WB, IMF put positive spin on banking sector
Saturday, 29 August 2009
A Z M Anas
Bangladesh's banking industry remains largely risk-free, allowing it to hurtle toward profitability, says a major assessment by the World Bank and the IMF.
The Washington-based lenders have concluded the only risk facing the country's banks is excess liquidity topping US$ 5.0 billion (Tk 34 billion).
"There's no worrying sign for Bangladeshi banks," the assessment said after conducting a three-week-long "stress test."
Financial analysts say the conclusion is "important" as it reflects the fundamental strength of local banks, which rode out the first wave of the global financial tempest.
"The preliminary findings of the test were shared with us. And we're happy," a senior finance ministry official said.
Bangladesh has 49 banks, 29 non-bank financial institutions, and a still-evolving capital market, most of which operate in an insulated financial environment.
The commercial banking system even dominates the financial sector, accounting for more than 30 per cent of GDP (gross domestic product).
The global lenders praised the private lenders' aggressive banking and more advanced professionalism, saying they have already dwarfed the state-owned banks.
Even though state banks had over 50 per cent of bank branches, they together controlled just 30 per cent of deposits as of June 30, 2008.
The joint team noted that the increasing share of private banks in the banking system was "a good sign" for the banking sector that could infuse more dynamism into the industry.
Private banks have also eaten into the asset shares of publicly owned banks, further weakening their long dominance, says the report, second in a series.
In 2003, the International Monetary Fund (IMF) and the World Bank carried out the first stress tests of Bangladeshi banks, after which Bangladesh initiated a major banking reform.
"The banking sector is doing well. Its level of non-performing loans is on the consistent path of decline, and asset quality has improved," the report adds.
The finance official said banks' profitability is also on the rise, which should be seen as a bonanza for depositors and shareholders.
A central bank official said the stress test was done to assess the strength as well as the vulnerability of Bangladeshi banks. The assessment, he added, was done in line with the global lenders' push for more oversight on the international financial system.
Although insularity from the global financial system has helped Bangladeshi banks escape the global crisis, financial experts say the test is a crucial step toward averting an "Oriental Bank-like scam" that had raised questions about the central bank's oversight.
The WB-IMF assessment came a year after the global crisis that forced the international community to unveil trillions of dollars of stimulus packages to bail out the beleaguered global financial industry.
Bangladesh's banking sector has survived the shocks of the worst meltdown in decades, as it has no souring loans, assets and derivatives blamed for accelerating the spectacular collapse of the western financial system in recent history.
With more than US$ 32 billion in assets, banks dominated the country's financial sector, making up around 50 per cent of the country's GDP in 2007.
Bangladesh's banking industry remains largely risk-free, allowing it to hurtle toward profitability, says a major assessment by the World Bank and the IMF.
The Washington-based lenders have concluded the only risk facing the country's banks is excess liquidity topping US$ 5.0 billion (Tk 34 billion).
"There's no worrying sign for Bangladeshi banks," the assessment said after conducting a three-week-long "stress test."
Financial analysts say the conclusion is "important" as it reflects the fundamental strength of local banks, which rode out the first wave of the global financial tempest.
"The preliminary findings of the test were shared with us. And we're happy," a senior finance ministry official said.
Bangladesh has 49 banks, 29 non-bank financial institutions, and a still-evolving capital market, most of which operate in an insulated financial environment.
The commercial banking system even dominates the financial sector, accounting for more than 30 per cent of GDP (gross domestic product).
The global lenders praised the private lenders' aggressive banking and more advanced professionalism, saying they have already dwarfed the state-owned banks.
Even though state banks had over 50 per cent of bank branches, they together controlled just 30 per cent of deposits as of June 30, 2008.
The joint team noted that the increasing share of private banks in the banking system was "a good sign" for the banking sector that could infuse more dynamism into the industry.
Private banks have also eaten into the asset shares of publicly owned banks, further weakening their long dominance, says the report, second in a series.
In 2003, the International Monetary Fund (IMF) and the World Bank carried out the first stress tests of Bangladeshi banks, after which Bangladesh initiated a major banking reform.
"The banking sector is doing well. Its level of non-performing loans is on the consistent path of decline, and asset quality has improved," the report adds.
The finance official said banks' profitability is also on the rise, which should be seen as a bonanza for depositors and shareholders.
A central bank official said the stress test was done to assess the strength as well as the vulnerability of Bangladeshi banks. The assessment, he added, was done in line with the global lenders' push for more oversight on the international financial system.
Although insularity from the global financial system has helped Bangladeshi banks escape the global crisis, financial experts say the test is a crucial step toward averting an "Oriental Bank-like scam" that had raised questions about the central bank's oversight.
The WB-IMF assessment came a year after the global crisis that forced the international community to unveil trillions of dollars of stimulus packages to bail out the beleaguered global financial industry.
Bangladesh's banking sector has survived the shocks of the worst meltdown in decades, as it has no souring loans, assets and derivatives blamed for accelerating the spectacular collapse of the western financial system in recent history.
With more than US$ 32 billion in assets, banks dominated the country's financial sector, making up around 50 per cent of the country's GDP in 2007.