Financial System in Bangladesh

STRUCTURE OF FINANCIAL SYSTEM IN BANGLADESH

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INTERNATIONAL ISLAMIC UNIVERSITY CHITTAGONG

Assignment On…ISLAMIC FINANCIAL SYSTEM

Topic:

SSttrruuccttuurree ooff FFiinnaanncciiaall SSyysstteemm iinn BBaannggllaaddeesshh

Submitted To:

MR. ABDULLAHIL MAMUNLECTURERDEPARTMENT OF BUSINESS ADMINISTRATIONINTERNATIONAL ISLAMIC UNIVERSITY CHITTAGONG.

Submitted By:MUHAMMAD SHAHINUR EKRAM CHOWDHURYID No: R093117RMBA, 4th Trimester, Section (B).

Submitted Date: 22 February, 2010.


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Financial System:The financial system is a set of organized institutional set-up through which surplus

units transfer their funds to deficit units.

Define a financial system fair narrowly, to consist of a set of markets, individuals and

institutions, which trade in those markets and the supervisory bodies responsible for

their regulation. The end-users of the system are people and firms whose desire is to

lend and to borrow.

A financial system is a system that to channels funds from lenders to borrowers, to

creates liquidity and money, to provides a payments mechanism, to provides financial

services such as insurance & pensions and to offers portfolio adjustment facilities.

In Finance, the financial system is the system that allows the transfer of money

between savers and borrowers. It comprises a set of complex and closely

interconnected financial institutions, markets, instruments, services, practices and

transactions.

An economy’s financial system exists to organize the settlement of payments, to raise

and allocate finance and to manage the risks associated with financing and exchange.

So, the government sector and the corporate sector are the users of financial surplus

of household sector and that the financial sector performs this vital function of

intermediation. Empirical evidence shows that the growth of financial markets and

development of the economy are complementary to each other.

A developed financial system is one that has a secure and efficient payment system,

security market and financial intermediaries that arrange financing and derivative

markets & financial institutions that provide access to risk management instruments.

Thus, A financial system consists of a set of organized markets and institutions

together with regulators of those markets and institutions. Their main function is to

channel funds between end users of the system: from lenders (‘surplus units’) to

borrowers (‘deficit units’). In addition, a financial system provides payments facilities,

a variety of services such as insurance, pensions and foreign exchange, together with

facilities, which allow people to adjust their existing wealth portfolios.


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Background of financial system in Bangladesh:The financial system in Bangladesh includes Bangladesh Bank (the Central Bank),

scheduled banks, non-bank financial institutions, Microfinance institutions (MFIs),

insurance companies, co-operative banks, credit rating agencies and stock exchange.

Among scheduled banks there are 4 Nationalised commercial banks (NCBs), 5 state-

owned specialized banks (SBs), 30 domestic private commercial banks (PCBs), 9

foreign commercial banks (FCBs) and 29 non-bank financial institutions (NBFIs) as of

December 2006 after that total number of institutions are increasing rapidly.

However, Rupali Bank, an NCB is being sold to a foreign buyer, and once this

transaction is completed, the country will have only 3 NCBs., which are being

corporative. Over and above the institutions cited above, three development financial

institutions namely House Building Finance Corporation (HBFC), Ansar-VDP Unnayan

Bank and Karma Shangsthan Bank are operating in Bangladesh, all of which are state

owned.

The financial system of Bangladesh is mainly bank dependent. Though in the recent

years, a number of non-banking financial institutions (leasing and merchant banks)

have been established, yet the banking sector still captures the lion share of the

financial market.

Financial Sectors in Bangladesh:Bangladesh Bank is the key player for the financial sector of Bangladesh as well as for

the economy. Bangladesh Bank is the banker to the government as well as to other

banks. It formulates and implements monetary policy, manages foreign exchange

reserve and is the authority to supervise and regulate other banks and non-bank

financial institutions.

The financial sector of Bangladesh has gone through a lot of reforms in the past two

decades and central bank reform was a key element of the reform agenda. This study

maps the various reforms that have taken place so far.

Bangladesh Bank has improved in certain areas and yet there are avenues where

more can be done. The bank plays a dual role in the economy. Bangladesh Bank

supervises and regulates the country’s banking sector where it has significant

improvements. On the other hand, the bank underachieves in terms of autonomous

formulation and implementation of monetary policy in coordination with the

government.


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Structure of Financial System:

The Main Constituents of Our Countries Financial System Are:

01. Financial Institutions/Intermediaries.

02. Financial Instruments.

03. Financial Markets.

Structure of Financial System

03. Financial Markets

02. Financial Instruments

01. FinancialInstitutions

01-(i). Banks:a) Private Commercial

Banksb) Public Commercial

Banksc) Private Foreign

Commercial Banksd) Specialized Financial

Institutions

01-(ii). Non-BankFinancial Institutions:a) Insurance Companiesb) Security Firmsc) Investment Banksd) Financial Companiese) Mutual Fundsf) Pension Funds

02-(ii). Capital MarketInstruments:a) Bondsb) Stocksc) Govt. Securitiesd) Bank & Consumer

Commercial Papere) Debenturesf) Mortgages

02-(i). Money MarketInstruments:a) Treasure Billsb) Commercial Paperc) Negotiable Certificate

of depositsd) Banker Acceptances

03-(i). Primary Market

03-(ii). Secondary Market

03-(iii). Money Market

03-(iv). Capital Market


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01. Financial Institutions/Intermediaries:An organization which borrows funds from lenders and lends them to borrowers onterms which are better for both parties than if they dealt directly with each other.

Financial institutions as ‘intermediaries’:As a general rule, financial institutions are all engaged to some degree in what iscalled intermediation. Rather obviously ‘intermediation’ means acting as a go-betweenfor two parties. The parties here are usually called lenders and borrowers orsometimes-surplus sectors or units, and deficit sectors or units.As a general rule, what financial intermediaries do is: to create assets for savers andliabilities for borrowers which are more attractive to each than would be the case ifthe parties had to deal with each other directly.

There are two general consequences of financial intermediation. The first is that therewill exist more financial assets and liabilities than would be the case if the communitywere to rely upon direct lending.The second general consequence of the intervention of financial institutions is thatlending and borrowing have become easier. It is now no longer necessary for saversto search out borrowers with matching needs. In this sense financial intermediarieshave lowered the ‘transaction costs’ of lending and borrowing.

01-(i). Banks:Banking is essentially based on the debtor-creditor relationship between thedepositors and the bank on the one hand and between the borrowers and the bankon the other. Interest is considered to be the price of credit, reflecting theopportunity cost of money.The commercial banking system dominates Bangladesh's financial sector. BangladeshBank is the Central Bank of Bangladesh and the chief regulatory authority in thesector. The banking system is composed of four Public commercial banks, fivespecialized development banks, thirty private commercial Banks and nine foreigncommercial banks.Out of 6562 scheduled bank branches operating in the country, up to end December2006 the NCBs operate 3384 branches, of which 2146 are in rural areas and 1238 arein urban areas; SBs have 1354 branches of which 1200 are in rural areas and 154 arein urban areas; PCBs have 1776 branches of which 488 are in rural areas and 1288are in urban areas; and FCBs have 48 branches exclusively in urban areas. Out of 30PCBs, six have been operating as Islamic banks. After the year 2006 that totalnumber of branches are increasing rapidly up to 2009.List of All types of banking sectors are:

• Central Bank• Private Commercial Banks• Public Commercial Banks• Foreign Commercial Banks• Specialized Development Banks


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a) Private Commercial Banks:Even with all the provisions at hand, during the interviews many experts opinedthat there could be separate agencies to regulate and supervise the privatesector banking activities in Bangladesh. A number of agencies can be set up andeach would look into a number aspects related to private sector banking. Underthe current system, the commercial banks and financial institutions have toreport to and are to a certain extent supervised by the Securities and ExchangeCommission, when they register with the stock exchange.

Private banks are the highest growth sector due to the dismal performances ofgovernment banks (above). They tend to offer better service and products.

• AB Bank Ltd• BRAC Bank Limited• Eastern Bank Limited• Dutch Bangla Bank Limited• Dhaka Bank Limited• Islami Bank Bangladesh Ltd• Pubali Bank Limited• Uttara Bank Limited• IFIC Bank Limited• National Bank Limited• United Commercial Bank Limited• NCC Bank Limited• Prime Bank Limited• SouthEast Bank Limited• Al-Arafah Islami Bank Limited• Social Islami Bank Limited• Standard Bank Limited• One Bank Limited• Exim Bank Limited• Mercantile Bank Limited• Bangladesh Commerce Bank Limited• Mutual Trust Bank Limited• First Security Islami Bank Limited• The Premier Bank Limited• Bank Asia Limited• Trust Bank Limited• Shahjalal Islami Bank Limited• Jamuna Bank Limited• ICB Islami Bank• Moon Bank Limited• United Commercial Bank Limited

• Aziz Co-op Commerce & FinanceBank Ltd.

• Eastern Bank Limited• Social Investment Bank Limited• Uttara Bank Limited


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b) Public Commercial Banks:The Basel Committee on Banking Supervision published guidance in 1999 to assistbanking supervisors in promoting the adoption of sound corporate governancepractices by banking organizations in their countries. This guidance drew fromprinciples of corporate governance that were published earlier that year by theOrganization for Economic Co-operation and Development (OECD) with the purposeof assisting governments in their efforts to evaluate and improve their frameworksfor corporate governance and to provide guidance for financial market regulatorsand participants in financial markets at public commercial banks.

• Sonali Bank Limited• Janata Bank Limited• Agrani Bank Limited• Rupali Bank Limited

c) Private Foreign Commercial Banks:The state and nature of corporate governance has been studied under five generalheadings. Three types of foreign commercial banks or companies were studied: a)the public corporations - these are mainly private utility companies operated by thegovernment with a board of director consisting of the people of Bangladesh andfew experts, b) financial institutions like banks which are listed in the Dhaka StockExchange but related with governmental condition about share distribution and c)non-financial limited companies also listed in the stock exchanges in the country butrelated with governmental condition about share distribution.

• Citibank• HSBC• Standard Chartered Bank• Commercial Bank of Ceylon• State Bank of India• Habib Bank• National Bank of Pakistan• Bank Alfalah

d) Specialized Financial Institutions:Out of the specialized banks, two (Bangladesh Krishi Bank and Rajshahi KrishiUnnayan Bank) were created to meet the credit needs of the agricultural sectorwhile the other two ( Bangladesh Shilpa Bank (BSB) & Bangladesh Shilpa RinSangtha (BSRS) are for extending term loans to the industrial sector. TheSpecialized banks are:

• Grameen Bank• Bangladesh Krishi Bank• Bangladesh Development Bank Ltd• Rajshahi Krishi Unnayan Bank• Basic Bank Ltd (Bank of Small Industries and Commerce)• Bangladesh Somobay Bank Limited (Cooperative Bank)• Ansar VDP Unnyan Bank


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01-(ii). Non-Bank Financial Institutions:Non-Bank Financial Institutions (NBFIs) are an important part of financial system inBangladesh. NBFIs operations are regulated under the Financial Institutions Act,1993. The NBFIs consist of investment, finance, leasing companies etc. There were29 financial institutions operating in Bangladesh as of 31 December 2006. Of theseone is government owned, 15 are local (private) and the other 13 are establishedunder joint venture with foreign participation. Bangladesh Bank has introduced apolicy for loan and lease classification and provisioning for NBFIs from December2000 on a half-yearly basis. Among the 29 financial institutions, 12 have been listedin the stock exchanges up to 31 December 2006 to strengthen financial capability andthe rest are under process to be listed in due course after the year 2006 that the totalnumber of institutions are increasing rapidly.Products and Services Offered by NBFIs Non-Bank Financial Institutions play a keyrole in fulfilling the gap of financial services that are not generally provided by thebanking sector. The competition among NBFIs is increasing over the years, which isforcing them to diversify to a wider range of products and services and to provideinnovative investment solutions. NBFIs appear to offer flexible options and highlycompetitive products to help customers meet their operational and financial goals.The table below provides a summary of the product range offered by existing NBFIsof Bangladesh.

Different Products and Services of NBFIs


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a) Insurance CompaniesThe insurance sector is regulated by the Insurance Act, 1938 with regulatory

oversight provided by the Controller of Insurance on authority under the Ministry of

Commerce. A separate Insurance Regulatory Authority is being established. A total of

62 insurance companies have been operating in Bangladesh, of which 19 provide life

insurance and 43 are in the general insurance field. Among the life insurance

companies, except the state-owned Jiban Bima Corporation (GBC) foreign owned

American Life Insurance Company (ALlCO), and the rest of the private. Among the

general insurance companies, state-owned Shadharan Bima Corporation (SBC) is the

most active in the insurance sector. A total of 31 insurance companies are listed in

the capital market, of which 8 offer life insurances.

i) Life Insurance Company (Public)• Jiban Bima Corporation

ii) Life Insurance Company (Foreign)• American Life Insurance Co.

iii) Life Insurance Company (Private)• National Life Insurance Co. Ltd.• Delta Life Insurance Co. Ltd.• Fareast Islami Life Insurance Co. Ltd.• Homeland Life Insurance Co. Ltd.• Meghna Life Insurance Co. Ltd.• Padma Islami Life Insurance Co. Ltd.• Sandhani Life Insurance Co. Ltd.• Sunflower Life Insurance Co. Ltd.• Baira Life Insurance Co. Ltd.• Golden Life Insurance Co. Ltd.• Progoti Life Insurance Co. Ltd.• Prime Life Insurance Co. Ltd.• Popular Life Insurance Co. Ltd.

• Progressive Life Insurance Co. Ltd.• Rupali Life Insurance Co. Ltd.• Sun Life Insurance Co. Ltd.


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iv) General Insurance Company (Public)

• Sadharan Bima Corporation

v) General Insurance Company (Private)• Agrani Insurance Company Limited.• Bangladesh Co-operative General Insurance Ltd.• Bangladesh General Insurance Co. Ltd.• Bangladesh National Insurance Co. Ltd.• Central Insurance Co. Ltd.• City General Insurance Co. Ltd• Eastern Insurance Co. Ltd• Eastland Insurance Co. Ltd• Federal Insurance Co. Ltd• Green Delta Insurance Co. Ltd• Janata Insurance Co. Ltd• Karnafully Insurance Co. Ltd• Meghna Insurance Co. Ltd• Mercantile Insurance Co. Ltd• Northern General Insurance Co. Ltd• People's Insurance Co. Ltd• Phoenix Insurance Co. Ltd• Pioneer Insurance Co. Ltd• Prime Insurance Co. Ltd• Progoti General Insurance Co. Ltd• Provati Insurance Co. Ltd• Purabi General Insurance Co. Ltd• Reliance Insurance Co. Ltd• Rupali Insurance Co. Ltd• United Insurance Co. Ltd• Takaful Islami Insurance Company Limited• Crystal Insurance Co. Ltd• Republic Insurance Company Limited• Global Insurance Company Limited• Paramount Insurance Co. Ltd.• Standard Insurance Co. Ltd.• Asia Pacific Insurance Co. Ltd.• South Asia Insurance Co. Ltd.• Express Insurance Ltd.• Continental Insurance Ltd.• Desh General Insurance Ltd.


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b) Security FirmsFinancial institutions that underwrite securities and engage in related activities suchas securities brokerage, securities trading and making a market in which securitiescan trade.

• Nabiul Karim Securities Ltd.• Haji Mohammad Ali Securities Ltd.• GMF Securities Limited• Quaiyum Securities Ltd.• Dragon Securities Ltd.• TA Khan Securities Co. Ltd.,• Md. Fokhrul Islam Securities Limited.• Shahiq Securities Ltd.• Habibur Rahman Securities Limited• Ershad Securities Ltd.• Mian Abdur Rashid Securities Ltd.• Khurshid Securities Ltd.• Rapid Securities Limited• Dawn Securities Limited.• Arafat Securities Ltd.• Shahed Securities Ltd.• Tobarak Securities Ltd.• Midway Securities Ltd.• Parkway Securities Ltd.• HR Securities & Investment Limted• Kazi Feroz Rashid Securities Ltd.• MAH Securities Ltd.• DMR Securities Services Ltd.• Alhaj Jahanara Securities Ltd.• RNI Securities Ltd.• GQ Securities Ltd.• Crest Securities Limited.• Asenz Securities Ltd.• Finvest Securities Ltd.• MAH Securities Limited• Nabiul Karim Securities Limited• Jalalabad Securities Limited• Haji Mohammad Ali Securities• Akij Securities Limited• Mian Abdur Rashid Securities


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c) Investment BanksIt primarily helps net suppliers of funds transfer funds to net users of funds at a lowcost and with maximum degree of efficiency.

• Bay Leasing & Investments Limited.• Union Capital Ltd.• First Lease International Limited• Phoenix Leasing Co. Ltd.• Peoples Leasing & Financial Services Ltd.

d) Financial CompaniesThe primary function of finance companies is to make loans to both individuals andbusiness. Finance companies provide such services as consumer lending, businesslending and mortgage financing.

• Industrial Development Leasing Company of Bangladesh (IDLC)• Infrastructure Development Company Limited (IDCOL)• GSP Finance Limited• Delta Brac Housing Finance Corporation Ltd.• Fidelity Assets & Securities Company Limited.• Fareast Finance & Investment Ltd.• LankaBangla Finance Ltd.• Prime Finance & Investment Limited• Bangladesh Industrial Finance Co. Ltd.

e) Mutual FundsMutual funds are portfolios of different securities such as stocks, bonds, treasuries,derivatives, etc. Mutual funds pool money of both individual and institutionalinvestors allowing the funds to achieve: (i) economies of scale by reducing costs andincreasing investment returns; (ii) divisibility and diversification; (iii) activemanagement with superior stock picking and market timing; (iv) reinvestment ofdividends, interest and capital gains; (v) tax-efficiency; and (vi) buying and sellingflexibility. There might be varieties of mutual funds that differ in terms of theirinvestment objectives, underlying portfolios of shares, risks and returns, fees andexpenses, etc.Mutual funds are professionally managed investment schemes that collect fundsfrom small investors and invest in stocks, bonds, short term money marketinstruments, and other securities. This ensures a diversified portfolio for theinvestors at much less efforts than through purchasing individual stocks and bonds.Fund managers who undertake trading of the pooled money and are responsible formanaging the portfolio of holdings usually manage mutual funds. Generally, mutualfunds are organized under the law as companies or business trusts and managed byseparate entities. Mutual funds fall into two categories: open-end funds and closed-end funds.


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Some categories of mutual funds are:• ICB, 1st ICB Mutual Fund, 2nd ICB Mutual Fund, 3rd ICB Mutual Fund,

4th ICB Mutual Fund, 5th ICB Mutual Fund, 6th ICB Mutual Fund, 7thICB Mutual Fund

• ICB Mutual Fund• 1st BSRS Mutual Fund• AIMS First Granted Mutual• Grameen Mutual Fund One• Grameen One: Scheme Two• ICB AMCL 1st Mutual Fund• ICB AMCL Islamic Mutual Fund• ICB AMCL Unit Fund• ICB AMCL Pension Holder Unit Fund• ICB AMCL First NRB Mutual Fund• ICB AMCL Second NRB Mutual Fund

f) Pension FundsPension funds are analyzed as financial intermediaries using a functional approach to

finance, which encompasses traditional theories of intermediation. Funds fulfill a

number of the functions of the financial system more efficiently than banks or direct

holdings. Their growth complements that of capital markets and they have acted as

major catalysts of change in the financial landscape. Financial efficiency in this

functional sense is not the only reason for growth. It is also a consequence of fiscal

incentives and benefits to employers, as well as growing demand arising from the

ageing of the population.

Employers, such as companies, public corporations, and industry or trade groups,

typically sponsor pension funds; accordingly, employers as well as employees

typically contribute. Funds may be internally or externally managed. Returns to

members of pension plans backed by such funds may be purely dependent on the

market (defined contribution funds) or may be overlaid by a guarantee of the rate of

return by the sponsor (defined benefit funds).


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02. Financial Instruments:A financial instrument is any contract that gives rise to a financial asset of one entityand a financial liability or equity instrument of another entity.A financial asset is any asset that is:(i) Cash;(ii) An equity instrument of another entity;A contractual right:(i) To receive cash or another financial asset from another entity; or(ii) To exchange financial assets or financial liabilities with another entity underconditions that are potentially favorable to the entity.A contract that will or may be settled in the entity’s own equity instruments and is:(i) A non-derivative for which the entity is or may be obliged to receive a variablenumber of the entity’s own equity instruments; or(ii) A derivative that will or may be settled other than by the exchange of a fixedamount of cash or another financial asset for a fixed number of the entity’s ownequity instruments. For this purpose the entity’s own equity instruments do notinclude instruments that are themselves contracts for the future receipt or delivery ofthe entity’s own equity instruments.The specific form, which a claim takes, is a financial instrument. The range ofinstruments is existence and also because it enables us to distinguish certain broadcategories of instrument.Selections of instruments are:

• Treasure Bills

• Commercial Paper

• Negotiable Certificate of deposits

• Banker Acceptances

• Bonds• Stocks• Govt. Securities• Bank & Consumer Commercial Paper• Debentures• Mortgages

Company shares and government stock, for example, once created can be boughtand sold in organized markets without their original issuers ever again being involved.Instruments that are issued with a fixed rate of interest for as long as they exist –government bonds, for example – from those assets whose yield varies according tomarket conditions. The latter category includes a wide range of claims from bankdeposits to company shares.

A very popular basis for distinguishing types of instrument is maturity. This meansthe length of time, which has to elapse before the claim is repaid. This may be verylong. With company shares, for example, it is theoretically infinity. Some governmentstocks are issued with twenty-five years to maturity. Contrast this with treasury bills,which are issued for ninety-one days or even bank deposits that can be demandedimmediately or ‘at sight’.


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02-(i). Money Market Instruments:The Money Market is an instrument of the fixed income market. Generally speaking,the term "fixed income" is synonymous with bonds. In reality, a bond is just one typeof fixed income security. The difference between the money market and the bondmarket is that the money market specializes in very short-term debt securities (debtthat matures in less than one year). Money market investments are also called cashinvestments because of their short maturities, and their near-liquid nature (almostimmediate access upon request).Money market securities are essentially IOU's issued by governments, financialinstitutions, and large corporations. These instruments are very liquid and consideredextraordinarily safe. Because they are extremely conservative, money marketsecurities offer significantly lower return than most other securities.One of the main differences between the money market and the stock market is thatmost money market securities trade in awfully high denominations. This limits theaccess of the individual investor. Furthermore, the money market is a dealer market,which means that firms buy and sell securities in their own accounts, at their ownrisk. Compare this to the stock market where a broker receives commission to acts asan agent, while the investor takes the risk of holding the stock. Another characteristicof a dealer market is the lack of a central trading floor or exchange. Deals aretransacted over the phone or through electronic systems.The easiest way for us to gain access to the money market is with a money marketmutual funds, or through money market bank account, which are offered at thiswebsite.. These accounts and funds pool together the assets of thousands ofinvestors in order to buy the money market securities on their behalf. However, somemoney market instruments, like treasury bills, may be purchased directly. Failing that,they can be acquired through other large financial institutions with direct access tothese markets.Call money rate -the rate at which short term funds are lent and borrowed amongbanks- is the core of an overnight money market for credit. Volatility of the overnightmoney market rate (call money rate) is a very usual phenomenon for a well-functioning market. Market participants determine the rate according to theirperceptions of the current and future liquidity condition in the market. Thus this ratereflects the supply and demand behavior of bank reserves, and hence, givesimportant signals to the central bank to understand the market pressure.Call money rate in Bangladesh can be viewed as a market-clearing rate. Fluctuationsin the overnight rates come mainly from supply and demand for liquidity in themoney market. Periodic change in reserve requirements as well as economic andseasonal factors may cause the demand to rise. The overnight money market ratecan also be impacted on the days when Bangladesh Bank (BB) conducts open marketoperations.

a) Treasure BillsDept obligations of the Government used to finance fiscal deficits. Bangladesh Bank

treasure bills are issued in one three, six, twelve month and two year maturity. They

pay a set amount at maturity.


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b) Commercial PaperIt is an unsecured short-term promissory notes issued by a corporation to raise short-

term cash, often to finance working capital requirements. A Sample copy of

Commercial Paper is given below:

TERMS & CONDITIONS01. PARTNERSHIP ACCOUNT:

We request and authorize you until any one of us shall give you notice in writing to the contrary, to honourand debit to the firm’s account all Cheques, Guarantees, Negotiable Instruments, or other Orders which maybe drawn, or Bills Accepted or Notes made or Receipts for Money owing by you to the firm signed by any oneof us in the name or on behalf of the firm, whether the firm’s Account be for the time being in credit oroverdrawn or may become overdrawn in consequence of such debit and we will be jointly and severallyresponsible for the repayment of any such overdraft and interest there against.

-We also request and authorize you to accept the endorsement of any one of us in the name or on behalf of thefirm on Cheques, Orders, Bills, Notes or other Negotiable Instruments.

-You are hereby authorized to carry out any instruction in connection with the account (including instruction ofcountermanding payment of Cheques, Bills of Exchange, Promissory Notes or order for payment) when suchinstructions are given by all or any one of us.

-Any security or other property of or deposited in the name of the firm may be withdrawn and any moneymay be borrowed from you in the name or on behalf of the firm and may be secured in any manner upon anysecurity money or property of or deposited in the name of the firm by any one of us and we will jointly andseverally be responsible for repayment of such money with interest, costs, charges and expenses.

-Any liability whatsoever incurred in respect of the account shall be joint and several.

-This authority shall remain in force until revoked notwithstanding any change in the constitution or name ofthe firm and shall apply notwithstanding any change in the membership of the firm by death, bankruptcy, andretirement or otherwise or the admission of any new partner(s). (This account opening form must besigned by all the Partners)

Partner’s Signature Partner’s Signature Partner’s Signature Partner’s SignatureName: Name: Name: Name:

02. LIMITED COMPANY:

At General Meeting/a Meeting of the Board or Directors of…………………………………………………… Limited heldat its office at…………………………………………………………………………on…………..…,the company decided to open a Current/……… Account with ONE BankLimited……………………….. Branch and we have been authorized to advise the Bank accordingly.We enclose the following Documents for the purpose:

a. Certified copy of the Memorandum & Articles of Association of the Company.b. Certificate of Incorporation of the Company for inspection and return, and a duly certified photocopy for

Bank’s recordc. Certificate from the Registrar of Joint Stock Companies that the company is entitled to commence

business (in case of Public Ltd. Co.) for inspection and return, and a duly certified Photocopy for Banksrecord.

d. Latest copy of Balance sheet.e. Extract of resolution of the Board/General Meeting of the Company for opening the account and

authorization for its operation duly certified by the Chairman/Managing Director of the Company.List of Directors with addresses (a latest certified copy of the form-xii)


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We would now request you to open a Current/……………..Account in the name of the Company.We undertake to advise the Bank, of changes in the authorized signatures and these will be supported byfurther Resolution of the Company. We agree to comply with the rules governing the account of ONE BankLimited and agree to comply with the Schedule of Charges of the Bank.

Authorized Signature Authorized Signature Authorized Signature Authorized SignatureName: Name: Name: Name:

03. GENERAL CONDITIONS OF GOVERNING ACCOUNTS:

a) The law, rules and regulations of Bangladesh, usual customs and procedures common toBanks in Bangladesh will apply to and govern the conducts of the account opened with theBank.

b) Any person opening an account will be deemed to have read, understood and accepted therules governing the account.

c) A suitable introduction by an introducer acceptable to the Bank is required prior to opening of any account.Recent photographs of the account openers duly attested by the introducer must be produced.

d) Each account will be given one account number. This number is to be properly quoted on all letters and /or documents addressed to the Bank and on all deposit slips. The Bank will not be responsible for anyloss or damage occurring as a result of wrong quotation of account number.

e) Interest/commissions/service or maintenance of account charges will be levied by the Bank as determinedby the Bank from time to time and as per Bangladesh Bank regulation.

f) The funds available in any of the account holder’s account (the customer) with the Bank will beconsidered by the Bank to be a security for any commitment(s), the Bank is entitled without giving priornotice to the customer to utilize such funds against the obligation(s) and/or commitment(s) of thecustomer to the Bank.

g) Any statement of account dispatched to the customer will be considered as approved unless anydiscrepancy (-ies) is/are notified in writing to the Bank within 15 days from the date of dispatch. TheBank is not responsible for delays or non-delivery due to mail problems. Statement of account to bepicked up will be considered as approved even if not picked up 15 days after the date they are produced.Statements of account are not produced when there is no operation during the month. Those can beobtained on special request.

h) Account holders must provide maximum security to the cheque books in their possession and the Bank isnot responsible for any loss occurring due to inadequacy of security. Any chequebook loss or misuse mustbe immediately reported to the Bank and confirmed in writing without any delay.

i) When cheque deposited are payable by other Banks or outstation, they are available after clearing orcollection only. Service charge will be charged @ Tk. 100/- in Current A/C and Savings A/C Half yearly oras changed by the bank from time to time as and when required.

j) The Bank reserves the right to close any account without giving prior notice if the conduct of the account isunsatisfactory in the opinion of the Bank or for any other reason(s) whatsoever.

k) The balance in the account(s) is payable solely at ONE Bank Limited and shall be governed by andsubject to “laws” in effect in Bangladesh. As used herein laws will include Bank Circulars, Modifications,Regulations and Orders of the Government and Bangladesh Bank including practice of banking.

l) The Bank reserves the right to amend the present rules at any time in any manner with or without givingprior notice to the account holder(s) separately or to the public. The chequebook will not be issuedunless and until all the required formalities are completed.

04. AGREEMENT:

I/We hereby agree to the above general conditions.

Signature of the applicant/ Signature of the applicant/ Signature of the applicant/ Signature of the applicant/Authorized signature Authorized signature Authorized signature Authorized signature


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c) Negotiable Certificate of deposits

Negotiable certificate of deposit means a short-term security, typicallyissued by a bank to raise funds. A Negotiable Certificate of Deposit is ashort-term investment in a security, being a negotiable certificate of depositissued by NAB.If you choose to invest in a Negotiable Certificate of Deposit, you pay thepurchase price on the purchase date. On the maturity date, NAB pays youthe face value of the Negotiable Certificate of Deposit. The return on yourinvestment is equal to the difference between the purchase price and theface value.

d) Banker AcceptancesIt is a time draft payable to a seller of goods, with payment guaranteed bya bank. Time drafts issued by a bank are orders for the bank to pay aspecified amount of money to the bearer of the time draft on a given date.

02-(ii). Capital Market Instruments:Capital Market Instruments are a number of capital market instruments usedfor market trade, including stocks, bonds, debentures, foreign exchange,fixed deposits, and others. The investors to make a profit out of theirrespective markets use these.All of these are called capital market instruments because these areresponsible for generating funds for companies, corporations, andsometimes national governments. This market is also known as securitiesmarket because long-term funds are raised through trade on debt andequity securities. Both companies and governments may conduct theseactivities.This market is divided into primary capital market and secondary capitalmarket. The primary market is designed for the new issues and thesecondary market is meant for the trade of existing issues. Stocks andbonds are the two basic capital market instruments used in both the primaryand secondary markets. There are three different markets in which stocksare used as the capital market instrument: the physical, virtual, and auctionmarkets.Bonds, however, are traded in a separate bond market. This market is alsoknown as a debt, credit, or fixed income market. Trade in debt securities aredone in this market. There are also the Debentures that are used as capitalmarket instruments by the investors.These instruments are more secured than the others, but they also provideless return than the other capital market instruments. While all capitalmarket instruments are designed to provide a return on investment, the risk


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factors are different for each and the selection of the instrument depends onthe choice of the investor. The risk tolerance factor and the expected returnsfrom the investment play a decisive role in the selection by an investor of acapital market instrument. Capital market instruments should be selectedonly after doing proper research in order to increase one.

Bangladesh Capital Market Summary(As on 31 March 2008)

Indicators Dhaka StockExchange

Chittagong StockExchange

No. of companies 270 215No. of mutual funds 14 14No. of debentures 8 1No. of treasury bonds 75 -No. of corporate bonds 1 -Total No. of Listed Securities 368 230

a) BondsBond market links issuers having long term financing needs with investorswilling to place funds in a long term, interest bearing securities. A matureddomestic bond market offers wide range of funding for the government andthe private sector. While fixed income instruments are the epitome of longterm finance options, the size of tradable government bonds is small,secondary trading is rare, and more critically, public issue of corporatebonds may remain suspended, as it has been the case in Bangladesh since1996 [Hossain and Azim, 2005].

Bangladesh Bank has taken a number of initiatives to promote bond marketdevelopment, such as changing legal and regulatory framework and alsothe tax system for securing, or issuing of zero-coupon bonds. But there aresome major problems in development of bond market in the country: weakgovernance at the institutional and market levels; high non-performingassets of the nationalized commercial banks (NCBs); poorly defined andoverlapping responsibilities of Securities and Exchange Commission (SEC)and Ministry of Finance; and the lack of incentives and private initiatives todrive market developments.

The government is aware of these problems, and international organizationssuch as World Bank, IMF and some agencies such as IFC or ADB have beenobserving to push for possible solutions.


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b) Stocks

The stock market is an important ingredient of the financial system in

Bangladesh. It is an important avenue for channeling funds to investors

through mobilizing resources from individuals. In view of the rapidly

increasing role of the stock market, volatility in stock prices can have

significant implications on the performance of the financial sector as well as

the entire economy. There exists important link between stock market

uncertainty and public confidence in the financial market.

c) Govt. Securities

The government has initiated reforms program in the area of debt

management since 2005. It has enacted the Bangladesh Government

Treasury Bonds (BGTB) Rules, 2003 under which T. Bonds are being

marketed on a regular basis. Development of a primary market for buying

and selling of Government bonds of varying maturity (5 year, 10-year, 15-

year and 20-year) to raise fund from the domestic market is one of the

significant achievements of such reforms initiatives.

Treasury Bills and Treasury Bonds auctions are being held on the basis of a

pre-announced Auction Calendar. This ensures higher degree of competition

resulting a steady decline in the cost of borrowing for the government from

domestic source.


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d) Bank & Consumer Commercial PaperThe paper intends to provide an overview of key issues pertaining toconsumer confidence in financial markets in Bangladesh. The formalfinancial sector in Bangladesh includes: (a) Bangladesh Bank as the centralbank (b) 43 commercial banks, including four nationalized commercialbanks, 30 domestic private commercial banks, 9 foreign commercial banks(c) 5 government-owned specialized banks (d) 28 non-bank financialinstitutions (e) one government-owned investment company (f) twogovernment-owned insurance companies and a quite good number ofprivate insurance companies and (g) two stock exchanges. The bankingsector, however, dominates the country’s financial system.

Consumer confidence may be defined as the consumer’s appraisal of thecurrent economic conditions and his expectations of future economicconditions. A silent revolution had occurred in financial services legislationand regulation in the direction of building consumer confidence in themarkets, it is felt that there is a need for exploring ways for furtherimprovement of market conditions to meet the expectation of consumers offinancial services. In this backdrop the paper will discuss various factorsundermining consumer confidence in the financial markets, retrace thelegislative and regulatory measures undertaken in the past to protectconsumer interest and suggest further actions needed to enhance consumerconfidence in the financial services sector in Bangladesh.

e) DebenturesWhen any duly stamped debenture is renewed by the issue of a newdebenture in the same terms, the Collector shall, upon application madewithin one month, repay to the person issuing such debenture, the value ofthe stamp on the original or on the new debenture,Provided that the original debenture is produced before the Collector andcancelled by him in such manner as the Government may direct.

A debenture shall be deemed to be renewed in the same terms within themeaning of this section notwithstanding the following changes: -(a) The issue of two or more debentures in place of one original debenture,the total amount secured being the same;(b) The issue of one debenture in place of two or more original debenture,the total amount secured being the same;(c) The substitution of the name of the holder at the time of renewal for thename of the original holder; and(d) The alteration of the rate of interest or the dates of payment thereof.


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f) MortgagesMortgage markets means lending institutions & mortgage brokers.

According to Ministry of law, Bangladesh - Chapter IV:

Sec. (58) “Mortgage”, ”mortgagor”, ”Mortgagee”, ”Mortgage-money” and

“mortgage-deed” defined as: Simple mortgage, mortgage by conditional

sale, usufructuary mortgage, english mortgage, mortgage by deposit of title

– deeds anomalous mortgage.

Sec. (59) Mortgage when to be assurance.

Sec. (59.A) References to mortgagors and mortgages to include persons

driving title from them.

Mortgage loan taken out to buy the family home from the mortgage market.

Thirty years ago, such a loan would almost certainly have come from a

building society. The borrower would probably have had to wait in a queue,

which he or she could join only after having saved for some period with the

society. The loan would have been in sterling and the borrower would have

paid a rate of interest that varied at short notice (broadly) with changes in

the level of official interest rates imposed by the monetary authorities.

The interest would have been paid monthly together with a small additional

sum calculated to repay the loan over a scheduled period, such loans were

instantly available from a range of institutions. They could be repaid by the

method described above or they could be ‘interest-only’ mortgages in which

the borrower pays only the interest but makes simultaneous payments into a

long-term savings scheme (typically an endowment insurance policy), which

is designed to repay the mortgage when the policy matures. The mortgage

may have a rate of interest that can be fixed for long periods.


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03. Financial MarketsAn organizational framework within which financial instruments can be

bought and sold. In economics a market is an organizational device that

brings together buyers and sellers. Textbooks usually hurry on to point out

that a market does not have to have a physical location, though plainly it

could do so.

In fact, financial markets offer some of the best examples of buyers and

sellers interacting over a widely dispersed geographical area.

Financ ial market of an economy comprises the banking sector,other financial institutions and capital market. At present, 4SCBs, 5 national ized special ized banks, 30 private commercialbanks, 9 foreign commercial banks and 29 non-bank financialinstitutions, Investment Corporation of Bangladesh (ICB),Bangladesh House Building Finance Corporation (BHBFC), DhakaStock Exchange (DSE) and Chittagong Stock Exchange (CSE) areworking in the financial market of Bangladesh.


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Banks and other financ ial institutions (OFIs) have been playing akey role in activating the financial sector that in turn infusesdynamism to the economy. Banks are engaged in upgrading thesocio-economic status of the country by investing money toproductive sectors. However, in the context of globalization,importance has been given to the development of the financialmarket through banking sector. In order to uphold the rule ofbanking sector in financial market development, the governmenthas taken a range of measures, which include further deploymentof bank branches and evaluation of their performance,classification of loans following the international standards,assessment of capital adequacy, determination of quality ofassets and earning of impressive profit.

03-(i). Primary Market

Means new capital rose in the financial markets.Primary market services are included: -

• The investment banking &• The financial intermediation etc.

(Tk)


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03-(ii). Secondary Market

Markets in which existing securities are traded; as opposed to aprimary market where securities are sold for the first time. Inmost cases a stock exchange largely fulfi ls the role of asecondary market, with the flotation of new issues representingonly a small proportion of its total business. However, it is theexistence of a flourishing secondary market, providing liquidityand the spreading of risk.Means exchange of ownership in the financial markets.Secondary market services included:

• Brokerage services

Tk

Tk


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03-(iii). Money Market

Monetary policy framework refers to a logical and sequential setof actions that a centra l bank has to design to conduct monetarypol icy. The central bank wants to achieve certain goals butcannot directly influence the goals. It has a set of tools at itsdisposal that can affect the goals indirectly after long andvariable lags.

So, if central bank waits to see the effect of the tools on thegoals it wil l be too late to make any correction to the policy.That is why it aims at some variables that l ie between tools andgoals, which it can influence and monitor very shortly.

Thus a central bank decides on the strategy for conductingmonetary policy. The variables that the central bank addressescan be classified as instruments, targets and goals. If theframework is expressed in a flow chart instruments (i .e. tools)and goals are on the two ends and targets are in between. Thetargets are further classified as operational target andintermediate target. The central bank also keeps an eye on someinformation variables to make any policy decision.

03-(iv). Capital MarketThe capital market in Bangladesh is regulated and supervised by the

Securities and Exchange Commission (SEC) under the SEC Act, 1993. The

SEC so far has issued licenses to 27 non-bank institutions to participate in

the capital market of which 19 institutions are Merchant Banker and Portfolio

Manager while 7 are Issue Managers and (one) acts as Issue Manager and

Underwriter.

The Dhaka Stock Exchange (DSE), which was established as a public limitedcompany in April 1954, and the Chittagong Stock Exchange (CSE),established in April 1995, dealing in the secondary capital market. As of endDecember 2006 the total number of enlisted securities with DSE stood at310 of which 255 are listed companies, 13 mutual funds, 8 debentures and34 treasury bonds after the year 2006 that the total number of institutionsare increasing rapidly.


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Recently, two (2)-power sector companies namely Dhaka Electric Supply

Company (DESCO) and Power Grid Company of Bangladesh (PGCB) have

been listed in the capital market under the newly introduced direct listing

regulation. The Investment Corporation of Bangladesh (ICB) was established

in 1976 with the objective of encouraging and broadening the base of

industrial investment. ICB underwrites issues of securities, provides

substantial bridge financing programs, and maintains investment accounts,

floats and manages closed-end and open-end mutual funds and closed-end

unit funds to ensure supply of securities as well as generating demand for

securities. ICB also operates in both DSE and CSE as dealer. Some SBs, such

as Bangladesh Shilpa Bank (BSB), Bangladesh Shilpa Rin Sangstha (BSRS),

Bangladesh Small Industries and Commerce (BASIC) Bank Ltd. As well as

NCBs and some foreign banks are engaged in long-term industrial financing.

Capital Market product in Bangladesh:

• Share: Ordinary Share, Preference Share

• Mutual Fund

• Debt Securities

• Debenture

• Bond

A well-developed tradable bond market is critical to ensuring stability and

efficiency of the financial market in Bangladesh. In the country, most of the

available savings are held by the banks in the form of deposits that are

channeled through lending to the investors.

The dominance of banks, with high bad loan portfolios and non-

transferability of most of their debt/savings instruments, is a prime

hindrance to developing a well-performing bond market. The absence of

such a market makes the financial market less competitive as it fails to

generate market interest rates that reflect the opportunity cost of funds at

different maturities and results in excessive reliance on the banking system.

Financial System in Bangladesh

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