The document analyzes the PESTEL factors affecting the banking sector in Bangladesh. It discusses the political, economic, social, technological, environmental, and legal factors. In the upcoming national elections, there could be some political instability and slowing of investments. Economically, GDP growth has been strong but the liquidity crisis may continue. Socially, technology is changing customer needs and expectations. Technological advancements require continued investment in new technologies. Environmentally, there is increased focus on sustainable finance and reporting. The banking industry also faces a highly regulated legal environment.

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2. PESTEL ANALYSIS OF BANKING
SECTOR IN BANGLADESH

3. PESTEL
A PESTEL analysis is a framework or tool
used by marketers to analyze and monitor the
macro-environmental (external marketing
environment) factors that have an impact on
an organization.

5. Political
 The present Government successfully controlled the political
environment so far. Over the last few years, we have observed a
stable political environment in the country. However, National
Parliament Election will be due at the end of 2018 and there might
be some political activities from opposition or the Parties not in
power.
 Beside, as this will be an election year, Government will try to
formulate policies to pro-people and public supportive. One can
expect more citizen friendly tax regulations and rates in the budget
also.

6.  Investments in mega infrastructure projects may be absent by
government in the election year.
 Investors will have a conservative approach in the run-up to the
elections. So, loans and advances would show a stagnant or
negative growth. There may be a further liquidity crisis arising
because more money will be in the hand of people for meeting
expenditures for election
 Regulators will be more cautious to prevent potential undisclosed
money flow to the economy therefore more compliance reporting
may be required in the banking industry to face higher risks of
money laundering and illegal transfer of money within the economy.

7.  The Government initiated investment in many mega projects in the
last few years which helped to mobilize resources for many
investors. However, we will see less investment mobilization from
the diverse corners of the investors in the coming year. Slowing
investments may affect national GDP growth also.

8. Economic
 The GDP in Bangladesh has shown a continuous and sustainable
growth during last few years. In FY2017, the GDP growth was
7.28%, the highest ever recorded.
 Imports increased significantly causing a negative balance of
payments.
 Hike in interest rates on deposits due to the liquidity crisis would be
a major challenge in the coming year. As the fund cost is increasing,
the banking industry would face challenges in collecting low-cost
funds and lending at low rates. Banks will be forced to re-price their
existing assets to match with their cost of deposit.

9.  The BDT is expected to depreciate further due to the higher demand
for foreign currency for meeting the payment for import of capital
machinery and other food items. Already, imports increased
significantly in 2017 due to the floods that recently hit the country.
 Increased nonperforming loans in the industry are being observed
mainly for delinquent borrowers, mismanagement of funds by
different banks and political pressures.
 The GDP growth ultimately indicates gradual expansion of the
economy which is having a positive impact on the industry. Loans
and advances are increasing rapidly, i.e. recorded 18% (approx.)
private sector loan growth. This trend will continue, subject to
political stability and investors’ confidence

10.  Due to the negative balance of payments, the BDT is expected to
further depreciate.
 The loan portfolio would face a stagnant situation in the coming
year.
 The interest hike would add additional hit on consumer price and
thereby increase inflation
 The industry would further face difficulty in managing foreign
currency operations.
 However, this could also generate good business opportunity for
forward contract as customers would request for more forward
contracts for minimizing FX fluctuation risks.
 More export will be generated as BDT proceeds will be more from
the same level of exports.

11. Social
 Although per capita income is now around $1,610, it is composed of
income of the super wealthy, ultra rich and high income group.
Farmers of village areas earn no more than $500 a year. If rational
distribution of income and wealth is not encouraged and ensured,
poverty will not diminish.
 Changing technology, internet and social networking have all
impacted the businesses.
 Social factors will fragment customer needs, tastes and preferences.
Banks will need to think about their Customer Segments and offer
products and services accordingly

12. Technological
 Technological advancement has made customers more sophisticated
and altered expectation levels. Anything can happen with respect to
change in technology in Bangladeshi environment in the coming
years as the country is developing.
 Growing dependence on technology to meet customer demands
translates further investments in technology that are required to keep
update pace in the industry.

13. Environment
 There is growing focus on green, or more broadly, sustainable
finance, both in financial markets and in the international political
arena.
 As country is stepping up, the regulation for the monitoring of all
environment including social, political, geographical, ecological will
be in place in coming days to cope with the changes in the economy
and expectations.
 This has led to increased regulatory focus on sustainable reporting.
The green lending is also getting focused as new business strategy.
 Moreover, the changes in the environment will force to stringent
regulatory compliance and reporting

14. Legal
 Highly regulated business environment is being assuming in future.
Industries are faced with tighter rules and regulations and
application of rules are more standardized and stringent than that in
the past.
 The banking industry is being regulating under Bank Companies
Act, 1991 as amended in 2013, BB circulars and guidelines, Listing
Regulations and Securities laws of the country.
 Apart from the above, bank is also required to comply with
Companies Act 1994, Income Tax Ordinance and Rules 1984, Value
Added Tax Act and Rules 1991

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