangladesh Bank is the bank of Bangladesh government. So it protects all sorts
of government’s fund as a bank of government, Bangladesh Bank keeps to itself the whole
amount of government’s income and expenditures from this fund according to governmentneeds.
Keeping theGovernmentAccount
Besides receiving and transferring government fund, Bangladesh Bank maintains the account of
various government’s division, ministry and organizations i.e. Bangladesh Bankkeepstheaccountof
allmonetaryandeconomicaltransactions.
ForeignFinancialTransaction

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On behalf of the Bangladesh government Bangladesh Bank accomplish all sorts of foreign
financial transaction. It purchases and sells foreign currency and collects foreign currency on
behalf of the Bangladesh government in a word Bangladesh Bank perform all sorts of financial
transaction with abroad on behalf the Bangladesh government.
LoanIssueandSupervision
This bank issue loan in case of crisis of government in different terms and also helps in case of
collectingloanfromdifferentsectors.
MaintenanceofRelationshipwithForeignBank
To make and maintains a good relationship with other foreign country. This is also a function of
Bangladesh Bank. Bangladesh Bank does this task on behalf of the Bangladesh government.
Without this, Bangladesh Bank also maintain good relationship with others regional and
international organization, such as World Bank, IMF, A.D.B, I.D.B etc.
CounsellorandRepresentativeofGovernment
This bank suggests and advices government in various behinds of economical issues such as-
import and export polices, investment polices etc. Bangladesh Bank acts as the financial adviser
of Bangladesh government. Not only as adviser but also Bangladesh Bank acts as the agent of
Bangladesh government. It performs various kinds of contracts and transactions with foreign and
abroad.
ImplementationofFinancialPolicyofGovernment
It doesn’t merely give advice to government. It also helps in implementing of different types of
financial policy without the help of Bangladesh Bank it is much more complicated for the
Bangladesh government to implement financial policies and economicdevelopments.
RevenueCollection
Asthebankofgovt.BangladeshBankhelpstocollectrevenuebycollectingdifferenttypesoftax,duty.
MaintenanceofInformation
Bangladesh Bank does the task of collecting and reserving all sorts of information’s which are
muchhelpfulincaseofvariousgovernmentalplanning.
Co-coordinator
Bangladesh Bank plays the role of co-coordinator by maintaining relationship with others foreign
banks&internationaleconomicalorganizations.
EnlistmentofCommercialBank
ThroughenlistmentcommercialbankstakevariousprivilegesofBangladeshBank,Thereisneedofpermissionof
BangladeshBankforestablishingconducting&enlistinganyotherkindofbanks
CustodianoftheCashReserveoftheCommercialBanks

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Every enlisted bank deposit a certain amount of their cash reserve compulsorily accordingtolow.In
Bangladesh this rate is 8%. As a result, Bangladesh Banksupervises all kinds of commercial banks & helps by
profilingloan&distributingbillingtimesofeconomicalcrisis.
Formation&ExpansionofBank
Bangladesh Bank plays a vital role in case of formatting & expanding any kinds ofnew & old bank in
our country. Actually without the permission of Bangladesh Bank, no new bank can be formatted as
wellasnobranchofoldbankcanbeopened.
Role as a bankers of others Bank:
Clearing House
Among various functions of central bank, the most one is accomplishing the internal transactionsof
all enlisted bank. For this purpose Bangladesh Bank mange a clearinghouse by the coordination of all
member banks. Bangladesh Bank meets up the all sorts of relative/reciprocal transactions with in
the banks.
AuditofAccounts
For building fair banking environment in the country and for controlling all other banksBangladesh
Bankarrangestheaccountsofauditforseveraltimesforallkindsofenlistedandallotherbanks.
MaintenanceofDeposit
Bangladesh Bank deposits a certain amount of their reserve so that commercial banks cannot use
thisfundastheirawards.
ActAsanAdvisor
BangladeshBankdelivers’ suggestions or an instruction to commercial banks by providing various
kinds of financial information. Bangladesh Bank helps the commercialbanksaswell.
AssistTo CollectCredit
Bangladesh Bank assists to collect credit through commercial bank. Regarding this, Bangladesh
Bank suggests the government apply law at a time, it also take lawful schemes. It makes a list of
countriesbankrupts&assistsgovernmenttocollectcredit.
Development:
CreatingJobOpportunity
By permitting and adopting developing project for opening new bank and branch, Bangladesh Bank creates
enormousopportunityforemploymentinBangladesh.

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Role of Central Bank to regulate commercial banks in
Bangladesh:
Why central banks is heavily regulated:
► To protect the safety of the public’s saving
► To regulatory agencies are charged with the responsibility of gathering and evaluating the
information needed to assess the true financial condition of central bank to protect the
public against loss.
► Central bank also closely watched because of their power to create money in the form of
readily spend able deposit’s by making loans and investment.-
(Law Division)
President’s Order No. 127 of 1972
THE BANGLADESH BANK ORDER, 1972
Whereas, it is necessary to establish a central bank in Bangladesh to manage the
Monetary and credit system of Bangladesh with a view to stabilizing d domestic- monetary
value and maintaining a competitive external par value of the Bangladesh Taka towards
fostering growth and development of country’s productive resources in the best national
interest.
Now, therefore, in pursuance of the proclamation of independence of Bangladesh, read
with the Provisional Constitution of Bangladesh Order, 1972, and in exercise of all powers
■ Banks in one form or another have been subject to the following non exhaustive list of
regulatory provisions:
1) Restrictions on branching and new entry;
2) Restrictions on pricing (interest rate controls and other controls on prices or fees);
3) line-of-business restrictions and regulations on ownership linkages among financial
institutions;

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4) Restrictions on the portfolio of assets that banks can hold (such as requirements to hold
certain types of securities or requirements and/or not to hold other securities, including
requirements not to hold the control of non financial companies);
5) Compulsory deposit insurance (or informal deposit insurance, in the form of an expectation
that government will bail out depositors in the event of insolvency);
6) capital-adequacy requirements;
7) Reserve requirements (requirements to hold a certain quantity of the liabilities of the
central bank);
8) Requirements to direct credit to favored sectors or enterprises (in the form of either formal
rules, or informal government pressure);
9) Expectations that, in the event of difficulty, banks will receive assistance in the form of
“lender of last resort”;
10) Special rules concerning mergers (not always subject to a competition standard) or failing
banks (e.g., liquidation, winding up, insolvency, composition or analogous proceedings in the
banking sector);
11) Other rules affecting cooperation within the banking sector (e.g., with respect to payment
systems).
■ In recent years regulation in banking has become less pervasive and has shifted from
structural regulation to other more market oriented forms of regulation. As a consequence
competition has come to play a very important role in the allocation of credit and in the
improvement of financial services. The capital requirements framework created in the context
of the Basel committee paved the way to the development of stronger competition in banking.
It is unquestionable that all over the world banks now face greater competition both from new
entrants in the banking sector and from other financial companies.
■. Competition authorities have not been much involved in the process of liberalization of
banking. Moreover, in several countries the enforcement of antitrust rules until very recently
has not been applicable to banking because of sectored exceptions.
■. In this light, the purpose of this report is:
• to assist policy makers and enforcement authorities (in their competition advocacy function)
in their efforts to promote competition oriented regulatory reform in banking;

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• to assist policy-makers and enforcement authorities (in their competition advocacy function)
in promoting an environment where competition law is fully applicable to banking and where
there is an appropriate institutional setting to that end; and
• to assist competition enforcement authorities in the enforcement of competition law in this
sector, with a special emphasis on merger control.
PRELIMINARY
1. (1) This Order may be called the Bangladesh Bank Order, 1972
(2) It extends to the whole of Bangladesh.
(3) It shall come into force at once and shall be deemed to have taken effect on the16th day
of December, 1971.
2. In this Order, unless there is anything repugnant in the subject or context, -
(a) “appointed day” means the 16th day of December, 1971;
(b) “approved foreign exchange” means currencies declared as such by any notification
under Article 18;
(c) “Bank” means the Bangladesh Bank;
(d) “Bank Notes” means notes made and issued by the Bank in accordance withArticle23;
(dd) “bank rate” means the standard rate made public by the Bangladesh Bank under
Article21;
(e) “Board” means the Board of Directors of the Bank;
(f) “Co-operative Bank” means any co-operative society or co-operative bank
Including the apex co-operative bank registered under, or any other law for the time being in
force relating to cooperative societies, one of objectives of which is to provide financial
accommodation to its members;
(g) “Director” means a Director of the Bank;
(h) “Governor” and “Deputy Governor” means respectively the Governor and Deputy
Governor of the Bank;
(i) “Government” means the Government of the People’s Republic of Bangladesh;
(j) “Scheduled Bank” means a bank for the time being included in the list of banks
Maintained under sub-clause (a) of clause (2) of Article 37;
(k) “State Bank” means the State Bank of Pakistan constituted under the State Bank of
Pakistan Act, 1956; and
(l) “Taka coin” means one Taka coin and one Taka note and two Taka coin and two

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Taka note which are legal tender in Bangladesh
 THE RECENT HISTORY OF REGULATORY REFORM IN BANKING
■ In the early 70s financial systems “were characterized by important restrictions on market
forces which included controls on the prices or quantities of business conducted by financial
institutions, restrictions on market access, and, in some cases, controls on the allocation of
finance amongst alternative borrowers. These regulatory restrictions served a number of
social and economic policy objectives of governments. Direct controls were used in many
countries to allocate finance to preferred industries during the post-war period; restrictions on
market access and competition were partly motivated by a concern for financial stability;
protection of small savers with limited financial knowledge was an important objective of
controls on banks; and controls on banks were frequently used as instruments of
macroeconomic management”.
■ since the mid 70s there has been a significant process of regulatory reform in the financial
systems of most countries. This process involved a shift towards more market-oriented forms
of regulation and involved partial or complete liberalization of the following:
• Interest rate controls
Until the early 1970s controls on borrowing and lending rates were pervasive in most
countries. These controls typically held both rates below their free-market levels. As a result,
banks rationed credit to privileged borrowers. By 1990 only a handful of countries retained
these controls.
• Quantitative investment restrictions on financial institutions
Investment restrictions on banks took a variety of forms, including requirements to hold
government securities, credit allocation rules, required lending to favored institutions and
controls on the total volume of credit expansion. Compulsory holdings of government
securities, as well as having a prudential justification, also acted as a disguised form of
taxation in that it allowed governments to keep security yields artificially low with some
exceptions these controls were largely eliminated by the early 1990s.
• Line-of-business restrictions and regulations on ownership linkages among financial
institutions:
Although important line-of-business restrictions still remain in place in many countries, the
role of these restrictions has been significantly eroded or, in some cases, entirely eliminated.
For example, the separation of savings-and-loans and commercial banks has been largely

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eliminated in many countries, as has the distinction between long-term and short-term credit
institutions in Italy and the legal separation of various types of credit suppliers in Japan. Bank
branching restrictions were phased out in a number of European countries by the early 1990s.
In the US “breaking down the barriers imposed by the (1933) Glass-Steagall Act the Gramm-
Leach-Bliley Financial Service Modernization Act of 1999 permits banks, securities firms,
and insurance companies to affiliate within a new structure – the financial holding company”
• Restrictions on the entry of foreign financial institutions
There has been significant liberalization of cross-border access to foreign banks. In particular,
there are now in place a number of international agreements on trade in banking services,
including GATS, NAFTA and the EC. In particular, in the European Union, the second
banking directive (89/646/EEC) forbade the obligation for banks established in one Member
State to seek authorization from other Member States when they intended to establish a
branch in their territory. In many countries however the entry of foreign banks is still made
more difficult than that of domestic ones.
• Controls on international capital movements and foreign exchange transactions
Liberalization of controls on capital movements is now virtually complete in OECD countries
and in many developing countries as well. Some controls remain on long-term capital
movements, particularly with respect to foreign ownership of real estate and foreign direct
investment. There also remain important restrictions on international portfolio diversification
by pension and insurance funds.
 The origins of regulatory reform
■ Regulatory reform was driven by a number of inter-related factors, including:
• The diminishing effectiveness of traditional controls due to financial innovation (including
the difficulty of isolating domestic markets) and rapid technological development;
• The development of various types of regulatory avoidance (such as the development of
offshore financial centers and off-balance-sheet methods of financing);
• Competition between international financial centers;
• Competition with non-banks for many services (consumer credit; small business loans;
mortgages; etc.);
•Competition between financial institutions under different regulatory environments; and,
finally,
• Multilateral agreements liberalizing cross-border banking activities.

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 BANKING REGULATION: THE RISK OF BANK RUNS AND OF MORAL
HAZARD IN BANKING AND THEIR EFFECTS ON THE ECONOMY
It is widely accepted that in the absence of market failures, open and competitive markets
yield strong incentives to efficiently meet the demands of consumers and to adapt to changing
demands and technology over time. With very few exceptions, in the absence of a market
failure there is no economic justification for regulation. 16. The most important rationale for
regulation in banking is to address concerns over the safety and stability of financial
institutions, the financial sector as a whole, or the payments system. The description and the
evaluation that follows necessarily reflect the views of competition authorities. With only one
exception, no bank regulator has reviewed this Report, which therefore, does not necessarily
reflect the positions and the opinions of bank regulators.
 · The risk of bank runs
All banks operate in conditions of fractional liquidity reserve. The great majority of banks
liabilities are very liquid deposits redeemable on demand. The great majority of their assets
are instead much more illiquid loans. This situation leads to the problem that if all depositors
demanded their deposits back at the same time, any bank (even if perfectly solvent) would
face serious problems in meeting its obligations vis à vis its depositors. A single bank might
obtain refinancing on the financial market but the problem would severely persist in cases of
low liquidity on the market or if the issue concerned a big portion of the banking sector. 18. It
is well known in the literature that whenever depositors start fearing the insolvency of their
bank, their first most common reaction is to go and withdraw their deposits creating serious
problems to the banks. Such behavior is normally referred to as a bank runI7.
 ·The risk of excessive risk taking (moral hazard) in banking
Banks grant loans normally financed by the deposits they received. This is by itself a
powerful incentive for banks to grant credit in a not sufficiently prudent way and to take in
too much risk. In fact it is well known in the literature that with debt financing, while the risk
of failure of the financed investment is mostly carried out by the bank depositors, in the case
of success profits accrue mostly to the banks good example of this deviating behavior is the
Asian financial crisis of 1997 that is mentioned further below. In general, however, this
incentive is somehow mitigated by the possibility that the market, both via depositors and
other banks, could monitor the risks assumed by the bank’s management.
The main purpose of regulation is to avoid the highly negative consequences for the economy
of widespread bank failures. There are two main strands of arguments for banking regulation.

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– The first focuses on the systemic dangers of bank failures, while the second on the need for
security and stability in the payments system.
 ·Systemic dangers of a bank failure
The main argument for bank regulation focuses on the possibility of systemic or system-wide
consequences of a bank failure. In exemplarity that the failure of one institution could lead to
the failure of others. This argument is summarized by Feldstein as follows: “The banking
system as a whole is a ‘public good’ that benefits the nation over and above the profits that is
earns for the banks’ shareholders. Systemic risks to the banking system are risks for the
nation as a whole. Although the management and shareholders of individual institutions are,
of course, eager to protect the solvency of their own institutions, they do not adequately take
into account the adverse effects to the nation of systemic failure. Banks left to them will
accept more risk than is optimal from a systemic point of view. That is the basic case for
government regulation of banking activity and the establishment of capital requirements-
It is possible to distinguish two mechanisms by which the failure of one bank could lead to
the failure of other banks or other non-bank firms:
(a) The failure of one bank leading to a decline in the value of the assets sufficient to induce
the failure of another bank (“consequent failure”) and
(b) The failure of one bank leading to the failure of another fully solvent bank, through some
contagion mechanism (“contagion failure”)
 REFORM OF BANK REGULATION AND MARKET POWER
On the credit side competition between banks has led to lower spreads and greater care in
financing sound projects. Classes and Leavens (2005) write: “More competitive banking
systems are better in providing financing to financially dependent firms. There is support for
the view that more competition may reduce hold up problems and lower the cost of financial
intermediation, making financially dependent firms more willing to seek (and more able to
obtain) external financing” Furthermore in most countries, including developing ones, recent
market developments have led to strong rivalry by non bank financial institutions for the
supply of some banking services, for example consumer credit or factoring services to small
and medium size firms. This implies that banks market power is somehow disciplined also by
non banks.
■Ensuring that banks are properly informed of the debt exposure of potential
borrowers:

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Especially in developing countries, however, competition among banks may be impaired
because information on the credit worthiness of potential borrowers is not readily available.
Without a proper supplier of information on borrowers credit worthiness, each single bank
has an informational advantage over any other bank on the credit worthiness of its customers.
New banks will be very reluctant to lend to customers of other banks, if they are not fully and
readily informed on the total debt exposure of each potential borrower. A competitive
financial market, where banks compete for customers and potential borrowers choose among
alternative banks as suppliers of funds, can only develop if banks are fully informed on the
total exposure of each customer. Otherwise, if information is privately held by each bank, the
market for credit will be segmented and banks will only lend to customers they personally
know.
■Relationship banking: Relationship banking is particularly efficient when firms are small
and accounting rules are not very effective. On the other hand a marked based system is
particularly effective when firms are relatively large and accounting statements transparent.
Moreover, “limitations on competition in a relationship-based system do not just give the
financier (market) power, but also strengthen his incentive to cooperate with the borrower”.
This implies that a relationship-based system tends to smooth firm specific shocks
internationally, while an arm’s length system is much less able to provide such contingent
insurance. On the other hand relationship-based systems, because of the liquidity of the
financed assets, have an incentive to increase financial risk more than arm’s length systems.
Market based financing “permits more flexibility in explicit contracts, which allows the
system to absorb adverse shocks. Moreover the healthy can be distinguished from the
terminally ill after a shock and can be dealt with differently – not everyone has to sink or
swim together as in the relationship system” Relationship banking does not imply that
potential borrowers do not have but one choice with respect to the bank that would assist
them. There can be strong competition among banks also with relationship banking. In fact,
in some countries, where the banking industry is sufficiently competitive and the industrial
sector is sufficiently developed, each local bank may be willing to invest in order to develop a
credit relationship with each local firm.
■ Arms-length and relationship banking: In many ways the two systems (arms-length and
relationship banking) coexist in the same economy. Regulators should therefore not impose
or favor one system over the other and should introduce regulatory provisions that are as

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much as possible neutral with respect to the type of relationship between banks and their
creditors.. Regulators should therefore maintain a centralized system of monitoring the full
exposure of different firms with respect to the banking system, and more in general with
respect to the financial sector at large, requiring all financial institutions to communicate to
the regulator all loans granted to a given (consolidated) borrower and their degree of
utilization. The increase in transparency that such a system of centralized monitoring of debt
exposure would provide, may help the development of arm’s-length financing, and in any
case reduce the market power of each bank with respect to its customers.
 STANDARD INSTRUMENTS OF BANK REGULATION
■ This section of the paper provides a description of the most standard instruments of bank
regulation: deposit insurance, capital adequacy requirements and lender of last resort. These
three policies are linked one with the other. Deposit insurance protects the smallest depositors
from a bank bankruptcy and prevents bank runs. Capital adequacy requirements are necessary
in order to make sure that bank managers follow a responsible credit policy, in the absence of
an effective control on the part of depositors. Lender of last resort policies further reduce the
risk of banks bankruptcies providing banks with Emergency Liquidity Assistance facilities
that are designed to avoid that temporary situations of liquidity lead to the insolvency of the
bank.
Deposit insurance
■ Deposit insurance is a guarantee that all or part of a depositor’s debt with a bank will be
honored in the event of bankruptcy. The specific form of insurance schemes can vary in a
number of ways, including the fee structure (flat fee versus variable, risk-related fees); the
degree of coverage (full versus partial coverage, maximum limits); funding provisions
(funded versus unfunded systems); public versus private solutions; compulsory versus
voluntary participation.
■ Deposit insurance reduces (and in most cases eliminates entirely) the incentive to “run” on
the bank in the event of financial difficulty. Therefore it reduces the possibility that a
temporary situation of illiquidity and rumors on the insolvency of the bank actually lead to
the failure of the bank. Furthermore, deposit insurance prevents the “chain reaction” that can
also be started associated by the run on a single bank, so that it reduces the possibility of
contagion in the banking system.

15. 15
■ A drawback of its introduction is however the fact itself that from the point of view of the
depositor, deposit insurance makes all banks equally attractive. It almost completely removes
the incentive on the depositor to determine the risk of a bank and the need for the bank to
compensate the depositor for bearing bank-specific risk by including a bank-specific risk
premium in the interest paid to the depositor. Similarly, the depositor faces little incentive to
diversify her portfolio of assets held in banks.
■ The effect of deposit insurance on the incentives of the bank depends upon the nature of the
insurance contract (and also on any other complementary regulatory measures). In particular,
the effect of the deposit insurance on the bank will depend on whether or not the insurance
premium paid by the bank depends on the individual bank’s risk.
■ In the case where the premium is completely unrelated to the risk of a particular bank (i.e.,
the “fixed fee” system), there is clearly an incentive for the bank to attempt to increase its
profits by either increasing its revenues (by lending to higher return but riskier projects) or by
reducing its costs (by reducing its reserves). Both actions increase its risk. This is the well-
known “moral hazard” problem of deposit insurance. Fixed fee deposit insurance creates
incentives for banks to take on more risk in their operations than they would without deposit
insurance. “This effect was apparent almost as soon as deposit insurance was adopted in the
1930s, when bank capital ratios dropped from 15% to around 6%”
■ Deposit insurance, especially if extended to all deposits, by reducing the market incentives
for prudent management, may have the perverse incentive of making banks riskier.When this
moral hazard extends across all financial institutions, the macroeconomic consequences can
be very significant. .
■ The problem of moral hazard and the need for additional regulatory measures can be
reduced if the insurance premium is related to the risk of the insured bank. “An efficiently
organized insurer would graduate insurance premier according to the risk of the bank’s asset
portfolio and the adequacy of its capital holdings. Such a system would minimize the danger
of adverse incentive effects … Under such a system, the individual bank bears the
consequences of a higher risk portfolio or a lower capital-deposit ratio, in the form of a higher
insurance fee.
POLICY ON CAPITAL ADEQUACY OF BANKS
New arrangements for assessing the capital adequacy of banks on the basis of Risk -weighted
Assets replacing the capital-to-liabilities approach were introduced vide BRPD Circular No. 1

16. 16
dated 08.01.1996 .The revised policy on capital adequacy takes account of different degrees
of credit risk and covers both on-balance sheet and off-balance sheet transactions. The
following broad outlines containing certain amendments made thereto from time to time and
a few new instructions are issued for compliance by banks:
1. Definition of Capital
For the purpose of supervision, capital will be categorized into two tiers: Tier 1 i.e., Core
Capital comprises the highest quality capital elements and Tier 2 i.e., Supplementary Capital
represents other elements which fall short of some of the characteristics of the core capital but
contribute to the overall strength of a bank.
2. Minimum Capital Standards
Each bank will maintain a ratio of capital to risk weighted assets of not less than 9% with at
least 4.5% in core capital and this requirement will have to be achieved by 30 June 2003.
However, minimum capital requirements (paid up capital and reserve) for all banks will be
Tk.100 core as per Bank Company (Amendment) Act, 2003. Banks having capital shortfall
will have to meet at least 50% of the shortfall by 09 March 2004 and the rest by 09 March,
2005.
3. Risk-weighted Assets
Both balance sheet assets and off- balance sheet exposures are to be weighted according to
their relative risk. Presently, there are 4 (four) categories of risk weights ¾ 0,20,50 and 100
percent. Off -balance sheet transactions to be converted into balance sheet equivalents for the
purpose of assessing capital adequacy before assigning a risk weight as shown in section
10(a) of Annexure-II. Four categories of credit equivalents of 0,20,50 &100 percent will
apply.
4. Implementation
Banks are advised to assess their capital position on half-yearly basis i.e., on 30 June and 31
December each year and report the same to the Off-site Supervision Department of
Bangladesh Bank within one month from the end of respective half-year. Banks are also
advised to contact Banking Regulation and Policy Department (BRPD) of Bangladesh Bank
in case of any confusion or ambiguity.
Regulatory reform, competition and depositors’ switching costs
While, in many countries banks benefited from the new opportunities originating from
regulatory reform by offering new and improved financial services to customers, switching

17. 17
costs for consumers remained quite high, so that competition between banks did not increase
proportionately. There is now substantial evidence that the widening range of services offered
by banks was not associated with a significant increase in the elasticity of each bank residual
demand (as should have been expected because of greater competition). The effect of
liberalization on the market power of banks with respect to customers of banking services
was probably not too strong.
■In recent decades, besides the traditional deposit-taking banks have entered quite a number
of new related markets, such as (among others): 1.Credit cards services, paying bills for
depositors 2. Consumer owns 3.Mortgages 4. Life insurance 5.Financial consulting;
6.Management of investment funds;
Asset management By providing all these services under one roof, banks reduce the
transaction costs depositors would have faced had they been obliged to negotiate for receiving
these services with a number of different providers. At the same time, however, by offering
all these services, banks have made it more costly for depositors to switch bank. In fact
should depositors decide to move to a new bank they would need to:
1) Receive new credit cards (with a different number and expiry date) that would need to be
communicated to any service provider, for example the cable TV company, should its bills
being paid by credit card;
2) Inform the new bank about all utilities whose bills checking account debiting the depositor
checking account; was paying;
3) Transfer the depositor all purchased stocks or bonds to the new bank;
4) Maintain the checking account of the old bank just to service the mortgage;
5)Communicate to all correspondents the new banking coordinates. The increase in switching
costs tends to make steeper the residual demand curve each bank faces, so, even though
competition may be increased in each of the markets where the bank expanded, the overall
market power of each bank is increased, at least with respect to existing depositors. Or, to say
it differently, in order for a bank to convince depositors of another bank to switch, the
improvements in the quality of services it offers must be much larger than it would be the
case in the absence of switching costs.
■Depositors may also face switching costs because of strategic behavior on the part of banks.
For example while opening a checking account may be free, banks may require that a high fee
be paid when closing an account. There are good reasons why a policy of charging for closing

18. 18
an account would be followed by all banks and would not be competed away: Each bank
benefits by market segmentation and no bank benefits by unilaterally reducing exit costs.
■This is why it is unlikely that banks would engage autonomously in switching costs
reducing activities, given that this would imply reducing profits for each bank and also for the
industry as a whole. Pro-competitive rules and regulations may contribute to make switching
easier, so as to ensure that all the benefits originating from greater competition actually reach
consumers.
■Regulation could impose on all banks disclosure rules with respect to all the costs involved
in switching, so that consumers are made aware of these costs and competition among banks
may indeed prove to be very useful.
■With the advent of the internet, banking is no longer necessarily a local industry, not even
for the smallest depositor, at least in countries with widespread internet literacy. Since
banking technology is the same across the world it is extremely important that regulation does
not limit the extent of the market with unjustified restrictions. This is particularly important in
jurisdictions that use the same currency. For example, the introduction of the Euro in 2002
could have made depositors indifferent as to the nationality of the bank where they would
deposit their savings, leading to a very significant enlargement of consumer choices and of
competition. Notwithstanding the regulatory interventions in such directions, such as with
regulation (EC) 2560/2001 on cross-border payments in the Euro area, the high costs
traditionally associated with dealing with foreign banks have remained. As a consequence,
the residual demand of a bank localized in one country remained substantially equal to what it
was before the Euro, while the removal of the higher costs associated with cross border
transactions would have probably led to a significant increase of the elasticity of its residual
demand.
BANKING AND THE FINANCING OF DEVELOPMENT:
Cross country comparisons show the importance of a well developed banking sector for
achieving both long term economic growth and the reduction of poverty. Countries with
better developed banking systems and capital markets have shown higher growth rates.
■Finance is always necessary for growth. In particular ongoing business needs finance for
operation and for expansion. The same is true for launching new business enterprises.
Households need to have safe deposits, access to the payment system, to mortgages and
consumer loans. In this respect the experience of many developing countries shows that the

19. 19
banking sector is generally responding well to the needs of the wealthy households and of the
established firms. More in general, banking seems to develop well with firms and people that
are able to offer collateral or have formal employment so as to provide some guarantee with
respect to future income, less well with people and firms that are unable to offer guarantees.
However, while in developed countries this second group of customers is relatively small, in
developing countries it represents the majority, so that banks tend to provide services only to
the minority of the population. In banking, while the competitive solution with little
regulation is appropriate for these existing banks so as to eliminate distortions, favoritism and
high interest rate spreads. As an example, the Pakistani competition Authority in its
submission to the OECD Global Forum on Competition in February 2005 writes: “The
financial sector was deregulated and … with the economic liberalization, new banks,
financial institutions, leasing companies, housing finance, investment companies and foreign
banks have come up, which has created a competitive milieu”
■Regulatory reform and competition are able to expand the reach of banking to the
underprivileged. On the one hand, especially in countries where the majority of potential
borrowers do not have a collateral to offer, conventional banking may lead to a non optimal
equilibrium, where quite a number of low risk project are not financed and high-risk
borrowers end up having to pay higher interest payments. On the other hand technical
progress and flexible regulation have made it possible to provide banking services also to the
poor. For example Dymski (2003) writes: “Lemon Bank (a micro credit bank)… offers credit
and debit cards and savings accounts to the unbaked. Its minimum amount is tiny, and
checking services are available without annual fees. … Lemon Bank, which has 3600 access
points, many in favelas and in drugstores, is about to launch a media campaign aimed at
opening 100,000 new accounts by year’s end.”
■As for the lending side, in recent years in many developing countries specialized lending
institutions started to use unconventional methods to lend successfully to the poor, starting
what is now known as micro credit. Considerable evidence shows that such unconventional
lenders were able to lend to borrowers that no conventional borrower was willing to attract
and nonetheless performed much better, in terms of financial self sufficiency and repayment
rates, than would conventional banks in comparable loans. The reason of this success, that is
not limited to the Grameen Bank in Bangladesh, is the use of unconventional methods of risk
reduction: forming groups of borrowers that are jointly responsible for each other’s loans

20. 20
(joint liability) and intense monitoring of clients, relying heavily on the promise of repeating
the loan.
Credit Rating
In terms of the BRPD Circular Letter No. 05 dated May 29, 2004 it was made mandatory for
the banks to have themselves credit rated to raise capital from capital market through IPO.
The issue has been reviewed further and with a view to safeguard the interest of the
prospective investors, depositors and creditors and also the bank management as a whole for
their overall performances in each relevant areas including core risks of the bank, it has now
been decided to make it mandatory from January 2007 for all banks to have themselves credit
rated by a Credit Rating agency.
Banks are, therefore, advised to take necessary measures from now on so that they can have
their credit ratings in all relevant areas as well as the bank management.
Banks will be required to complete their credit rating by June 30, 2007. The credit rating will
be an ongoing process i.e. credit rating should be updated on a continuous basis from year to
year, within six months from the date of close of each financial year.
The rating report completed in all respects be submitted to Bangladesh Bank and made public
within a period of one month of the notification of rating by the credit rating agency.
Banks will disclose their credit rating prominently in their published annual & half yearly
financial statements.
Prudential Guidelines for Consumer finance and Small Enterprise Financing:
Due to significant increase in credit disbursement in the arena of Consumer Financing and
encouraging credit flow in the Small Enterprise Financing sector in the recent time, two
separate guidelines have been issued to the banks for better management of credit in those
two sectors where-in loans will have to be classified into 8(eight) categories (in light of
Credit Risk Grading Manual). Banks have been advised to implement the guidelines by 31
December 2005. Bangladesh Bank will monitor the progress of implementation of these
Regulations/Guidelines through its on-site inspection teams through routine inspection.
Guideline on Information & Communication Technology for Scheduled Bank
Bangladesh Bank has forwarded guidelines to provide the industry with IT guideline of
‘minimum’ security standards for scheduled banks with a view to ensuring security in IT
setup as well as in IT operations by taking adequate measures to prevent the information from
unauthorized access, modification, disclosure and destruction so that customers’ interest is

21. 21
fully protected. Banks are advised to follow the Guideline in their IT area and implement all
the security standards by May 15, 2006.
Implementation of Credit Risk Grading Manual
With the aim to fully implement a Risk Grading System, an Integrated Credit Risk Grading
Manual has been developed and forwarded to the banks. Banks are advised to implement
Credit Risk Grading (as described in the manual) by March 31, 2006 for all exposures
(irrespective of amount) other than those covered under Consumer and Small Enterprises
financing Prudential Guidelines and also under The Short-Term Agricultural and Micro-
Credit. Banks are also advised to submit a compliance report by April 15, 2006 to the effect
that the Credit Risk Grading has been put in place. Risk Grading Matrix provided in the
Manual will be the minimum standard of risk rating and banks may adopt and adapt more
sophisticated risk grades in line with the size and complexity of their business. Bangladesh
Bank will monitor the progress of implementation of the manual/guideline through its on-site
inspection teams during routine inspection.
1o years Inflation rate in Bangladesh:
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
4.2% 5.1% 5.2% 6.8% 8.8% 6.5% 6.5% 7.5% 8.5% 7.57%

22. 22
Analyzes:
In 2004 inflation rate is 4.1 % .the next year 2005 its increase 1% and getting 5.1% but the next
year 2006 its only increase o.o1% and getting 5.2%.In 2007 inflation rate gets 6.8% and next
year 2008 its increase 2% and getting 8.8% but 2009 its decrease 2.3% and getting 6.5%. No
change in 2010, its 6.5 but the next year 2011 its increase 1%and getting 7.5%. 2012 increase by
8.5% and 2013 decrease 1% and same in 2011 7.5%.
4.2
5.1 5.2
6.8
8.8
6.5 6.5
7.5
8.5
7.5
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
0
1
2
3
4
5
6
7
8
9
10
Inflation
Series 1

23. 23
Risk free interest Rate:
Analyzes
There is no movement in risk free rate because last 10 years risk free rate is same.
5 5 5 5 5 5 5 5 5 5
0
1
2
3
4
5
6
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Risk Free Rate
Series 1
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
5% 5% 5% 5% 5% 5% 5% 5% 5% 5%

24. 24
Relationship between inflation rate and risk free rate:
4.2
5.1 5.2
6.8
8.8
6.5 6.5
7.5
8.5
7.5
5
5 5
5
5
5 5
5
5
5
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
0
2
4
6
8
10
12
14
16
Inflation & Risk Free rate
Risk free rate
Inflation

25. 25
HISTORICAL BACKGROUND OF THE EXIM BANK
EXIM Bank- Export Import Bank of Bangladesh Ltd. was named at first as BEXIM Bank
BEXIM stands for Bengal Export Import of Bangladesh. This new commercial Bank was
opened in August 03, 1999 with some new innovative visions in customer services. The
Bank received the certificate of incorporate no.C-37864 (2164)/99 under the
commencement of the business on the same day by the section 150(2) under companies
Act. A part from the head office in Dilkusha C/A, it stared its first local branch in
Motijheel C/A simultaneously in order to provide all kinds of Banking support to the
clients. On December 02, 1999 the second branches both in Dhaka City and other cities.
Now it has twenty-five branches in the country.
OVERVIEW OF THE BANK:
Exim bank is only one export import bank in our country. It was established in 1999. The
Bank starts functioning from 3rd August, 1999 with its name as Bengal Export Import
Bank Limited. On 16th November 1999, it was renamed as Export Import Bank of
Bangladesh Limited. EXIM Bank is using the T24 Islamic Banking Solution of Temenos
which is already a recognized world leader in banking software technology with over 700
installations in over 125 countries, and more than 40 installations for Islamic Banking.
EXIM Bank extended all Islamic banking services including wide range of saving and
investment products, foreign exchange and ancillary services with the support of
sophisticated IT and professional management. The investment portfolio of the bank
comprises of diversified areas of business and industry sectors. The sectors include
textiles, edible oil, ready-made garments, chemicals, cement, telecom, steel, real estate
and other service industry including general trade finance. The bank has given utmost
importance to acquire quality assets and is committed to retain good customers through
customer relationship management and financial counselling. At the same time efforts
have been made to explore/induct new clients having good potentiality to diversify and
create a well-established structured investment portfolio and to minimize overall portfolio
risk.
International Award –“ International Diamond Prize for Excellence in Quality"
award and "World Finance" award.
Implementation of the world renowned Core Banking Software (TEMENOS T24) and
Conversion from Conventional Banking to Shariah Based Islamic Banking.

26. 26
Exim Bank has provided. At least 2% of our annual profit of every year is put aside for
the foundation to conduct Corporate Social Responsibilities (CSR) activities. The
mainstream CSR activities that are carried out through this foundation are Female
Employees' Interest Protection Policy" of EXIM Bank.
As per the Service Rules for the Employees of EXIM Bank, 30th November 2006,
Chapter IX, Section 9.1.1. Points (f) are covered disciplinary action against any offence
involving moral turpitude. In addition to that, to encourage a healthy & cordial work
environment, the following policy has been introduced and put in effect for well-being of
the female employees of the bank.
MISSION:
The mission of the Exim bank is Provide quality financial services especially in Foreign
Trade, Continue a contemporary technology based professional banking environment,
Maintain corporate & business ethics and transparency at all levels, Sound Capital Base,
Ensure sustainable growth and establish full value to the honourable stakeholders, Fulfil
its social commitments and Above all, to add positive contribution to the national
economy.
VISION:
The vision of Exim bank is ‘Together Towards Tomorrow’. Export Import Bank of
Bangladesh Limited believes in togetherness with its customers, in its march on the road
to growth and progress with service.
PRESENT SITUATION OF EXIM BANK LTD
Authorized Capital: The authorized capital of the bank at present remained at Tk. 20000
million .

27. 27
Paid up capital: Tk. 10,515 million.
Reserve fund: Reserve fund Tk.3, 954.5million.
Face Value: Tk. 10
Profit/ (Loss) after tax: Tk. 2157,631,285.
Retained Earnings: Tk. 1,367,293,534.
Total Liabilities: Tk. 150,447,727,800.
NAV per share: Tk. 15.83( 2011 adjusted )
EPS (As per prospectus): Tk.2.05( 2011 adjusted )
Cash: 26,80,760,985
Assets: 167,056,626,119
Investments : 118,219,992,997
Financial performance:
Sl.
No.
Particulars 2008 2009 2010 2011 2012
1 Authorized Capital 3500.00 10000.00 10000.00 20000.00 20000.00
2 Paid-up Capital 2677.75 3373.96 6832.27 9223.56 10514.86
3 Shaerholder’s Equity 4989.20 6717.21 12474.85 14484.22 16641.86
4 Total Capital (Tier 1+ Tier 2) 5763.89 7718.89 13957.40 16109.56 18214.31
5 Statutory Reserve 1532.55 2092.97 3154.76 3849.78 4587.47
6 Total Assets 68446.46 86213.37 113070.98 129874.42 167056.63
7 Total liabilities 63457.26 79496.16 100596.13 115390.20 150414.77
8 Deposits 58833.06 73835.46 94949.40 107881.21 140369.66
9 Investment(General) 53637.68 68609.91 93296.65 99699.63 118219.99
10 Investment(Shares &
Securities exld.subs)
2894.02 2189.54 4522.04 6734.03 10345.38
11 Total Contingent liabilities 26070.57 30109.11 55098.36 54929.92 63950.48
12 Total risk Weighted Assets 53428.99 69058.87 140251.40 148053.70 166531.66

28. 28
13 Total Fixed Assets 293.53 381.98 463.74 467.98 433.0920357.48
14 Total income 8356.82 10383.62 13723.95 15801.88 15023.14
15 Total Expenditure 5838.43 7201.84 7830.16 11846.06 5334.35
16 Profit before provision and
tax
2518.39 3181.78 5893.79 3955.82 3688.45
17 Profit before tax 1989.55 2802.12 5308.95 3475.06 2157.63
18 Net profit after provision and
tax
1096.63 1694.10 3476.01 2009.37 270081.50
19 Foreign Exchange Business 156434.57 162604.61 227966.60 254407.47 143314.40
a) Import Business 78540.49 83911.51 129570.73 128445.77 120996.96
b) Export Business 76465.62 76240.77 95359.45 122217.34 5770.20
c) Remittance 1428.46 2452.33 3036.42 3744.36 398
20 No. of Foreign
Correspondent
278 333 354 336 131147.17
21 Profit earning assets 56192.52 69006.56 97901.97 109707.50 35909.46
22 Non Profit earning assets 12253.94 17206.81 15169.01 20166.92 84.22%
23 Investment as a % of total
Deposit
93.14% 92.92% 98.26 92.42% 10.94%
24 Capital adequacy Ratio 10.79% 11.18% 9.95 10.88% 10%
25 Dividend 26% 35% 35 14% 0
Cash 0 0 0 0 10%(proposed)
Bonus 26% 35% 35 14% 9.96%
Rights Share 1r:2 15.83
26 Cost of found 9.52% 9.09% 7.10 9.15% 2.05
27 Net Asset Value per share 186.32 199.09 18.26 15.70 10.14
28 Earning per share (EPS) 40.95 50.21 3.77 2.18 1.45%
29 Price earning ratio (times) 7.85 7.52 11.34 12.76 139482
30 Return on Assets (ROA)
after tax
1.83% 2.19% 3.54 1.65% 1909
31 No. of shareholders 24387 29302 99882 126681 72
32 Number of Employees 1312 1440 1686 1724
33 Number of Branches 42 52 59 62

29. 29
Balance sheet
Particular 2008 2009 2010 2011 2012
Property and Assets
Cash
In hand (include foreign
currency)
with bank and its agent banks
(including foreign currency)
470456231
6117457992
6587914223
502312143
8714624948
9216937091
738876217
9346699826
10085576043
948773916
13964278341
14913052257
1314251466
24866509519
26180760985
Balance with other banks
and financial institution
In Bangladesh
Outside Bangladesh
747546381
1445278570
2192824951
123249512
1406619922
1529869434
539356994
865104309
1406461306
3882017395
1414527197
5296544592
6186227238
2768122145
895434383
Money at call and short
notice
- - - - -
Investment (shares and
bonds)
Govt securities
Others
2250000000
644021207
2894021207
2000000000
169435240
216945240
2756000000
1766035569
4522036564
2763708330
3970320439
6734028769
3263708330
7081674745
10345383075
Investment
General investment
Bills discounted and
purchased
Fixed assets
50838709312
2798967791
53637677103
66898183938
1711723532
68609907470
90929921831
3744679959
94674610790
96855012694
1999007171
100854019865
115805715527
3554351738
119360067265

30. 30
Others assets
Non-banking assets
293529040
2840497476
383332474
4294450230
467930909
1890860232
4739961675
-
439482675
1717886434
Total assets 68446464000 86203931339 113047466849 129709816841 166997929817
Liabilities
Borrowing from other
banks, financial institutions
and agents
500000000 1298500 1658267943 3450000000 4300000000
Deposits and others
Accounts
Al wadiah current deposits
and other acc
Mudaraba savings bank
deposits
Call deposits
Foreign currency deposits
Bill payable
Other liabilities
6672698806
2440817852
47333793478
-
4454565455
57586991798
5370270246
4444334819
15466275929
8733452812
-
4458554545
73835461825
5661064700
4736853655
16974377239
12673205230
1154621462
8544555445
94951570297
3997774194
5461081193
21633784660
13717321688
-
9985544545
107515298597
4275035477
6038002361
90136641065
25180642319
170730899587
1597045903
140025422505
6122305295
Total liabilities 63457262044 79497825025 100601612424 115240334074 150447727800
Capital/shareholders’ equity
Paid up capital
Proposed issue of bonus
shares
2677746000
-
3373959900
209294330
6832268790
3154763651
9223562860
3849775919
455445455
445522555

31. 31
Share premium
Dividend equalization account
Statutory reserve
Total shareholders’ equity
Total liabilities and
shareholders’ equity
-
62775000
1532550398
4989201956
68446464000
6552566
11763545654
-
68446201956
64446464000
62775000
2395946984
1295946984
12445854425
11304746684849
62775000
11716177
13215503384
14469482767
129709816841
782542554
55455545
8725554
40215012454
45622156564
Off balance sheet items
Contingent liabilities:
Acceptance and
endorsements-
Letters of guarantee
Irrevocable letters of credit
Bills for collection
Other contingent liabilities
Total contingent liabilities
Others commitments
Total off balance sheet item
1926716986
8259107868
1207007428
14677737243
26070569525
-
26070569525
2051493156
11023568510
1915178096
15118871585
30109111347
-
30109111347
2843764312
24659729822
2101115742
35098364372
-
-
55098364372
3923644884
15239815112
2590679299
259175780264
34929919559
-
54929919559
3667283774
18331133277
2375795416
39576271160
-
-
63950483627

32. 32
Loss and profit
Particular 2008 2009 2010 2011 2012
Investment income
Profit paid on deposits
borrowings, etc.
Net investment income
Income from investment in
shares/securities
6575384481
(4807489009)
1767895472
49290682
8147113948
(5942862461)
2204251487
45980606
9606185898
(6020054097)
3586131801
143927878
13266077269
(93398849)
3926192334
99745891
17283330742
(12228664694)
5054666048
138120503
Commission, exchange and
brokerage
Gain on sale of investment in
shares
Other operating income
Total operating income
1358584309
4958930
368602392
3549331785
1382364444
192447997
618702207
4443746741
1822977090
1292104250
872161614
7717302633
1914082722
-
675060237
6615081184
2070731029
51467200
802080203
1475414349
Operating expense
Salaries and allowances
Rent, taxes, insurance,
lighting etc.
Legal expenses
Postage, stamp, telegram, and
telephone audit fees
Stationery, printing,
advertisement, etc.
Managing directors
remuneration
Managing director fees
544058922
100138388
3439756
46319705
247500
46507927
5329800
648143840
134306353
4030585
48855397
1984110
70697703
7569300
1014492899
169548654
5552975
56864407
1932031
70168601
9885700
1338511684
214630630
9345446
67963092
3305582
103852471
8986135
2775414349
274271388
38277696
66565319
1916685
123360905
8088387

33. 33
Directors fees
Depreciation on and repairs
to banks property
Other expenses
Total operating expense
Profit before provisions
Provision for investment
Provision for off balance
sheet exposure
Provision for diminution in
value of share
Profit before tax
Provision for tax
Deferred tax
Profit after tax
-
2585924
68248984
214065794
1030942700
2518389085
392862260
101460000
34514026
1989552753
-
1096627046
-
2508018
225292220
1273078086
3170676655
301625753
78036000
-
2791014902
1108024287
-
1682990615
-
2206353
226881
120096549
55897642
334633376
1841506068
-
5290953783
1832938651
-
3458015132
-
2382190
308611
148557159
83883260
547697143
2529423403
17 888196
31 18 60 666
3538005283
-
2017715667
-
2291071
256736
160452801
102409801
569412576
2822881452
554555442
3565445556
54542424
-
5456511356
Retained earnings brought
forward
Transfer from provision for
diminution in value of share
Adjustment for (under)/over
provision for tax made in
earlier years
608754548
-
-
608754548
716130558
33914343
750044901
-
117 6397684
-
4209449
11820607133
2390143482
-
-
2390143482
4549444571
-
-
5556525556
1705381594 2433035516 4638622265 4407859149 4522332212

34. 34
Profit available for
appropriation
Appropriation:
Statutory reserve
Cash dividend
Issue of bonds shares
397910560
149953560
441386700
560423932
-
696213900
1061789321
-
1180885960
695012268
-
2391294070
5545445454
-
44555455245
989251036 1256637832 224267281 13215527885 45254552456
Retained earnings carried
forward
Earnings per ordinary
share
716130558
40.95
1176397684
49.88
2395946984
5.33
1321552811
2.19
2545545555
15.87
Types of loans:
Types of loan sanctioned by the bank given below:
1. Agriculture loan
2. Term Loan to large & medium scale industry
3. Term Loan to small Industry
4. Large & Medium Scale Industry
5. Small Industry
6. Export
7. Trade financing

35. 35
8. Housing loan
9. Consumer credit
10. Credit card
11. Credit to NBFIs
Loan category based description:
a. Continuous loan: loan continues year after year.
b. Demand loan: loan to be paid on demand. Sanction of loan is made within short
period of time.
c. Term loan: generally loan is sanction for long time. Say 5 to 15 years and
payment system is on installment basis.
A. Continuous loan is two types :
1. C.C pledged: where goods financed loan is kept under lock’s key of bank go
down. Goods will be released by the bank authority of their getting the value.
2. C.C (Hypothecation) : bank sanction loan to client to purchase goods and service.
Title of good’s remaining to client.
B. Demand loan:
1 .Lim (loan against imported merchandise) – This loan is provided for very short
term say 10 to 15 days. This loan is related to foreign exchange business. When
document is received and make payment to foreign buyer.
2. MIB (imported Bill) – when goods are received from foreign buyer; bank make
payment against the goods. Goods are kept in safe custody to bank and subsequently
released after getting the value.
3. T.R (trust receipt): here loan is provided against imported goods. Loan is
generally provided go days. Basis difference between MIB and TR is that in MIB
goods are kept and TR is that in MIB goods are kept at Bank’s custody’s in TR goods
are lying under customer’s custody.

36. 36
Interest rate Movement:
Here the 5 years interest rate movement of loanable funds:
2014
13 15.5 18 15.5 18 7 15.5 18 18 24 18 18
13 15.5 18 15.5 18 7 15.5 18 18 24 18 18
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Feb
Jan

37. 37
2013
13 13 13 13 13 13 13 13 13 13 13 13
15.5 15.5 15.5 15.5 15.5 15.5 15.5 15.5 15.5 15.5 15.5 15.5
18 18 18 18 18 18 18 18 18 18 18 18
15.5 15.5 15.5 15.5 15.5 15.5 15.5 15.5 15.5 15.5 15.5 15.5
18 18 18 18 18 18 18 18 18 18 18 18
7 7 7 7 7 7 7 7 7 7 7 7
15.5 15.5 15.5 15.5 15.5 15.5 15.5 15.5 15.5 15.5 15.5 15.5
18 18 18 18 18 18 18 18 18 18 18 18
18 18 18 18 18 18 18 18 18 18 18 18
24 24 24 24 24 24 24 24 24 24 24 24
18 18 18 18 18 18 18 18 18 18 18 18
18 18 18 18 18 18 18 18 18 18 18 18
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
others
credit to NBF is
credit card
consumer credit
housing
trade financing
export
small industry
large & medium scale industry
term loan to small industry
term loan large & medium scale
industry
Agriculture

38. 38
2012
13 13 13 13 13 13 13 13 13 13 13 13
17 14 14 14 14 14 14 14 14 14 14 15.5
17 16.5 16.5 16.5 16.5 16.5 16.5 16.5 16.5 16.5 16.5 18
17 14 14 14 14 14 14 14 14 14 14 15.5
17 16.5 16.5 16.5 16.5 16.5 16.5 16.5 16.5 16.5 16.5 18
7 7 7 7 7 7 7 7 7 7 7 7
17 14 14 14 14 14 14 14 14 14 14 15.5
18 16.5 16.5 16.5 16.5 16.5 16.5 16.5 16.5 16.5 16.5 18
18 16.5 16.5 16.5 16.5 16.5 16.5 16.5 16.5 16.5 16.5 18
24 24 24 24 24 24 24 24 24 24 24 24
18 16.5 16.5 16.5 16.5 16.5 16.5 16.5 16.5 16.5 16.5 18
18 16.5 16.5 16.5 16.5 16.5 16.5 16.5 16.5 16.5 16.5 18
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
others
credit to NBF is
credit card
consumer credit
housing
trade financing
export
small industry
large & medium scale
industry
term loan to small industry
term loan large & medium
scale industry
Agriculture

39. 39
2011
13 13 13
13 13 13 13 13 13 13 13 13
13 13 13
13
13 13 13 13 13 13 13 13
14.5 16 16
13
13 13 13 13 13 13 13 13
13 13 13
16
16 15 15 17 17 17 17 17
14.5 16 16
17
17 15 15
17 17 17 17 17
7 7 7
7
7 7 7
7 7 7 7 7
13 13 13
17
17 17 17 17 17 17 17 17
13 13 13
17
17 17 17 17 17 17 17 17
0 0 0
17
17 17 17 17 17 17 17 17
1.67 1.67 1.67
1.67
24 24 24 24 24 24 24 24
13 13 13
16
16 16 16 17 17 17 17 17
14.5 16 16 17 17 17 17 17 17 17 17 17
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
others
credit to NBF is
credit card
consumer credit
housing
trade financing
export
small industry
large & medium scale industry
term loan to small industry
term loan large & medium scale
industry
Agriculture

40. 40
2010
13 13 13 13 13 13 13 13 13 13 13 13
13 13 13 13 13 13 13 13 13 13 13 13
14.5 14.5 14.5 14.5 14.5 14.5 14.5 14.5 14.5 14.5 14.5 14.5
13 13 13 13 13 13 13 13 13 13 13 13
14.5 14.5 14.5 14.5 14.5 14.5 14.5 14.5 14.5 14.5 14.5 14.5
7 7 7 7 7 7 7 7 7 7 7 7
13 13 13 13 13 13 13 13 13 13 13 13
0 0 0 0 0 0 0 0 0 0 0 0
1.67 1.67 1.67 1.67 1.67 1.67 1.67 1.67 1.67 1.67 1.67 1.67
13 13 13 13 13 13 13 13 13 13 13 13
14.5 14.5 14.5 14.5 14.5 14.5 14.5 14.5 14.5 14.5 14.5 14.5
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
others
credit to NBF is
credit card
consumer credit
housing
trade financing
export
small industry
large & medium scale industry
term loan to small industry
term loan large & medium scale
industry
Agriculture

41. 41
Yield Classification:
Agriculture:
Year Yield% = default
premium%+
Risk free Rate%
2014 13 = 8 + 5
2013 13 = 8 + 5
2012 13 = 8 + 5
2011 13 = 8 + 5
2010 13 = 8 + 5
Term Loan to large & medium scale industry:
Year Yield %= default
premium%+
Risk free Rate%
2014 15.50 = 10.50 + 5
2013 15.50 = 10.50 + 5
2012 14.37 = 9.37 + 5
2011 13 = 8 + 5
2010 13 = 8 + 5

42. 42
Term Loan to small Industry:
Year Yield% = default
premium%+
Risk free Rate%
2014 18 = 13 + 5
2013 18 = 13 + 5
2012 16.66 = 11.66+ 5
2011 13.63 = 8.63 + 5
2010 14.50 = 9.5 + 5
Large & Medium Scale Industry:
Year Yield %= default
premium%+
Risk free Rate%
2014 15.5o = 10.50 + 5
2013 15.50= 10.50 + 5
2012 14.38 = 9.38+ 5
2011 15.50 = 10.50 + 5
2010 13 = 8 + 5

43. 43
Small Industry:
Year Yield% = default
premium%+
Risk free Rate%
2014 18 = 13 + 5
2013 18 = 13 + 5
2012 16.54 = 11.54+ 5
2011 16.29 = 11.29 + 5
2010 14.50 = 9.5 + 5
Export:
Year Yield% = default
premium%+
Risk free Rate%
2014 7 = 2 + 5
2013 7 = 2 + 5
2012 7 = 2 + 5
2011 7 = 2 + 5
2010 7 = 2 + 5
Trade Financing:
Year Yield% = default
premium%+
Risk free Rate%
2014 15.50 = 10.50 + 5
2013 15.50 = 10.50+ 5

44. 44
2012 14.40 = 9.40 + 5
2011 13.90 = 8.90 + 5
2010 13 = 8 + 5
Housing Loan:
Year Yield %= default
premium%+
Risk free Rate%
2014 15 = 10+ 5
2013 18 = 13+ 5
2012 18 = 13 + 5
2011 13.79 = 8.79+ 5
2010 13 = 8 + 5
Consumer Credit:
Year Yield = default premium+ Risk free Rate
2014 15= 10 + 5
2013 18 = 13+ 5
2012 18 = 13+ 5
2011 8.5 = 3.5 + 5
2010 00 = 00 + 5

45. 45
Credit Card:
Year Yield = default premium+ Risk free Rate
2014 24= 19 + 5
2013 24= 19 + 5
2012 24= 19 + 5
2011 24= 19 + 5
2010 1.67= 1.67+
Credit to NBF IS:
Year Yield %= default
premium%+
Risk free Rate%
2014 18= 13 + 5
2013 18= 13 + 5
2012 18= 13 + 5
2011 13= 8 + 5
2010 13= 8+ 5
Others:
Year Yield %= default
premium%+
Risk free Rate%
2014 18= 13 + 5
2013 18= 13 + 5

46. 46
2012 18= 13 + 5
2011 15.25= 10.25+ 5
2010 14.5= 9.5+ 5
Credit risk premium score:
The credit risk grading score sheet of EXIM bank given below:
CRG:
Number Grading Short Score
1 Superior SUP Fully cash
secured, secured
by government
2 Good GD 85+
3 acceptable ACCPT 75-84
4 Marginal/ watchlist MG/WL 65-74
5 Special mention SM 55-64
6 Substandard SS 45-54
7 doubtful DF 35-44

47. 47
8 Bad / loss BL <35
Source: secondary (EXIM Bank)
Exim bank divided the credit risk grading score by superior, good, acceptable, marginal, special,
substandard, doubtful and bad/ loss. Criteria of credit risk grading the Exim bank are financial
risk, business/ industry risk, management risk, security risk and relationship risk. . Under the
financial risk are leverage (15%), liquidity (15%) ,profitability (15%) and coverage (5%).
Criteria
weight
Parameter score Actual
Parame
ter
Score
obtaine
d
A financial Risk
50%
1. Leverage: (15%)
Debt equity ratio (*)- times
Total liabilities to tangible net worth
All calculations should be based on
Annual financial statements of the
Borrower ( audited preferred)
Less than 0.25 x
0.26*to 0.35 x
0.36 * to 0.50x
0.51 * to 0.75x
0.76 *to 1.25 x
1.26 * to 2.00 x
2.01 *to 2.50 x
15
14
13
12
11
10
8
1.32 10

48. 48
2.51 * to 2.75 x
More than 2.75 x
7
0
2. Liquidity (15%)
Current ratio (*) – times
Current assets to current liabilities
Greater than 2.74 x
2.50*to 2.74x
2.00*to 2.49x
1.50*to 1.99x
1.10*to 1.49x
0.99*to 1.09x
0.80* to 0.89x
0.74* to 0.79x
Less than 0.79x
15
14
13
12
11
10
8
7
0
1.03 10
3. Profitability: (15%)
Operating profit margin (%)
(operating profit/ sales * 100
Greater than 25%
20% to 24%
15% to 19%
10% to 14%
&% to ( %
4% to 6%
1% to 3%
less than 1%
15
14
13
12
10
9
7
0
20.00% 14

49. 49
4. Coverage: (5%)
Interest coverage ratio (*) –times
Earnings before interest & tax (
EBIT)
Interest on debt
More than 2.oox
More than 1.51*less than
2.00x
More1.25 *less than 1.5 x
More than 1.00*less
than1.24x
Less than 1.00x
5
4
3
2
0
1.87 4
Total score – financial risk 50 38
Source : secondary ( EXIM Bank)
B. Business /industry risk 18%
1.Size of business ( in BDT Crore)
The size of the borrower’s business
Measured by the most recent year’s
total sales. Preferably audited
numbers.
>60.00
30.00 – 59.99
10.00 -29.99
5.00 – 9.99
2.50 -4.99
<2.50
5
4
3
2
1
0
3.33 1
2.Age of business
The number of the years the
borrower
>10 years
>5 -10 years
<2 years
3
2
1
18 3

50. 50
Source: secondary (EXIM Bank )
Engaged in the line of business 0
3.Business outlook
Critical assessment of medium term
Prospects of industry, market share
And economic factors
Favorable
Stable
Slightly
uncertain
Cause for
concern
3
2
1
0
Stable 2
4. Industry growth Strong (10% +)
Good (>5% -
10%)
Moderate (1%-
5%)
No growth
(<1%)
3
2
1
0
Moderate
(1% -5%)
1
5. market competition Dominant
player
Moderately
competitive
Highly
competitive
2
1
0
Moderately
competitive
1
6. entry /exit barriers Difficult
Average
Easy
2
1
0
Average 1
Total score –business / industry 18 8

51. 51
c. Management risk 12%
Experience
Quality of management based on
total
of years of experience of the senior
management in the industry
More than 10 years
in the related
5-10 years in the
related line of
1-5 years in the
related line of
No experience
5
3
2
0
More than
10 years in
the related
line
5
2. second line / succession Ready succession
Succession within 1-
2years
Succession within 2-
3 years
Succession in
question
4
3
2
0
Ready
succession
5
3. Team work Very good
Moderate
Poor
Regular conflict
3
2
1
0
Moderate 2
Total score – management risk 12 11
Source: secondary (EXIM bank)

52. 52
D. security
risk
10%
1.security ( primary ) Fully pledged
Facilities/substantially cash
covered/reg. mortg. for HBL
Registered hypothecation (1st
charge/1st
pari passu charge)
2nd
charge /inferior charge
Simply hypothecation/negative lien
on assets
No security
4
3
2
1
0
Registered
hypothecation(
1st
charge /1st
pari passu
charge
3
2.collateral coverage
( property location )
Registered mortgage on municipal
Corporation Prime area property
Registered mortgage on
Pourashava/ semi-urban area
Property
Equitable mortgage or no
Property but plant and machinery
As collateral
Negative lien on collateral
No collateral
4
3
2
1
0
Registered
mortgage on
municipal
Corporation
Prime area
property
4

53. 53
3. support
(Guarantee)
Personal guarantee with high net
worth or strong corporate
Guarantee
Personal guarantees or corporate
Guarantees or corporate
Guarantee with average financial
Strength
No support / guarantee
2
1
0
Personal
guarantee with
high net worth
or strong
corporate
Guarantee
2
Total score –
security Risk
10 9
Source: secondary (EXIM Bank)
E. relationship risk
10%
1. account
conduct
More than 3 years accounts with
faultless record
Less than 3 years accounts with
faultless record
Accounting having satisfactory
Dealing with some late
payments
5
4
2
0
More than 3
years accounts
with faultless
record
5

54. 54
Frequent past dues & irregular
Dealing in account
2.Utilization of limit
(actual /projection0
More than 60%
40% -60%
Less than 40%
2
1
0
65.00% 5
2.Compliance of
covenants/ condition
Full compliance
Some non-compliance
No compliance
2
1
0
Full
compliance
2
3.Compliance of
covenants/ conditions
Full compliance
Some non- compliance
No compliance
2
1
0
Full
compliance
2
4.personal deposits Personal accounts of the key
Business sponsors / principals
are
Maintained in the bank, with
Significant deposits
No depository relationship
1
0
Personal
accounts of the
key Business
sponsors /
principals are
Maintained in
the bank, with
Significant
deposits
1
Total score–relationship
risk
10 10
Grand total – All Risk 100 76
Source: secondary (EXIM Bank)

55. 55
Under the business /industry risk are size of business, age of business, business outlook, industry
growth, market competition and entry / exit barriers. Under the management risk are experience,
second line / succession and team work. Under the security risk are security coverage (primary),
collateral coverage (property location) and support (guarantee).under the relationship risk are
account conduct ,utilization , compliance of covenants / condition and personal deposits.
Pure Keynesian theory: make a research is it correct for
Bangladesh:
Keynesian theory holds that the economy normally fails to employ all available resources and the
best technology and that government must regularly interfere with active fiscal and monetary
policies to move the economy toward full employment.
Lord John Maynard Keynes wrote “the General Theory of Employment, Interest and Money” as
a solution to the problem of periodic unemployment faced by developed industrial nations of the
West during the great depression of the thirties.
Many of his ideas were revolutionary, almost all were controversial. The central argument of The
General Theory is that the level of employment is determined, not by the price of labor as in
neoclassical economics, but by the spending of money. Keynes argues that it is wrong to assume
that competitive markets will, in the long run, deliver full employment or that full employment is
the natural, self-righting, equilibrium state of a monetary economy. On the contrary, under-
employment and under-investment are likely to be the natural state unless active measures are
taken. One implication of The General Theory is that an absence of competition is not the main
issue and measures to reduce unemployment by benefits or wage cuts have no major effect. Its
applicability in underdeveloped countries is very limited. To quote Joan Robinson: “ Keynes’s
theory has little to say directly, to the underdeveloped countries, for it was framed entirely in the
context of an advanced industrial economy, with highly developed financial institutions and a
sophisticated business class.
Bangladesh is a developing country. So, Keynesian theory is not applicable in Bangladesh. The
reason has described in below:

56. 56
 Keynesian theory is fundamentally a capitalistic theory. It basically examines the
determinants of employment in a free enterprise economy. But Bangladesh is a mixed
economy system country.
 Keynes’s theory deals with short-run phenomena only. It pays little attention to the long-
run problems of a dynamic economy. But Bangladesh needs paying much attention to the
long run problems. If Bangladesh cannot able to solve long run problems, it will not be
developed.
 Keynesian theory is not strictly applicable to underdeveloped countries. Keynes deals
with the problem of cyclical unemployment. Underdeveloped countries have the problem
of chronic unemployment and disguised unemployment. That’s why it is not capable for
Bangladesh.
 He showed that full employment could be maintained only with the help of government
spending. He advocated in the General Theory that wages be kept stable. A general cut in
wages, he argued, would decrease income, consumption, and aggregate demand. This
would offset any benefits to output that the lower price of labor might have contributed.
But it is not possible for Bangladesh.
Although the policy measures suggested by the Keynesian theory may not be suitable to the
problems of underdeveloped countries, it does not mean that Keynesian economics has no
significance. Indeed, Keynesian methodology of thinking in macro-economic terms is very
essential and appropriate in understanding the major problems of any economy, whether
developed or developing. However, in view of the changing institutional set-up of the developing
economies during the process of planning and socio-economic reforms, Keynesian tools have to
be adopted with suitable modifications.

57. 57
Reference:
Inflation rate
2004-2012
http://search.worldbank.org/quickview?name=%3Cem%3EInflation%3C%2Fem%3E%
2C+GDP+deflator+%28annual+%25%29&id=NY.GDP.DEFL.KD.ZG&type=Indicator
s&cube_no=2&qterm=inflation+rate+in+bd
Inflation rate
2013
http://www.bangladesh-bank.org/econdata/inflation.php
Annual report http://www.eximbankbd.com/report/Annual_Reports
Risk free rate http://www.bangladesh-bank.org/econdata/intrate.php
About Exim bank http://www.eximbankbd.com/
Central Bank
how to regulate
commercial
bank
http://www.bangladesh-bank.org/
Role of
Bangladesh
Bank
Intermediate 1st
paper books “principles Business
Risk premium and
interest movement
Attach appendix