Bangladesh Bank Training Academy Journal

Abstract: This paper discusses some key issues of financial stability and supervision in general and in the context of Bangladesh financial system. In this connection, the paper focuses on different attributes of financial stability, microprudential and macroprudential approaches of bank regulation and supervision used to address procyclicality in the financial system, and addressing of system risk well ahead of time. Finally the paper outlines the recent initiatives of Bangladesh Bank towards maintaining financial stability. It is expected that the paper would promote informed discussion on key issues of financial stability and supervision of financial institutions and make room for further study on this area.

Citation: Chowdhury, S. K. S. (2015). Financial stability and supervision issues. Thoughts on Banking and Finance, 4(1), 11–23.

Abstract: Commercial bank’s interest rates (lending rates) behavior has become major issue in Bangladesh. It is influenced by factors, such as-reserve requirements, policy rates of Bangladesh Bank, deposit rates, CPI, NSD certificate rates, banks’ expenditure income ratio, profitability, liquidity, solvency, monetary and fiscal policy stances, and non-economic factors. In recent times, private sector credit growth was lower than the expected growth mainly due to investors less consciousess and their go slow strategy in the backdrop of political uncertainly. An attempt has been made to analyze the factors influencing lending rate behavior in Bangladesh using Ordinary Least Square Method (OLS). It is found that CPI, excess reserve, deposit rate and policy rate significantly affect interest rates (lending rates) behavior of commercial banks. However, it is commonly believed that NPL is the most crucial factor that forces banks to fix high lending rates. But in our study we have found that NPL is no statistically significant. In the perspective of existing higher lending rate, it is necessary to take systematic efforts to put in place a reasonable interest rate structure in a ustainable manner taking socio-economic realities into consideration.

Citation: Rouf, M. A., & Chowdhury, F. (2015). Commercial banks’ interest rates behavior in Bangladesh: A critical analysis. Thoughts on Banking and Finance, 4(1), 24–36.

Abstract: The dynamic causal relationship among budget deficit, money growth and inflation remains a contentious and lively issue in the literature. Even though the literature on this issue is voluminous, however for Bangladesh it is quite a few. The studies on Bangladesh suffer from methodological deficiency as they did not take into consideration the time series properties of the variables and also suffer from omitted variable bias. This paper overcomes the early studies in terms of data used and techniques applied. This paper also overcomes the methodological deficiency by considering Keynesian and monetarist’s contention in analyzing inflation of Bangladesh. The main contribution of the paper is to address the issue of the short run dynamics of the considered variables within a long run relationship. The empirical results show that there is a unidirectional causality runs on budget deficit to money supply, which is supported both by Granger causality as well as by error correction model. Theimplication of the result is that in Bangladesh budget deficit is monetized by printing money. The study also found that there is a unidirectional causality from budget deficit to money supply and money supply to inflation. The implication of the result is that expansionary monetary policy to combat budget deficit has important effect on the inflationary pressure in Bangladesh, which is in line with the earlier studies in Bangladesh except Taslim (1982). The overall implication of the result is that inflation in Bangladesh is a fiscal driven monetary phenomenon. Therefore to maintain inflation at a tolerable rate budget deficit should be financed by other means than printing money.

Citation: Hoseen, L., & Hossain, M. A. (2015). Budget deficit, money growth and inflation: Empirical evidence. Thoughts on Banking and Finance, 4(1), 37–46.

Abstract: This paper focuses on the benefits of openness by trade and financial liberalization on economic growth in Bangladesh. We have analyzed historical developments of major macroeconomic variables and presented charts and statistical tables. We observe that Bangladesh has had impressive growth in exports, remittances and foreign exchange reserve along with strong macroeconomic fundamental in recent years. This paper finds that trade and financial liberalization promote economic growth in Bangladesh; the degree of country’s openness in terms of trade share increased to 47 per cent in FY14 from 18 per cent in 1970s. Country’s exports enlarged to USD 30 billion (21% of GDP) in FY14 from USD 0.46 billion (around 3% of GDP) in 1970s. FDI inflows also has accelerated along with the increasing trend of remittances inflows. The country experienced surplus current account balance since FY02 except for a deficit recorded in FY11 and FY12. Nevertheless, foreign reserve position rose to the comfortabl level at USD 21.56 billion at end June 2014 that is equivalent of 6 months of import payments from USD 1.6 billion at the end of FY00 (equivalent of 2 months of imports). These developments reveal that trade and financial liberalization encourage economic activities that accelerate country’s GDP growth.

Citation: Wahab, M. A., Uddin, M. M., & Sultana, N. N. (2015). Liberalization and economic growth: A review of the Bangladesh economy. Thoughts on Banking and Finance, 4(1), 47–65.

Abstract: This paper examines the impact of exchange rate variation on inflation in South Asian countries for the sample of the period 1981 to 2012 in a panel data framework rather than time series. The main purpose of this study is to examine whether exchange rate pass-through and/or volatility of exchange rate causes inflation in South Asian countries and what are the policy implications of it for the South Asian countries. This study first estimates inflation model for full sample (60 countries) and then estimates the inflation model for sub-sample of four South Asian countries (Bangladesh, India, Pakistan and Sri Lanka). For estimation of full sample this paper uses fixed effect model and GMM estimation techniques. In case of sub-sample (South Asian countries) this paper uses random effect model and GMM estimation techniques. While using full sample (for 60 countries), it is found that change in exchange rate has significant impact on inflation but exchange rate volatility has no impact on iflation. However, in case of South Asian countries both the exchange rate pass-through and volatility of exchange rate have significant impact on inflation. So, the policy makers of these four South Asian countries should take necessary steps for controlling inflation due to the volatility of exchange rate.

Citation: Faruq, M. O. (2015). The impact of exchange rate variation on inflation in South Asian countries. Thoughts on Banking and Finance, 4(1), 66–81.

Abstract: Performance of private commercial banks (PCBs) in Bangladesh depends on some internal and external factors such as bank size, risk management, overhead cost, capital, ownership of the bank, interest rate spread, bank expenses, inflation, central bank interest rate, GDP, taxation, variables that represents market characteristics (e.g. market concentration, industry size and ownership status etc) on the performance of the bank. This paper uses a multi-criteria, performance based index to rank 27 PCBs operating in Bangladesh. Total profit (TP), return on asset (ROA), return on equity (ROE), and labor productivity (LP) for the year ended 2012 have been considered as pillars of the performance based index. After construction of performance index the hypothesis that there is a relationship between bank performance and bank size is tested through regression analysis. It is found that there is significant positive correlation between bank size and their performance.

Citation: Morshed, K. N. (2015). Performance analysis of selected local private commercial banks in Bangladesh. Thoughts on Banking and Finance, 4(1), 82–92.

Abstract: Considering the importance of SMEs in economic growth and development of Bangladesh, substan tial attention has been devoted to the materialization of SMEs’ easy and cost effective access to finance. Still it is not adequate to support the full potential of SMEs in Bangladesh. Apart from this, it is understood that to reap maximum benefits from SME financing, it should be accompanied by parallel efforts to improve the investment climate and to develop other related SME support services. This paper attempts to analyze the current financing framework of SMEs in Bangladesh for developing SMEs with a view to providing an understanding on the issue in the context of the country. The study is supported with data on current SME financing status of Bangladesh and constraints therein. The findings of this paper are certain issues and options explaining mechanisms and supports related to the SME financing and development with an emphasis on replicating the best practices of the SME-enriched counries which could be a better mode of learning for Bangla desh. Subsequently, practical suggestions and recommendations are presented which can promote greater access to finance and efficient use of funds and thereby ensure the optimum finance for the sustainability of SMEs in Bangladesh.

Citation: Almgir, M. (2015). A review of the SME financing framework of Bangladesh: Issues and challenges. Thoughts on Banking and Finance, 4(1), 93–112.

Abstract: Human Resource (HR) Audit is a mean by which an organization can measure where it currently stands and determine what it has to accomplish to improve its human resources function. The basic goal of an HR audit is to find out the HR interventions that will enhance the firm’s competitive advantage. It also ensures the compliance of the HR department with the goals, plan and policies of the organization. HR audit helps to determine not only the efficiency of the HR policies and practices but also to reduce their cost to the organization. The study aims to identify the current status and the readiness of banks regarding introduction of HR audit in the banking sector of Bangladesh. The study concludes that HR audit can be introduced in the banking sector of Bangladesh for effective formulation of banks’ HR strategies and to achieve superior use of HR.

Citation: Haque, M. M. (2015). Human resource audit in banks: Concept, status and readiness—Bangladesh perspective. Thoughts on Banking and Finance, 4(1), 113–128.