Bangladesh Bank Training Academy Journal

Abstract: Theoretically, an increase in interest rate differentials—the difference between domestic interest rate and foreign interest rate—boosts either inflow of foreign loans or investment or both in any country. In Bangladesh, before the financial sector reform programme (FSRP) in 1990s, the inflow of external resources in the form of foreign direct investment (FDI), portfolio investment and other foreign loans were insignificant. But the policy changes in the financial sector, as well as the external sector, facilitated the increased inflow of external resources. Against this backdrop, this paper attempts to analyse empirically the relationship between foreign loan inflows and interest rate differentials in Bangladesh. The empirical results show that interest rate differentials have a positive impact on the gross inflows of foreign loans. It indicates that gross inflows of foreign loans will rise by 0.06 percentage point if interest differentials increases by 1 percentage point. However, the paper also finds that for the periods from quarters of 2012 onwards a higher response of gross inflows of foreign loans is evident with the change in foreign exchange policy. The paper suggests that liberalisation of external economic policies can expedite inflows of foreign loans in Bangladesh.

Citation: Akther, M., Masuduzzaman, M., Mily, N. N., & Chowdhury, M. I. (2021). Is inflow of foreign loans in Bangladesh sensitive to interest rate differentials? Thoughts on Banking and Finance, 8(2), 9–32.

Abstract: The study aims to examine the equilibrium exchange rate in Bangladesh economy applying sustainable current account balance approach and behavioral equation approach during the period of 1980-81 to 2017-18. Using nominal exchange rate, current account balance, GDP and Terms of Trade data the study found that currently Bangladesh currency is overvalued compared to its equilibrium. In addition, the empirical results from the behavioral equation approach showed that the foreign aid and remittances have significant positive impacts on the real exchange rate. Besides, the study found that the investment to GDP, external sector resource and real GDP have significant negative impacts on the exchange rate. The policy implications of the findings indicate that an increase in the investment to GDP and GDP itself causes the exchange rate to appreciate while the increase in external resource balance causes depreciation of the exchange rate.

Citation: Younus, S., Chowdhury, M. I., & Islam, T. (2021). Equilibrium exchange rate, current account deficits and exchange rate misalignment in Bangladesh. Thoughts on Banking and Finance, 8(2), 33–55.

Abstract: Recent Studies in South and East Asian countries have shown that the impact of interest rate liberalization is either insignificant or significantly negative on private savings growth. However, the staggering growth of private savings in the run up of heated Asian Financial Crisis (AFC) followed by Global Financial Crisis(GFC), transformed South and East Asian region into a hub for large capital stock. Historically interest rate has always been a dominant factor in mobilizing the savings growth despite other macroeconomic juggernaut factors. This paper examines the role of interest rate liberalization on private savings in eleven Asian developing countries using panel data for the period 1980 to 2015. For Most of the South and East Asian countries the financial liberalization took place between 1980s and 1990s. However using system Staggered Diff in Diff approach, this paper concludes that there is no significant impact of interest rate liberalization on private savings growth within the specified time. Nevertheless, it was traced that interest rate liberalization significantly stimulated the Asian financial crisis further to drain out the capital from Asian region. Consequently negative economic outflow and positive trade flows took place during global financial crisis in the non shocked economies of Asian region while leaving the mark of casualties in shocked economies.

Citation: Mowla, I. I. (2021). The role of interest rate liberalization on endogenous private savings growth on East and South Asian countries: Staggered diff and diff panel data approach. Thoughts on Banking and Finance, 8(2), 56–82.

Abstract: Private sector in Bangladesh along with government plays a prominent role in economic development through production, investment and export. The purpose of this paper is to investigate the response of private domestic investment to a change of real exchange rate. Here, it is considered whether investment responds differently to real depreciations versus real appreciations. In this paper The Johansen Co-integration likelihood approach and VECM were employed to examine the long run relationship and to detect the short-run and long-run causality among the variables (Domestic investment, Real Exchange rate and real income) using annual data over 1976 to 2015. The result shows that the domestic investment is positively affected by real income and real exchange rate which is statistically significant. Result of VECM shows that domestic investment and real income reaches in equilibrium after 12.5 years and 33.33 years respectively where exchange rate is already in equilibrium. Moreover there is long-run causality among the variables and short-run causality running from real income to domestic investment but no short run causality from exchange rate to domestic investment.

Citation: Akther, T., Das, M. R., & Hossain, M. A. (2021). Responses of domestic investment to a change in real exchange rate in case of Bangladesh. Thoughts on Banking and Finance, 8(2), 83–101.

Abstract: Efficient functioning of banks plays a decisive role in bringing stability and growth of an economy. This study investigates the managerial factors that resolve bank’s efficiency. Only secondary data have been utilized in the present research work. The data have been gathered from sample banks' yearly reports from 2012 to 2016 based on a purposive sampling technique. These balanced panel data sets of 45 observations have been evaluated using some descriptive statistics (average, range, SD, CV), financial ratios, pairwise correlation, regression analysis, Analysis of variance (ANOVA), the natural logarithm and statistical software (SPSS 20). The factor-Bank Efficiency is identified by Net Asset Value per share (NAV); Managerial Factors are identified and calculated by Cost Efficiency Ratio (CER), Liquidity Ratio (LR), Credit Composition Ratio (CCR), Credit Risk Ratio (CRR), Capital Adequacy Ratio (CAR), and the Bank Size (BSZ). The key finding of this study is that CRR, CER and BSZ are the major managerial factors that resolve bank efficiency. Among the variables, both CRR & CER have significant but negative effect and BSZ has significant & positive effect on the efficiency of Bangladeshi commercial banks.

Citation: Chaudhury, N. J. (2021). Measuring efficiency of commercial banks: Empirical evidence from Bangladesh. Thoughts on Banking and Finance, 8(2), 102–115.

Abstract: Poverty mitigation with microcredit is now growing attention among all evangelists, governments, donors, development agencies and others. The study primarily has been conducted to find out to what extent microcredit can surface the way to alleviate poverty of the Ultra-poor. A large number of hardcore poor are widowed, divorced or abandoned women. The rural poor are largely deserted by formal credit sources. Collateral requirements, complex procedures, poor communications and contemptible banking networks have restricted the availability of credit in the rural areas. Various informal credit sources were accessible to the rural poor, but these sources are still exploitative and inadequate. This paper shows that vulnerabilities and shocks are uncertain and painful phenomenon in the life of the Ultra-poor. The study investigate the impact of Ultra-poor Program of PKSF on increasing income, expenditure, saving, consumption level, wage employment versus self-employment creation, enrollment of the school going children, asset, social dignity, acceptance, vulnerabilities and shocks, crisis coping mechanism, participation of ultra-poor in rural power structure.

Citation: Akhter, R. (2021). The path designed to exterminate poverty: PKSF experiences in Bangladesh. Thoughts on Banking and Finance, 8(2), 116–145.

Abstract: The study covers people’s perception towards purchasing different life insurance policies in Bangladesh. Analysis has been done into two parts; demographic factors (gender, age and income) and people’s perception towards purchasing life insurance policies (either risk management motive or expectation of fixed return). Hence, risk management factors are set into five sub-categories; financial stability, coverage for unexpected loss, risk burden transfer, dependency on life insurance, knowledge about life products. Furthermore, fixed return expectation factors are also developed into five sub-categories; fixed return generated scheme, higher return generating scheme, tax exempted return, premium back when policy lapsed, surrender value equivalent to accumulated total premium. Analysis showed that people consider buying different life insurance policies being influenced by their gender, age and income level. Furthermore, the study revealed that risk management and fixed return expectation factors individually have not much influence over people’s buying life insurance. Conversely, when both factors are put together, the study concluded that people purchase life insurance considering risk management factors above fixed return expectation.

Citation: Zeya, F. (2021). People’s perception towards life insurance: Risk management tool or expectation of fixed return. Thoughts on Banking and Finance, 8(2), 146–178.

Abstract: Job stress is a common problem across occupations and it impacts job performance. Contemporary studies highlight the negative effect of stress on job performance; mild stress is known to enhance an employee's performance. This study examines the relationship between job stress and job performance on bank employees of Bangladesh. The data obtained through structured questionnaire from 256 employees of commercial banks. The PLS-SEM technique was employed for analyzing data. The study found that job related factors, organization related factors and individual factors are statistically significant and negatively correlated with employee job performances. Therefore, the results of the study confirms that job stress significantly reduces the performance of bank employees in Bangladesh. The results suggest that organization should facilitate supportive culture within working atmosphere of the organization to reduce stress level of employees.

Citation: Haque, M. M. (2021). Effect of stress on employees job performance: A study on banking sector of Bangladesh. Thoughts on Banking and Finance, 8(2), 179–203.