You are on page 1of 33

Assignment on Central Banking & Monetary Policy

(FIN-232)

Topic: Functions of Bangladesh Bank

Submitted By:

NAMES ID’S
Raihan Nawajesh 2006110000230
Ayesa Siddika 2006110000029
Nisha Aktar 2006110000003

Submitted For:
Minhajuddin Ahmed
Assistant Professor,
Department of Business
Administration
School of Business Studies
Southeast University

Date of Submission: 22nd April,


2008.
Acknowledgement

As we are the student of


Southeast University of B.B.A.
Program, we‘re completing a
subject name ‘Central banking &
monetary policy’. To make our
study more practical, our
honorable course teacher
Minhajuddin Ahmed has given us
an assignment on “Functions of
Bangladesh Bank”. It will help us
to increase our knowledge about
understanding the central
banking functions of Bangladesh
Bank. According to this we have
done our assignment on the Topic
name. So we’re very grateful to
him to give us such an
assignment.

22/04/08

Minhajuddin Ahmed
Assistant Professor
School of Business
Department of Business Administration
Southeast University,
Banani, Dhaka.

Subject: Submission of Assignment on Central Banking &


Monetary Policy.

Dear Sir,

Here is an assignment on “Functions of Bangladesh Bank”.


This assignment was assigned to us as a partial fulfillment of Central
banking & monetary policy.

This study report concentrates on the over all information, functions,


rules, activities of Bangladesh bank. We are tried to gather a collection
of information to make our report specific. Through the procedure of
preparing the report we developed a clear understanding of the fact
which is related with Bangladesh Bank both for personal and
entrepreneur and organizations.

We are tried our best to make this assignment as reflective as


possible. We appreciate to provide any information or clarification if
necessary.

Thank you for consideration.

Yours sincerely,
Name of group
members: ID’s:

Raihan Nawajesh
2006110000230
Eptekhar Ejaj
2006110000008
Jannatul Ferdous
2006110000267

Table of Contents

No. Subjects Page No.


1) In Brief Bangladesh Bank

2) Exchange rates

3) Monetary policy
4) Bangladesh Bank
Investments
5) Loan classification &
provisioning
6) Social development in BB

7) Profile Of Grameen phone


8) Brief History Of Forming

9) Grameen phone
Management
10) Benefits Provided For
Grameen phone Employees

Bangladesh Bank

Bangladesh Bank, the central bank of the country, was established as a


body corporate vide the Bangladesh Bank Order, 1972 (P.O. No. 127 of
1972) with effect from 16th December, 1971. The powers and
functions of Bangladesh Bank are governed by various laws and acts
including the Banker's Books Evidence Act 1891, Insolvency Act 1920,
Banking Companies Ordinance 1962, Foreign Exchange (Regulation)
Act 1986, Money Loan Court Act 1990, Banking Companies Act 1991,
Financial Institutions Act 1993 and Rules 1994, Companies Act 1994
and Bankruptcy Act 1997.

Bangladesh Bank performed all the traditional central banking


functions including the sole responsibilities of issuing currency,
keeping the reserves, formulating and managing the monetary policy and
regulating the credit system of Bangladesh and maintaining a high
level of production, employment and real income in the country and
managing the country’s foreign exchange and the gold reserve.

The bank acts as the banker to the government and accepts


government deposits, cheques and drafts, and undertakes collection of
cheques and drafts drawn on other banks. It acts as the public debt
manager and runs a public debt office (PDO) within itself. The bank
also sells government treasury bills (T-Bill) on tender, prize bonds and
different types of saving certificates. The bank acts as the clearing
house of the scheduled banks.

In addition to bank rate and open market operations, it uses a number


of other weapons. It can vary the minimum reserve requirements of
scheduled banks whenever circumstance so warrant. Being responsible
for maintaining external value of Bangladesh currency, the bank also
handles the exchange control.

The paid up capital of Bangladesh Bank is Tk 30 million divided into


300,000 shares of Tk 100 each that are fully paid up by the
government. A nine-member board of directors comprising the
governor as chairman, one deputy governor and seven members
oversees the affairs of the bank. The governor and the deputy
governors of the Bank are appointed by the government for a period
not exceeding five years and are eligible for reappointment.

The general superintendence and direction of affairs and business of


the Bank are entrusted to a nine member Board of Directors which
consists of the Governor as chairman, a Deputy Governor, three senior
government officials and four persons having experience and proven
capacity in the fields of banking, trade, commerce, industry or
agriculture - all nominated by the government. The board, which is the
highest policy making body, meets at least six times a year and at
least once every quarter under the chairmanship of the Governor. The
Governor, appointed by the government as the chief executive officer,
directs and controls all the affairs of the Bank on behalf of the Board.

The broad objectives of the Bank are:

a) To regulate the issue of the currency and the keeping of reserves;

b) To manage the monetary and credit system of Bangladesh with a


view to stabilizing domestic monetary value;

c) To preserve the par value of the Bangladesh Taka;

d) To promote and maintain a high level of production, employment


and real income in Bangladesh; and to foster growth and development
of the country's productive resources for the national interest.

Head Office & Departments:

 Accounts & Budgeting Department


 Agricultural Credit and Special Programs Department
 Anti-Money Laundering Department
 Bangladesh Bank Training Academy
 Banking Regulation and Policy Department
 Central Bank Strengthening Project Cell
 Common Services Department
 Credit Information Bureau
 Department of Banking Inspection 1
 Department of Banking Inspection 2
 Department of Currency Management and Payment
System
 Department of Financial Institutions and Markets
 Department of Off-site Supervision
 Department of Public Relations and Publications
 Department of Research Equity and Entrepreneurship
Fund Unit
 Expenditure Management Department
 Foreign Exchange Investment Department
 Foreign Exchange Policy Department
 Forex Reserve & Treasury Management Department
 Governor's Secretariat Human Resources Department
 Information Systems Development Department
 Internal Audit Department
 IT Operation & Communication Department
 Law Department
 Monetary Policy Department
 Secretary's Department
 Security Management Department
 Special Studies Cell
 Statistics Department

Branches:

 Barishal Office
 Bogra Office
 Chittagong Office
 Khulna Office
 Motijheel Office
 Rajshahi Office
 Rangpur Office
 Sadarghat Office
 Sylhet Office
Exchange Rate:

The exchange rates of Taka for inter-bank and customer transactions


are set by the dealer banks themselves, based on demand-supply
interaction. The Bangladesh Bank is not present in the market on a
day-to-day basis and undertake purchase or sale transactions with the
dealer banks only as needed to maintain orderly market conditions.

The exchange rates are used as reference rates to purchase or sale


transactions for Bangladesh Bank with Government or different
International Organization. But USD/BDT buying and selling rates
represent previous day inter bank market's highest and lowest
exchange rates.

Recent Reference Exchange Rates:

Currency Buying Selling


21st November, 2007
A. USD/BDT Rates (based on interbank transaction)
USD 68.60 68.61
B. Cross Rate
JPY 0.62 0.62
GBP 141.71 141.77
EUR 101.67 101.71
CAD 70.01 70.06
AUD 61.07 61.10
Monetary Policy:

Background: The fourth issue of the half-yearly Monetary Policy


Statement (MPS) presents the monetary stance that the Bangladesh
Bank (BB) is going to pursue in the first half of FY08 taking into
account the performance of real sector and external sector and also
the monetary developments in the recent past.

Objectives, targets and instruments: As usual, monetary policy


pursued by BB aims at supporting the highest sustainable output
growth while maintaining price stability, adjusting smoothly to the
internal and external shocks faced by the economy from time to time.
Monetary policy is accordingly designed around a projected real GDP
growth rate, a moderate level of CPI inflation attainable/sustainable
without unduly depressing output. Reverse repo and repo interest
rates and BB bill rates are the routinely employed policy instruments
for influencing financial and real sector prices towards the targeted
path for inflation. Cash Reserve Ratio (CRR) and Statutory Liquidity
Ratio (SLR) for banks are less frequently used instruments that directly
influence available volumes of credit. Annual monetary programs
based
on the projected real GDP growth and targeted inflation rate employ
Reserve Money (RM) and Broad Money (M2) as intermediate targets,
while also tracking other asset and liability side sub-aggregates.

Growth outcome and outlook: Projection for real GDP growth for
FY07 has been revised down to 6.5 percent following setbacks in the
agriculture sector that experienced a moderate growth mainly due to
inadequate rainfall, distribution problems relating to fertilizer, and
shortages of power for irrigation.
Growth in the industry sector continues to be strong in FY07 reflecting
steady growth in export-oriented manufacturing and increased
domestic demand. Industry and service sectors are expected to
continue the robust performance in FY08. Following some government
measures, growth in agriculture is expected to be higher than the
previous year. Overall, real GDP growth is projected to be 7.0 percent
in FY08.

Inflation outcome and outlook: Annual average inflation in


Bangladesh went down to 6.72 percent (below the target range 6.85–
6.95 percent for FY07) in January ′07 from 7.16 percent in June
′06.Thereafter, annual average inflation rate showed an uptrend owing
to rises in prices of fuel, metal, food grain and other essentials in the
international market coupled with supply problems in the domestic
front and reached 7.06 percent in May ′07. The government has taken
some immediate measures to cope with the situation and is expecting
to succeed in limiting annual average inflation to hover around 7.0
percent in June ′07. Despite continued unfavorable price development
in the international front, the corrective measures taken by the
government to handle the supply side rigidities and by BB to manage
the demand side, the pressure on consumer price is expected to go
down in the coming months provided there is no sharp and continued
rise in the oil price. In this backdrop, BB’s monetary policy will target
an annual average CPI within a range of 6.5–7.0 percent for FY08.

Policy stance for FY08: The cautious, restrained monetary policy


stance followed by BB in the last 18 months would be continued during
the first half (H1) of FY08 along with the supply-side measures taken
by the government. Despite cautious monetary policy pursued by BB,
the actual growth of several monetary aggregates exceeded the
program levels. It may be necessary to review BB policy rates. BB may
review SLR/CRR of banks including Islamic ones which have remained
unchanged since 2005, in view of the unfolding price developments. As
before, the private sector will receive necessary policy attention to
ensure desired level of economic growth.

1. Introduction:

Following a strong growth of 5.4 percent in 2006, global output growth


is projected to be 4.9 percent in 2007 (WEO, April ′07, IMF); while
developing world would grow by 7.0 percent. Economic growth in
Bangladesh has also got its momentum like its neighboring countries.
Bangladesh experienced a real GDP growth of 6.63 percent in FY 06.
The growth projection for current fiscal year is 6.5 percent. The policy
strategy recently initiated and the reform programs undertaken by the
government would not only help the economy to grow by 7.0 percent
in FY08 but also pave the way for Bangladesh to become a member of
the “middle income group country” by the end of the next decade.

2. Macroeconomic development: outcome and outlook

2.1 Growth: During the last three years real GDP grew on an average
at above 6.0 percent up to FY 06. The growth momentum though
expected to continue in FY07, the revised estimate of GDP growth rate
has been revised lower to 6.5 percent from the projected range of 6.5–
6.8 percent largely reflecting setback in agriculture that faced supply
failure of fertilizers, shortages of power for irrigation and inadequate
rainfall. Production of aus and aman crops were 1.51 million and 10.80
million tons in FY07 against 1.75 million and 10.80 million tons
respectively in FY 06. Output of Boro, the largest crop in the year, is
estimated at 14.50 million tons compared to 14.00 million tons in FY
06. Production of maize has increased as farmers have largely
substituted maize for wheat.

The latest estimate of overall food grain production is about 27.54


million tons, slightly above than that of the last year and less than the
target 32.27 million tons for FY07.Growth in the industry sector
continues to be robust in FY07 owing to steady growth in export-
oriented manufacturing and increased domestic demand. Looking at
the growth trend of quantum index of manufacturing industries, it is
expected that the growth in the industry sector would be within 10.0-
10.5 percent. The buoyancy of growth in industry is supporting
corresponding growth in the service sector. The accelerated pace of
growth in the transport and communications sector would likely offset
the apparent slow down in the construction and real estate sector.

Overall GDP growth, according to forecast for FY08, is expected to


regain its momentum mainly representing the conducive economic and
political environment created by the present government. Growth in
the agriculture sector in FY08 is thus likely to be higher than that in
FY07 aided by the projected higher disbursement of agricultural loans
and supportive measures cited above. The industry sector is expected
to continue to show robust performance in FY08 mainly due to steady
growth in export-oriented manufacturing and new capacity addition
especially in the telecommunications and the energy sectors.

Increase in import of industrial raw materials (12.2 percent) and capital


machinery (16.6 percent) during July 06–May ′07 indicate that industry
sector growth will sustain. The service sector is likewise expected to
experience buoyant growth in FY08. Overall, real GDP growth in FY08 is
projected to be 7.0 percent in line with the projection in the Medium
Term Macroeconomic Framework (MTMF).

2.2 Inflation: FY07 commenced with an average inflation rate of 7.16


percent but eased to 6.72 percent by the end of January, ′07 reflecting
both seasonality and restrictive monetary policy that was pursued.
Inflation projection for FY07 was lowered from 7.0 percent to a range of
6.85-6.95 percent in the Monetary Policy Statement announced in
January 2007. In the international front, prices of fuel, metals, food
grains and other essential commodities soared, while in the internal
front, selective depreciation in the exchange rate, revision of fuel
prices, production shortfall of food items and political unrest, some of
which have already been subdued, put pressure on the prices.

Inflation rate, on an average basis, went up to 7.06 percent in May ′07


(8.05 percent on point-to-point basis).Inflationary pressure was mainly
felt on the food component, which went up to 8.02 percent at the end
of May ′07 from 7.56 percent at the end of January ′07 while non-food
inflation rose slightly to 5.67 percent at the end of May ′07 from 5.53
percent at the end of January ′07.Apart from steps to monitor supply in
domestic markets, the government has taken price stabilization
measures to ease the pressure which include withdrawal of duties,
importation of food grain by the government, strengthening of internal
procurement, provision for subsidy on fertilizers and diesel and
widening of the Social Safety Net program. Besides, banks are now
providing credit facilities on softer terms to new importers, easing the
LC margin for food items, extending time limit for customer facility and
arranging higher agricultural credit.

Since global commodity prices are not projected to fall in 2008 (WEO,
IMF, April 2007) these measures may only slightly lessen the pressure
on consumer prices. Hence monetary stance of the Bangladesh Bank
over the coming quarters will continue to target the containment of
annual average inflation within a range of 6.5–7.0 percent for FY08.
2.3 External sector: Exports and imports grew by 18.50 percent and
17.83 percent
respectively, year on year basis in first ten months of FY07. Growth in
worker’s
remittances were also steady at 24.52 percent up to June ′07. Surplus
in the current account balance emanating mostly from robust growth
in exports and workers remittances in spite of higher growth in imports
helped releasing pressure in foreign exchange market that prevailed in
the last part of H1 FY07.With the marked increase in supply of foreign
currency the foreign exchange reserves continued to build up to reach
an all time high of 5.1 billion US dollar.

Mirroring floating exchange rate management, the exchange rate of


taka against US dollar, amidst fluctuations, appreciated by 1.26
percent to Tk. 68.80 at the end June ′07 from Tk. 69.67 at the end June
06. Some downside risks in the global perspective in FY08 remains the
main concern affecting external sector outlook. Besides, it has been
apprehended that export sector of Bangladesh may bear some
pressure with the end of restrictions on Chinese apparels by the end of
2007. However, increased flow of remittances, probable higher FDI
flow, reasonable export growth and normal import trend are expected
to persist in FY08. Bangladesh Bank will continue to use its monetary
policy tools, if necessary, to sterilize liquidity to emanate from
expected higher foreign currency inflows.

2.4 Fiscal Sector: The overall deficit in the revised budget of the
government for FY07
remained the same as in the original estimate and amounted to Tk.
173.64 billion or 3.7 percent of GDP, funded by Tk. 73.33 billion in
foreign loans and grants and Tk. 100.31 in domestic borrowings
including bank borrowing of Tk. 65.31 billion. Actual outturn in bank
borrowing is less at Tk. 59.8 billion as on 30 June ′07. The budget for
FY08 projects an overall deficit of Tk. 223.13 billion or 4.2 percent of
GDP, to be funded by Tk. 42.55 billion in foreign grants, Tk. 63.05
billion in foreign loans and Tk.117.53 billion in domestic borrowing
including bank borrowing of Tk. 72.53 billion. BPC’s accumulated loss
of Tk. 75.23 billion is included in the budget.

As indicated in the budget this will not create immediate additional


fiscal liabilities as it will be financed by a “Non-Cash Bond” issue.From
the beginning of FY07, a modified arrangement of Government’s bank
borrowings was put in place under the supervision of a Cash and Debt
Management Committee (CDMC) chaired by Secretary, Finance
Division. The new arrangement included a widened Ways and Means
Advance Limit (Tk. 10.00 billion instead of Tk. 0.65 billion) and auction
of treasury bills and bonds according to volumes pre-announced in the
borrowing calendar.

This new arrangement segregated BB’s role in government debt


management from its monetary policy operations but there is no in-
built mechanism to limit government bank borrowings within the
ceiling of budgetary provisions. Until now, following the changed
treasury rules BB holds treasury bills and bonds at cut off rate if
market supply of fund falls short of Government’s demand set by
CDMC (which is known as devolvement).

From the 4th quarter FY07, BB was allowed to offload the devolved
amount to the banks and financial institutions at the cut off rate of last
auction for the remaining period. Recently the CDMC has agreed in
principle that from the beginning of FY08 the devolvement system will
be replaced by a system where the extra amount will be devolved on
the primary dealers on the basis of underwriting. This new system will
enthuse the primary dealers to create a secondary market for
government securities. The new system will make it easier for BB to
improve its monetary management.

3. Monetary Policy Stance

3.1 Recent Monetary Developments: Bangladesh Bank has been


continuing to pursue a cautious, restrained monetary stance since H2
FY05 with a view to curbing excess demand from inflationary
expectations. An upward bias in policy interest rates (Table 3.1) and
reintroduction of BB bills in October 2006 helped in limiting inflation
around the targeted seven percent despite international price
pressure. In spite of cautious monetary policy, M2 year-on-year growth
(18.2 percent) at the end of May ′07 exceeded the end-June target
(14.7 percent), growth rate of private sector credit that mirrors a part
of the aggregate demand grew at 15.6 percent which was lower than
previous year’s growth rate of 17.1 percent. Net foreign assets of
banking sector has been continuing to grow at a rate leading to the
build up of foreign exchange reserves that reached $ 5.1 billion by the
end of June ′07. From Table 3.1 it appears that the gap between short
term rates (of T-Bills) and those of 5/10 years BGTB is significant. In
order to dampen inflationary expectation, it may be prudent to reduce
the gap.

This may be done by changing short-term interest rates and


developing secondary market of government securities leading to
lowering of yield on long
term bonds. However, in adjusting short term rates one has to be
careful in view of the fact that due to present situation of excess
liquidity with the banks, BB may be able to withdraw money growth
through reverse repo offering relatively higher rate of interest.

BB has been continuing to follow the cautious monetary stance with a


view to ensuring that the existing inflation is not further fuelled by
increased aggregate demand. However, BB is committed to ensuring
flow of credit in the productive sectors like agriculture, small scale
industries, low cost housing etc., where market has failed to deliver. BB
has already taken a decision to introduce a refinancing scheme for
housing loans for lower and middle income groups. This step will
provide impetus to the housing sector which provides employment to a
large number of people. In order to boost credit in the agricultural
sector, BB requested
the commercial banks (which hitherto did not provide much
agricultural credit) to come forward, and in response to that these
banks have assured to provide more than Tk. 1,000crore as
agricultural credit during next 12 months.

After strengthening the regulatory framework, improving the bank


supervision process, and completing procedure for selling Rupali Bank,
BB is now focused on corporatizing and restructuring the nationalized
commercial banks (NCBs). The process of corporatization of three NCBs
– Sonali, Janata and Agrani – has started. Meantime, these banks have
been turned into public limited companies. NCB reforms will increase
efficiency of financial system which in turn will enhance its resilience
contributing to firm up the monetary stability.

3.2 Monetary Stance for FY08: Keeping in view the prevailing price
situation and
enhanced excess liquidity emanating from moderating private sector
credit demand and increase in net foreign assets, BB’s monetary
stance will continue to be cautious in FY08.

Despite persuasion of a cautious policy, growth in both money supply


(estimated) and reserve money has exceeded the program levels at
the end of June 2007. In this backdrop, further review of policy interest
rates may be necessary. Since the bond/bill market is not yet
developed to reduce the inflationary expectation in the longer term,
interest rate of the instruments of the shorter tenor may have to be
revisited relative to that of longer term.SLR/CRR of banks including
Islamic ones have remained unchanged since 2005. In view of the
unfolding price developments BB may review these rates. Above all,
coordination among monetary, fiscal and trade policies is required to
help curb rising inflationary pressure and achieving 7.0 percent
economic growth in FY08.

As before, the private sector will receive necessary policy attention to


ensure desired level of economic growth.Apart from monetary policy
stance, BB is of the opinion that the following issues to be kept in
perspective for overall economic development of the country: (a) fiscal
discipline should be adhered to by the government as strictly as
possible, (b) the spread between rate of interest on deposits and that
on lending charged by the banks should be reduced to help private
sector enterprises, (c) heterodox policies to improve production and
marketing of agricultural products should be considered by the
government, (d) introduction of international prudential norms for
banks and financial institutions to be calibrated for consistency with
the objective of greater financial inclusion.

Bangladesh Bank Investments:

Introduction
1.
On March 24, 1994 the Bangladesh Taka was declared convertible
for current account transactions in terms of Article VIII of the IMF
Articles of Agreement.
The declaration symbolized a turning point in the country’s
exchange management and exchange rate systems. The period
preceding this declaration saw an intensification of reforms
undertaken by Bangladesh Bank to ease controls on foreign
payments and exchange rate arrangements. These reforms and the
subsequent further changes have been summarized in the following
paragraphs. The relevant FE Circulars/Notifications contain the
details.

Investment
2.
2. Investment in Bangladesh:
1
With the exception of a few reserved sectors, foreign investors
are free to make investments in Bangladesh in industrial
enterprise. An industrial entity may be set up in collaboration with
local investors or may even be wholly owned by the foreign
investors. No permission is needed to set up such enterprises if
the entrepreneurs use their own funds. However, to avail of
facilities and institutional suport provided by the government,
entrepreneurs/sponsors are advised to apply for registration with
the Board of Investment (BOI). For items in the control list, the
office of the Chief Controller of Imports & Exports (CCI & E)
prescribes the basis and conditions of import entitlement.

Shares may be issued in favour of foreign investors against


capital machinery brought into Bangladesh. For issuance of
shares against foreign investment in the form of capital
machinery, the exchange control copy of bill of entry evidencing
clearance of the capital machinery from the Custom Authorities,
copies of the relative import permit, invoice and bill of lading are
required.

2. Investment in shares/securities by non-residents:


2
a) Non-residents are free to invest in shares / securities quoted in
the stock exchanges, with foreign exchange sent or brought into
Bangladesh.
b) They may also invest in new, yet-to-be-listed public issues of
Bangladeshi shares/securities. In such cases investors are not
required to transact through any registered broker/member of
stock exchange.

5% shares of Initial Public Offering (IPO) of a company is reserved for


Non-Resident Bangladeshi (NRB). Non-Resident Bangladeshi (NRB) can
purchase/subscribe securities in foreign currency through "Foreign
Currency Account for IPO" opened for the purpose only by the issuing
company. Over subscription can be repatriated after completion of
formalities.
c) Permission of Bangladesh Bank is not required for issue and
transfer of shares in favor of non-residents against their
investments in joint ventures in Bangladesh.
d) Non-resident share holders can freely transfer their shares to
other non-residents.

2. Remittance of profits:
3
Branches of foreign firms/companies including foreign banks,
insurance companies and financial institutions are free to remit
their post-tax profits to their head offices through banks
authorized to deal in foreign exchange (Authorized Dealers)
without prior approval of Bangladesh Bank.
2. Remittance of dividend/capital gain:
4
Prior permission of Bangladesh Bank is not required for :
- remittance of dividend income to non-residents in respect to
their investments in Bangladesh;
- remittance of dividend declared out of previous year’s
accumulated reserves; and
- dividend and sale proceeds (including capital gains) of shares of
companies listed in a Stock Exchange in Bangladesh. Such
remittance may be effected prior to actual payment of taxes
provided that the amount payable to the tax authorities at the
applicable tax rate is withheld by the company. Remittance of
sale proceeds of shares of companies not listed in Stock
Exchange requires prior Bangladesh Bank permission, which is
accorded for amounts not exceeding the net asset values of the
shares.

2. Remittance of salaries and savings by expatriates:


5
Expatriates working in Bangladesh with the approval of the
Government may remit through an Authorized Dealer (AD) 50% of
salary and 100% of leave salary as also actual savings and
admissible pension benefits. No prior Bangladesh Bank approval
is necessary for such remittances.

2. Remittance of royalty/technical fees:


6
Industrial enterprises may enter into agreements for payment of
royalties, technical know-how/technical assistance fees abroad
without prior permission if the total fees and other expenses
connected with technology transfer do not exceed (a) 6% of the
previous year’s sales of the enterprises as declared in their tax
returns, or (b) 6% of the cost of imported machinery in the case
of new projects. These agreements, however, need to be
registered with the Board of Investment (BOI). Agreements not in
conformity with these general guidelines require prior permission
of the BOI. ADs may remit the royalties, technical know-
how/technical assistance fees payable as per agreements
registered with/approved by BOI, without prior approval of
Bangladesh Bank.

2. Remittance on account of training and consultancy:


7
Industrial enterprises producing for the local market may remit
through ADs up to 1% of their sales as declared in their previous
year's tax returns for the purpose of training and consultancy
services without prior approval of Bangladesh Bank.

Remittance by shipping lines, airlines, courier service


2.
companies:
8
Foreign shipping lines, airlines and courier service companies
may send abroad, through an AD, funds collected in Bangladesh
towards freight and passage, after adjustment of local costs and
taxes, if any.

FOREIGN AND LOCAL BORROWINGS


3.
3. Foreign loans:
1
Industrial enterprises in Bangladesh (local, foreign or joint
venture) may borrow abroad with prior Board of Investment (BOI)
approval. Remittances towards payment of interest and
repayment of principal as per terms of BOI approved borrowing
may be made through ADs without prior Bangladesh Bank
approval.

3. Local borrowings :
2
Banks in Bangladesh may extend working capital loans or term
loans in local currency to foreign-controlled or foreign-owned
firms/companies (manufacturing or non-manufacturing) operating
in Bangladesh on the basis of normal banker-customer
relationship, without reference to Bangladesh Bank

Banks in Bangladesh are free to grant local currency loans to joint


venture industries in EPZ up to the amount of short term foreign
currency loans obtained from abroad.

CONVERTIBILITY ON TRADE ACCOUNT


4.
Bangladesh Taka is fully convertible for settlements of trade
related transactions. Import licence is not required for import of
items not in the control list. An importer has automatic access to
foreign exchange for import of all items outside the control list, and
also for import of control list items as per general or specific
authorization of the office of the Chief Controller of Imports and
Exports.

EXCHANGE FACILITIES FOR EXPORTERS


5.
5. New Exporters: Annual foreign exchange quota for business
1 travel abroad for new exporters has been set at US $ 6000.
Bonafide requirement beyond US $ 6000 is accommodated by
Bangladesh Bank upon written request submitted with supporting
documentation.

5. Retention Quota for merchandise exporters:Merchandise


2 exporters may retain up to 50% of realised FOB value of their
exports in foreign currency accounts in US$, Euro, Japanese Yen.
For export items with high import contents (such as naptha,
furnace oil, bitumen, readymade garments etc.), the retention
quota is 10%. The computer software and data entry/processing
service exporters may also retain up to 50% of realised export
proceeds in foreign currency accounts. Funds from these
accounts may be used to meet bonafide business expenses, such
as business visits abroad, participation in export fairs and
seminars, import of raw materials, machineries and spares etc.
Funds from these accounts may also be used to set up offices
abroad without prior permission of Bangladesh Bank. Exporters
may, at their option, retain the foreign currency in interest
bearing renewable term deposit accounts in Bangladesh with a
minimum amount of USD 2,000 or Pound Sterling 1,500
equivalent.

5. Retention quota for service exporters : Service exporters


3 may retain 5% of their repatriated income in foreign currency
accounts. Funds may be drawn from these accounts to meet
expenses for bonafide business expenses abroad. This quota may
also be kept in interest bearing renewable term deposit accounts.
However, foreign exchange earnings on account of indenting
commission or agency commission for export from Bangladesh
may not be credited to such accounts since these incomes
originate from Bangladesh sources.

DECLARATION OF FOREIGN EXCHANGE ON FORM ‘FMJ’


6.
Incoming passengers may bring in amount of foreign exchange with
declaration on form FMJ at the time of arrival. No declaration is
necessary for amounts up to US$ 3,000. For non-residents, the
entire amount brought in with declaration, or up to US$ 3,000
brought in without declaration may be freely taken out at the at the
time of departure. Up to US$ 3,000 brought in without declaration
may also be retained and taken out freely by a person ordinarily
resident in Bangladesh.

7. FOREIGN CURRENCY ACCOUNTS


NFCD Accounts: Non-resident Foreign Currency Deposit (NFCD)
accounts may now be maintained as long as the account holders
7. desire. Amounts brought in by non-resident Bangladeshis can be
1 deposited in foreign currency account any time after return to
Bangladesh

F.C Accounts of non-resident Bangladeshis: Foreign currency


accounts opened in Bangladesh in the names of Bangladesh
7. nationals or persons of Bangladesh origin working or self
2 employed abroad can now be maintained as long as the account
holders' desire.

7. Accounts: Persons ordinarily resident in Bangladesh may


3 maintain foreign currency accounts with foreign exchange
brought in at the time of their return to Bangladesh from visits
abroad. These accounts are termed as Resident Foreign Currency
Deposit (RFCD) accounts.The amount brought in with declaration
to customs authorities on form FMJ and up to US $ 5000 brought
in without declaration may be credited to this account. However,
proceeds of export of goods or services from Bangladesh and
commission earnings arising from business deals in
Bangladesh cannot be credited to such accounts. Balances of
such accounts are freely remittable abroad. Balances of RFCD
accounts may also be used by the accounts holders for their
travel abroad in the usual manner. RFCD accounts may be
opened in US Dollar, Euro, Pound Sterling, Deutsche Mark or
Japanese Yen and may be maintained as long as the account
holders desire. Interest may be paid on these deposits if these
are for a term of not less than one month and the balance is not
less than US $ 1000 or Pound Sterling 500 equivalent.

7. F.C Accounts of other entities:


4
ADs do not require prior permission of Bangladesh Bank for
opening of foreign currency accounts of :
-non-resident foreign persons/firms;
-diplomatic missions in Bangladesh and their expatriates;
-diplomatic bonded warehouses (duty free shops);
-local and joint venture contracting firms employed to execute
projects financed by foreign donors/international donor agencies;
-Bangladesh nationals working in the international bodies in
Bangladesh and drawing pay and allowances in foreign currency.
7. Maintaining of bank accounts abroad: Bank accounts outside
5 Bangladesh opened by Bangladesh nationals while working
abroad may now be maintained even after their return to
Bangladesh.

VISITS ABROAD
8.
8. Booking of Passage: No Bangladesh Bank approval is needed
1 for booking of passage for Bangladesh nationals against payment
in Taka. Prepaid Ticket Advice (PTA) in favour of foreign guests
invited by Government, Semi-Government, autonomous
organizations or bodies affiliated with UN agencies or other
internationally recognized agencies may be issued without prior
approval of Bangladesh Bank.

Air tickets may be issued against payment in Taka to foreigners


working in Bangladesh if they draw salaries in Bangladesh Taka or
if the cost of the ticket is to be borne by the employer, as per
terms of the work permits approved by Bangladesh Government.

8. Private Travel: Annual travel quota entitlement of Bangladesh


2 nationals is US$ 1000 per person for visits to SAARC member
countries and Myanmar (US$ 500 for overland visits), and US$
3000 per person for visits to other countries. Bonafide
requirements beyond these limits are accommodated by
Bangladesh Bank on written request supported by satisfactory
documentation. International credit cards may also be issued
against such travel entitlements. Release of foreign exchange in
excess of US$ 200, requires valid visa

8. Business travel quota for importers and manufacturers


3 producing for domestic markets:

i) Subject to an annual upper limit of US $ 5000, importers are


entitled to business travel quotas @ 1% of their imports settled
during the previous financial year.

ii) Subject to an annual upper limit of US $ 5000, non-exporting


producers are entitled to business travel quotas @ 1% of their
turnover of the preceding financial year as declared in their tax
returns.

The same business organization engaged in imports as well as


production shall, however, draw business travel entitlement only
on one count.
8. Education: Prior permission of Bangladesh Bank is not required
4 for releasing foreign exchange in favor/on behalf of Bangladesh
students studying abroad or intending to proceed abroad for
studies. Remittances may be made through Authorized Dealers
(ADs) for all regular courses.

8. Seminars and workshops: ADS may release allowance not


5 exceeding US$ 200 per day for countries in the SAARC region and
Myanmar and not exceeding US$ 250 per day for all other
countries to private sector participants for attending seminars,
conferences and workshops arranged by recognized bodies.

8. Medical treatment: ADs may release foreign exchange up to


6 US$ 10000 for medical treatment abroad on the basis of
recommendation of Medical Board constituted by the Health
Directorate or on the basis of the need established through
recommendation of appropriate medical specialists and the cost
estimate from a foreign medical institution. Bonafide
requirements in excess of US$ 10000 are accommodated by
Bangladesh Bank on written request along with satisfactory
documentation supporting the bonafides of the expenses.

8. Taking out/bringing in of Bangladesh Taka:


7 Incoming/outgoing passengers may bring in/take out up to Taka
500 per person in Bangladesh currency.

8. Taking out/bringing in of personal jewelers:


8 Incoming/outgoing adult female passengers may take out/bring in
any quantity of personal jewelers worn on their person or as part
of their personal baggage.

MISCELLANEOUS REMITTANCES
9.
9. Remittance of membership fees: ADs may remit membership
1 fees of foreign professional, scientific institutions and fees for
application, registration, admission, examination (TOEFL, SAT
etc.) in connection with admission into foreign educational
institutions as per estimate of the concerned institution.

9. Evaluation and Visa Processing Fee: ADs may remit


2 evaluation and visa processing fee on behalf of Bangladeshis
desiring immigration to foreign countries, as per demand note of
the foreign immigration authorities.

9. Visa fee: Intending travellers may send visa fees through ADs to
3 the embassies of countries that do not have consular offices in
Bangladesh.

Consular/visa fees collected by foreign embassies in Bangladesh


Taka may be remitted abroad by the ADs without prior approval
of Bangladesh Bank.

9. Family maintenance: Remittance of moderate amounts of


4 foreign exchange for maintenance abroad of family members
(spouse, children, parents) of Bangladesh nationals are allowed
by Bangladesh Bank, on written request supported by certificates
from the Bangladesh mission in the concerned country.

1 COMMERCIAL REMITTANCES
0.
Prior permission of Bangladesh Bank is not required by
the Ads for:

-opening back-to-back import LCs on account of manufacture-


exporters for their input imports as per prescribed input-output
coefficients;

-issue of bank guarantee/performance bond on account of the


merchandise exporters of Bangladesh in favor of foreign buyers;

-remittance on account of short weight, quality claim, partial


shipment etc. unto 10% of realized export proceeds.

-payment of discount not exceeding 10% of the invoice value at


the request of the exporter where foreign importers refuse to
clear goods due to discrepant documents etc.,

-remittance of premia on foreign currency policies taken by


Bangladesh nationals while residing abroad,

-remittance of premia on account of re-insurance,

-remittance of “General Average” collected from consignees in


Bangladesh,
-remittance of pre-shipment inspection fees,

-remittance of bonafide expenses incurred by Bangladesh Biman


and Bangladesh Shipping Corporation in foreign ports/stations,

-remittance on account of charter hire of foreign ships,

-remittance of purchase price of ships acquired by private


firms/companies,

-remittance of royalty/honoraria/fees to non-residents including


foreign news agencies for features, articles etc. subscribed by
local newspapers/magazines,

-advertising of Bangladeshi commodities in mass media abroad.

1
OTHERS
2.
- Funds from non-resident Taka accounts can be freely withdrawn
regardless of the amounts involved.

- Declaration in Form C is not required in case of remittances sent


by Bangladesh nationals working abroad. However, persons other
than Bangladesh nationals are required to declare in Form C if the
inward remittance is US $ 2000 or above.

1 ACTIVATION OF FOREIGN EXCHANGE MARKET


3.
Bangladesh Bank has taken the following steps to help
stimulate/activate the interbank foreign exchange market:

1) Bangladesh Bank has stopped sales and purchases with ADs of


any currency other than the US Dollar, to encourage interbank
cross currency transactions.
2) To encourage inter-bank deals and to dissuade frequent
recourse to transactions with the central bank, Bangladesh Bank
has raised its transaction threshold to US$ 50,000 with values in
multiples of US$ 10,000, for its deal with ADs. The exchange rates
for the Bangladesh Bank's spot purchase and sales transactions of
US Dollars with ADs is decided on a case to case basis,
Bangladesh Bank does not undertake any forward transaction
with ADs. The ADs are free to quote their own spot and forward
exchange rates for inter-bank transactions and for transactions
with non-bank customers.

3)To provide greater flexibility in the foreign exchange


transactions of ADs, Bangladesh Bank has abolished their foreign
exchange holding limits; they are, however, required to be within
the open position limits prescribed by Bangladesh Bank in respect
of exposure to exchange rate fluctuation risk.

4) Bangladesh Foreign Exchange Dealers Association (BAFEDA)


has been formed and a “Code of Conduct” for treasury operations
and interbank foreign exchange market has been formulated.

5) ADs have been allowed to maintain with Bangladesh Bank FC


Clearing Accounts in Euro, Japanese Yen, as well as US Dollar &
Pound Sterling.

Loan Classification and Provisioning:

Bangladesh Bank introduced new accounting policies with respect to


loan classification, provisioning and interest suspense in 1989 with a
view to attaining international standards over a period of time. A
Revised policy for loan classification and provisioning was introduced
from 1st January,1999.The Revised policy calls for an independent
assessment of each loan on the basis of qualitative factors and
objective criteria. Each loan is branded with the worst level of
classification resulting from these independent assessments.

If a Continuous Credit or a Demand Loan remains non-performing for 6


months or more it is classified Sub-standard. It is classified as Doubtful
if it remains non-performing for 9 months and classified as Loss if non-
performing for 12 months or more. In the case of a Term Loan, which is
repayable within a maximum period of 5 years, if any installment is not
repaid within the specified period and if the time-equivalent of such
unadjusted balance is 6 months, it is classified Sub-standard. A Term
loan is classified Doubtful and Loss if the time-equivalent of unadjusted
balance is 12 months and 18 months respectively.

Agricultural Loan and Micro-Credit is classified Sub-standard if non-


performing for 12 months, Doubtful if non-performing for 36 months
and Loss if non-performing for more than 60 months.

Under the existing system scheduled banks are required to maintain


provisions against unclassified and substandard loans in addition to
doubtful and loss loans. They are allowed to book interest against
classified loans only on cash basis.

Whether a credit is classified or not under the objective criteria, it is


subjected to classification under qualitative judgments if any doubt
arises regarding repayment of loan.

Social Development in Bangladesh Bank:


Bangladesh has achieved substantial progress in mass literacy, public
health, reduction of population growth and self employment support
for rural poor. Primary education is compulsory and female education
is free through the first eight years. The strong commitment to primary
education and to gender equity means that three out of four girls now
enter primary education.
In the area of health, over 80% of the country's children are immunized
against the six `killer` diseases. Infant mortality has decreased
significantly. There has been a sharp decline in the fertility rate.

The increased participation of women in poverty alleviation programs


as well as in Bangladesh's ready-made garments sector, which
provides jobs for more than 1 million women, has helped create an
awareness of women's issues at all levels. An unparalleled
concentration of innovative and committed non-governmental
organizations has brought about a micro-credit revolution and guided
countless indigent women and landless households into income
generating activities. The safety net programs initiated by the
government in improving the condition of the poorest to a level of
survival are proving effective.

Rural Development
The Bank is providing policy advice and investments in rural
infrastructure (roads, bridges, power), water resource management as
well as microcredit programs for the poor. It is also supporting the
government’s disaster mitigation efforts, emphasizing greater
empowerment and participation of affected communities. World Bank
funding for riverbank protection has helped prevent land loss,
settlement destruction, and prevented increases in regional flood
levels. The Bank is also a key development partner in helping the
government design and implement a national program for the
mitigation of arsenic in the country’s drinking water.

Private Sector-led Development


The World Bank is working with the International Monetary Fund and
Asian Development Bank to provide advice on financial sector reform,
particularly in banking. In energy and infrastructure, it is helping to
promote improved regulation, private provision of services,
privatization of poorly managed state assets, and policy reform.

The World Bank Group’s International Finance Corporation (IFC) has a


local representative in the Bank’s Dhaka Office. The IFC focuses on
supporting private investments in infrastructure, agribusiness, and
manufacturing and on developing financial markets. IFC’s current
portfolio includes $97 million in loans, $13 million in equity, and $37
million in B-loans. The Multilateral Investment Guarantee Agency
(MIGA), also part of the World Bank Group, is helping to encourage
foreign investment in Bangladesh by providing guarantees in the
manufacturing, financial, and infrastructure sectors against loss caused
by noncommercial risks.

CURRENT LENDING
Bangladesh joined the World Bank in 1972, soon after independence.
Since then, the International Development Association (IDA), the World
Bank’s concessional lending window, has financed 174 operations with
loans totaling almost $10 billion equivalent of assistance. In fiscal year
2003, the World Bank approved around $554 million in low-interest
credits for five operations, including the Development Support Credit

commercial Banks

The commercial banking system dominates Bangladesh's financial


sector with limited role of Non-Bank Financial Institutions and the
capital market. The Banking sector alone accounts for a substantial
share of assets of the financial system. The banking system is
dominated by the 4 Nationalized Commercial Banks , which together
controlled more than 54% of deposits and operated 3388 branches
(54% of the total) as of December 31, 2004.

Specialized Banks

Out of the 5 specialized banks, two (Bangladesh Krishi Bank and


Rajshahi Krishi Unnayan Bank) were created to meet the credit needs
of the agricultural sector while the other two (Bangladesh Shilpa Bank
(BSB) & Bangladesh Shilpa Rin Sangtha (BSRS) are for extending
term loans to the industrial sector. There are other specialized financial
institutions like the Bangladesh Shilpa Bank (Industrial Bank),
Bangladesh Shilpa Rin Sangstha (Industrial credit organization), Krishi
(Agriculture) Bank, House Building Finance Corporation, Grameen
(Rural) Bank and several cooperative banks. The Industrial Promotion
and Development Corporation (IPDC) of Bangladesh and the
Investment Corporation of Bangladesh (ICB) provide equity support to
public limited companies in the private sector. The government has
recently replaced the Controller of Capital Issues by establishing a full
fledged Securities and Exchange Commission with enhanced power for
the growth and development of the Securities market in Bangladesh.
Liberal fiscal policy has resulted in the highest forex reserve.
Specialized Banks like BKB and RAKUB have been encouraged to
provide a considerable amount of their rural credit to the poor without
security. However, the amount is much less compared to the deposit
mobilization from the rural sector of the country.

The Industrial Promotion and Development Corporation (IPDC) of


Bangladesh and the Investment Corporation of Bangladesh (ICB)
provide equity support to public limited companies in the private
sector. The government has recently replaced the Controller of Capital
Issues by establishing a full fledged Securities and Exchang
sCommission with enhanced power for the growth and development of
the Securities market in Bangladesh. Liberal fiscal policy has resulted
in the highest forex reserve.
CONCLUSION

We did this assignment about Bangladesh


bank. There are many thinks to share
about Bangladesh Bank. As govt. bank,
Bangladesh bank is a huge institution
where maintenance of banking and
monetary policy runs by specific common
law & procedure. These information’s are
web and journal base .We had discussed
in this assignment about exchange rates,
monetary policies, investments of BB,
provisioning and loan classifications and
so on. In this assignment we tried to focus
on the functions of Bangladesh Bank.
Bangladesh bank can an important role in
one’s organization.
Appendix

• Journal of Syed Ahmed Khan, Faculty


Member of Bangladesh Institute of
Bank Management (BIBM).

Websites:

• www.bangladesh-bank.org
• www.bibm-bd.org
• www.articles2k.com
• www.dnet-bangladesh.org
• www.emeraldinsight.com
• www.en.wikipedia.org

You might also like