Local banks are established and registered in Bangladesh under the Bangladesh Bank. They are primarily owned by Bangladeshi entities, either individuals or companies. Examples of local banks include Sonali Bank, Janata Bank, Rupali Bank, and many private commercial banks like BRAC Bank and Dhaka Bank.
On the other hand, foreign banks are branches or subsidiaries of international banks established in Bangladesh with permission from the Bangladesh Bank. They are primarily owned and controlled by parent banks headquartered outside Bangladesh. Banks such as HSBC, Standard Chartered, and Citibank are examples of foreign banks operating successfully in the country.
Below are a few important points explaining why local banks are struggling while foreign banks are earning higher profits:
One of the key issues is bad loans, which can lead to the bankruptcy of any bank. Fake loans are prevalent in local banks, where relatedness is often a factor in granting loans. Loans are given to individuals without properly assessing their ability to repay. In contrast, foreign banks are very strict about loan approvals.
Local banks tend to focus more on long-term loans, whereas foreign banks focus more on short-term loans. Short-term loans are less risky in terms of payback compared to long-term loans.
Local banks are less efficient than foreign banks. Foreign banks have a larger customer base and focus more on trade finance and investment banking, which yield competitive returns on their annual profits. These banks are highly aware of bad loans, cost efficiency, and investing in profitable areas, which is why they consistently earn higher profits, even during the COVID-19 pandemic. Foreign banks are more prudent in their investments. They mostly invest in treasury bonds, which are considered safe investments, while local banks rely heavily on the stock market. The stock market is currently underperforming, which negatively impacts the local banks' profitability.
These are a few reasons why local banks are struggling while foreign banks are thriving. It is crucial to address these issues and take steps to protect our local banks. To safeguard our economy, we must protect our local banks and implement measures to ensure a proper money supply process before the situation becomes unmanageable.
Abdullah-al-noman
Student
School of Business and Economics
North South University
Dhaka
aalnoman21@gmail.com
