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Foreign banking software elbowing out local ones

FE Report | February 26, 2018 00:00:00

Local banking software makers are gradually losing market to the rival foreign companies due to 'poor functionality' of their products although these are cheaper in cost, a BIBM research has revealed.

About 45 banks used local software solutions before 2005. But the number has dropped to 19 by the end of 2017, according to the findings of the research - "An Evaluation of Core Banking Software in Banks of Bangladesh".

"Popularity of the software developed by our own experts is fading gradually," said Associate Professor of Bangladesh Institute of Bank Management (BIBM) Md. Mahbubur Rahman Alam in the organisation's Research Almanac that was held in the capital on Sunday.

"Our banking industry is at present dominated by foreign core baking solution (CBS) by a large margin, as a total of 27 banks in the country are using foreign CBS. The number of banks using in-house software is also declining day by day."

"The scenario, nevertheless, is somewhat different for joint venture software. During the last twelve years, the number of banks using joint venture software has increased from 2 to 6."

The BIBM researcher also warned that the local software vendors might lose ground further in the near future, as many banks that are currently using local software are intending to switch to foreign ones in the coming years.

"About 10 percent of the banks said they are planning to upgrade or replace their banking systems within a year."

"While most of the local software users have planned to replace their current system, the foreign software users are mostly planning to improve their current systems."

"When analyzed why the banks have the tendency of switching to foreign CBS, it was found that a little bit cost-effective local packages are seen as less functional and less flexible to a bank's specific business demands and hence are deemed as less satisfactory," he added.

"If this trend prevails in the coming years, (most of) the local CBS might be replaced by the foreign CBS, harming the local software industry and national economy," Mr Alam cautioned.

Earlier, researchers at the event stressed on stronger monitoring and evaluation of projects by the government while implementing the public private partnership (PPP) projects along with capacity building of both the private parties and the government staff.

"The government may have an independent project monitoring cell, from where the monitoring teams can continuously follow the operation and provide feedback to the authorities concerned," they opined.

In another keynote paper - "The Impact of SME Financing on Bank's Profitability: An Enquiry across Banks in Bangladesh" - the researchers found that an insignificant relationship exists between the profit generated from the banks' SME financing and their total profit.

The researchers also noted that although the overall inflation rate in the country is within the range of 6-7 percent, the cost of raw materials used by the SME entrepreneurs are abnormally increasing every year.

In this context, they recommended that the government should pursue anti-inflationary or economic stabilization policies to ensure economic growth.

Assessing the impact of the social safety net programmes on the performance of the state-owned commercial banks (SoCBs), the researchers at the event also pointed out that facilitating the programmes leads to enhancement of balance-sheet size due to more deposit mobilization and more lending.

It also leads to widening of customer base, and more quality service can be provided to core banking customers, they added.

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