[Cover page]

Financial Sector Review

Volume IV Number 1
January 2009

Policy Analysis Unit (PAU)

Bangladesh Bank
Head Office, Dhaka, Bangladesh
www.bangladeshbank.org.bd
www.bangladesh-bank.org

The Financial Sector Review

In an attempt to upgrade the capacity for research and policy analysis at Bangladesh Bank (BB), the
central bank of Bangladesh, Policy Analysis Unit (PAU) has been set up to spearhead research on all
aspects of macroeconomics including monetary policy and central banking. Among others, PAU has been
entrusted with the task of preparing new flagship publications such as the Monetary Policy Review (MPR)
and the Financial Sector Review (FSR) as well as the Bangladesh Bank Quarterly (BBQ). PAU also
publishes policy notes, policy papers and working papers on a regular basis. The principal goal of PAU
activities is to provide advice to BB senior management.
The Financial Sector Review (FSR) is designed to present a brief but comprehensive assessment of the
financial sector as a whole and to develop the financial sector outlook consistent with monetary policy
stance of the Bangladesh Bank based on its assessment of the real sector, financial and monetary
developments, and the near term macroeconomic outlook.
In this context, that Financial Sector Review aims to:

improve the understanding of current developments in domestic and global financial services and
trade, prudential, and financial regulations;

describe recent development in financial sector innovations and their implications for monetary
policy transmission channels and thus on the monetary policy stance;

increase awareness by informing individuals on all aspects of the financial intermediation and
encouraging discussion on issues concerning the financial system.

Bangladesh Bank welcomes comments and suggestions on the contents of the FSR.

Policy Analysis Unit

Bangladesh Bank

Financial Sector Review*

Volume IV Number 1
January 2009

Copyright 2009 by Bangladesh Bank

* In an attempt to upgrade the capacity for research and policy analysis at Bangladesh Bank (BB), PAU
prepares and publishes, among others, the Financial Sector Review on a bi-annual basis. Neither the
Board of Directors nor the management of, or any agency of the Government of Bangladesh, however,
necessarily endorses any or all of the views expressed in the Review. The latter reflects views based on
professional analysis carried out by the research staff of Bangladesh Bank, and hence the usual caveat
applies.

Contributors
Editor
Mustafa K. Mujeri, Chief Economist
Coordinator

Md. Akhtaruzzaman, Senior Research Economist

Senior Research Economists
Md. Habibur Rahman
Sayera Younus
Research Economists
Md. Shahiduzzaman
Md. Habibour Rahman
Md. Sakhawat Hossain
Joint Director
Md. Ezazul Islam
Assistant Directors
Mohammad Mizanur Rahman
Iftekhar Ahmed Robin
Md. Abul Kashem
Bushra Khanam Luna

Financial Sector Review is published on a bi-annual basis. Soft copies are

available at
http:// www.bangladesh-bank.org
or, www.bangladeshbank.org.bd
Bangladesh Bank welcomes suggestions and comments from readers, which
may be forwarded to:
cebb@citech.net
raisaakhtar@yahoo.com

Policy Analysis Unit

Bangladesh Bank
January 2009

Financial Sector Review

Volume IV Number 1
January 2009

Contents

Contributors
Contents
Acronyms and Abbreviations
Executive Summary

Chapter 1: The Macro-Financial Environment

1.1 Recent Macro-Financial Developments
Recent Macroeconomic Developments
Interest Rate Structure
Government Borrowing and Growth in Credit
Balance of Payments and Foreign Exchange Market
1.2 World Growth Outlook and Global Economic Environment
World Growth Outlook
Outlook for Global Financial and Equity Market Development
Global Budgetary Outlook
Global Trade Outlook
Global Inflation and Commodity Price Outlook

Chapter 2:
2.1
2.2
2.3
2.4
2.5
2.6

Supply of and Demand for Financial Products

Payment and Transaction Products

Saving Products
Loan Products
Specialized Loan Products: Term Lending
Access to Finance by Small and Medium Enterprises
Micro Credit Operations
5

Chapter 3:
3.1
3.2
3.3
3.4
3.5

Interest Rate Spread

Earnings and Profitability
Non-Performing Loans
Default Risks: Loan-Loss Provisions
Capital Adequacy

Chapter 4:
4.1
4.2
4.3
4.4

The Capital Market and Non-Bank Financial Sector

The Capital Market

Mutual Funds
Bond Market Developments
Non-Bank Financial Institutions

Chapter 5:
5.1
5.2
5.3
5.4
5.5

The Banking Sector

Financial Market Governance Infrastructure

Overall Regulatory Framework for Financial Sector

Remittances Issues
Corporate Social Responsibility
Improving Risk Management Practices and Policies
Crop Insurance

Chapter 6:

The Financial Sector Policy Stance

Acronyms and Abbreviations

ACU
ADB
ADP
AMP
BB
BBS
BBQ
BDT
BGMEA
BGTB
BIDS
BoI
BoP
BPC
CAB
CRR
CSE
CT
DD
DESCO
DMB
DSE
ECB
EPB
EPZ
FCBs
FDI
FSR
GFCF
GIR
GoB
GSP
IPO
LDC
LFS
MDG
MFA
MFIs
MMT
MoA

Asian Clearing Union

Asian Development Bank
Annual Development Program
Annual Monetary Program
Bangladesh Bank
Bangladesh Bureau of Statistics
Bangladesh Bank Quarterly
Bangladesh Taka
Bangladesh Garments Manufacturers and Exporters Association
Bangladesh Government Treasury Bond
Bangladesh Institute of Development Studies
Board of Investment
Balance of Payments
Bangladesh Petroleum Corporation
Current Account Balance
Cash Reserve Ratio
Chittagong Stock Exchange
Current Transfer
Demand Deposit
Dhaka Electric Supply Company
Deposit Money Bank
Dhaka Stock Exchange
European Central Bank
Export Promotion Bureau
Export Processing Zone
Foreign Commercial Banks
Foreign Direct Investment
Financial Sector Review
Gross Fixed Capital Formation
Gross International Reserve
Government of Bangladesh
Generalized System of Preference
Initial Public Offering
Least Developed Country
Labor Force Survey
Millennium Development Goal
Multi Fiber Agreement
Micro Finance Institutions
Million Metric Ton
Ministry of Agriculture
7

MoF
MPR
MPS
MTMF
NBFIs
NBR
NDA
NFA
NFI
NSD
OECD
OMO
OPEC
PAU
PCBs
POL
RM
RMGs
REER
RMSE
ROW
SBs
SCBs
SEC
SLR
SOE
TD
TRIPs
UNCTAD
USD
VAT
WTO

Ministry of Finance
Monetary Policy Review
Monetary Policy Statement
Medium Term Macroeconomic Framework
Non Bank Financial Institutions
National Board of Revenue
Net Domestic Asset
Net Foreign Asset
Net Factor Income
National Savings Directorate
Organization for Economic Cooperation and Development
Open Market Operation
Organization of the Petroleum Exporting Countries
Policy Analysis Unit
Private Commercial Banks
Petroleum, Oil and Lubricants
Reserve Money
Ready Made Garments
Real Effective Exchange Rate
Root Mean Square Error
Rest of the World
Specialized Banks
State owned Commercial Banks
Securities and Exchange Commission
Statutory Liquidity Ratio
State Owned Enterprise
Time Deposit
Trade-Related Aspects of Intellectual Property Rights
United Nations Conference on Trade and Development
US Dollar
Value Added Tax
World Trade Organization