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Research Almanac 2018 held in BIBM

Press release
Research Almanac 2018 held in Bangladesh Institute of Bank Management (BIBM) on 25 February 2018 in its auditorium. BIBM Director General Toufic Ahmad Choudhury Chaired the Program. Finance Secretary  in Charge Mohammad Muslim Chowdhury who was present at the Research Almanac-2018  as chief guest. Bangladesh Bank Deputy Governor S. M. Moniruzzaman , who was present at the seminar as special guest. Dr.Prashanta kumar Banerjee, Professor & Director (RD&C) , BIBM delivered inaugural speech. 19 research papers have been presented by the researchers in the Research Almanac 2018 of which 8 papers are from research projects, 3 papers from roundtable discussions and 8 papers from research workshop of BIBM. These research projects, roundtable discussions and research workshops were presented either in research seminar, discussion and workshop format in BIBM during 2017.
Research projects:
The technical session on the presentation of the findings of 8 keynote papers of research projects has been decorated by two discussants – Mr. Khondkar Ibrahin Khaled, Former Deputy Governor, BB and Mr. S. A. Chowdhury, Former, Managing Director, Sonali Bank Limited.
A research team comprising of Dr. Prashanta Kumar Banerjee, Professor and Director (RDC), BIBM, Mohammed Sohail Mustafa CFA, Associate Professor, BIBM, Dr. Md. Mahabbat Hossain, Assistant Professor, BIBM conducted a study on the sustainability reporting practices in banks of Bangladesh. The team found total 73 reports by 70 Organizations in SAARC in 2016 only; total 16 Reports by 15 FSI Organizations in SAARC in 2016 only; BD 4, India 7 & Sri-Lanka 4 only (None of others SAARC Countries in 2016); total 4 Reports by  4 FSI Organizations in Bangladesh in 2016. Out of total 30 listed banks in Bangladesh, 15 listed banks have made separate sustainability disclosure in their corporate annual reports either following or without following Global Reporting Initiative (GRI) framework. Remaining 15 banks did not make separate sustainability disclosure in any of the year during 2011-2015. The team comments that the progress of sustainability reporting is comparatively slow in Bangladesh.
 A research project on ‘Funds Transfer Pricing of Commercial Banks: Status and Measures for Implementing in Banks of Bangladesh’ has been conducted by Md. Alamgir, Associate Professor, BIBM, Md. Abdul Halim, Lecturer, BIBM.The team finds that funds Transfer Pricing today represents one of the greatest changes that have occurred in the field of asset and liability management (ALM). Interest rate risk management will depend on the adopted ALM strategy. They added that all banks in Bangladesh should implement matched maturity well-responsive FTP Framework by eliminating over-reliance on offline systems requiring manual intervention and by revising the simplistic assumptions in the implementation of the Fund Transfer Pricing (FTP) framework. They explained there is no such mechanism to allocate capital to branches as per their RWAs is available in the banking industry of Bangladesh. Most of the banks in Bangladesh have the responsibility of setting the FTP-rate lies with ALCO. Still there some banks which do not have such specific committee to determine the FTP-rate. It is safe to say that no major banks can claim to be well-managed without having some kind of multiple rate transfer pricing system in place.
‘Addressing Disaster Risk by Banks: Bangladesh Perspective’ has been conducted by Dr. Shah Md. Ahsan Habib, Professor and Director Training, BIBM, Dr. Mohammad Tazul Islam, Associate Professor, BIBM Tahmina Rahman and Antara Zareen, Assistant Professor, BIBM, and Tofayel Ahmed, Lecturer, BIBM. The team found that Banking sector generally does not capture data on disaster incidences and losses and thus it is clearly impossible to quantify the volumes and extents of financial loss to the banks due to disasters. As the survey data reveal, in the absence of data capturing arrangement, banks are not in a position to identify disaster incidences as the reasons of non-performing loans or quality of collateral. Again, BB’s relevant initiatives brought very negligible change on the ground in connection with the risk management processes in banking operation. The survey data indicate the use of climate risk funds to support the disaster affected people mainly by distributing reliefs. The amount, mainly created out of CSR fund, remained insignificant and given targets were not achieved, as the published data indicate.  Apparently, the fund cannot be distinguished from that of CSR fund. Bangladesh Bank may think of issuing a guideline for banks to formulate customized Banking Continuity Planning based on their policy, operations, client base and portfolios.
‘Impact of Adopting Basel Accords in the Banking Sector of Bangladesh’ has been presented by Md. Nehal Ahmed, Professor, BIBM, Atul Chandra Pandit, Associate Professor, BIBM, Md. Zakir Hossain, and Rahat Banu, Lecturer, BIBM and Mohammad Shahriar Siddiqui, Joint Director, Bangladesh Bank. They found that in one hand, banks will be forced to invest a large sum of money, which is currently available for lending in the money market and capital market instruments. On the other hand, there is a scarcity of quality debt securities and organized secondary market for those securities. Maintaining the Net Stable Funding Ratio (NSFR) is also likely to bring new challenges as most banks are taking short-term deposit and may not be able to assess the long-term funding requirement. A critical element of the Basel-III framework is a countercyclical capital buffer which requires banks to build up a higher level of capital in good times that could be run down in times of economic slowdown, consistent with safety and soundness considerations. Efforts to minimize capital requirements will not be successful unless credit risk weighted assets are reduced. Basel-III is a highly technical and data-sensitive regulation. Implementation of Basel-III is a costly exercise for the banks, particularly for smaller ones, due to higher costs of capacity building, cost of higher capital requirement and costs of higher liquidity requirement. Strong capital requirements on banks may drive credit intermediation into the shadow banking system, which would diminish macroeconomic impact but would raise financial stability. Basel-III liquidity risk requirements may affect Islamic banks in Bangladesh due to the lack of developed Islamic money markets and the lack of liquid Islamic investment instruments with short-term maturities. Lack of Board level awareness about the magnitude of the impact of implementing Basel-III is a challenge for banks.
‘Impact of Social Safety Net Programs on the Performance of SOCBs’ has been presented by Md. Mohiuddin Siddique, Professor and Director (DSBM), BIBM, Tanweer Mehdee, and Dr. Md. Mahabbat Hossain, Assistant Professor, BIBM; Rexona Yesmin and Md. Abdul Halim, Lecturer, BIBM. About 2 Crore beneficiaries are being served by banks. About 30 services are rendered on behalf of Govt. to the beneficiaries without any fee/commission. About 15 more other services are provided on behalf of Govt. to the beneficiaries with nominal cost, not at market price. Out of total no-frill A/c, about 60% is maintained by 4 SOCBs. In case of School Banking A/c, participation of PCBs (60%) is remarkable. In case of opining readymade garment workers A/c, participation of PCBs (86%) is also remarkable. Where there is an issue of reimbursement, Govt. does not pay on time and does not offer any delay compensation.  
‘The Impact of SME Financing on Bank’s Profitability: An Enquiry across Banks in Bangladesh’ has been conducted by Mohammed Sohail Mustafa, CFA, Assoicate Professor, BIBM, Md. Masudul Haque and Md.Ruhul Amin, Assistant Professor, BIBM. The study finds that there is an insignificant relationship between the profit generated from SME financing and total profit of the banks.  The study found that very few banks, very branches, very few SME products and very few employees are involved in SME financing.  Although Bangladesh experiencing an overall inflation rate within the range of 6%-7%; but in SME sectors the inflationary situation is almost in double digits for several years. The negative effect of banks' capital on the ROE is represented. The decrease of capital ratio in our banks leads to increase profitability. The coefficient for Loans to SMEs is negative and significant in the banking profitability in Bangladesh. The study recommends that to ensure economic growth, the government should strengthen the financial sector by pursuing anti-inflationary or economic stabilization policies since an unstable macro-economy distorts business policies and decisions and further dips bank profits.
‘Financial and Non-Financial Issues in Implementing PPP in Bangladesh: An Examination of PPP Projects in Pipeline’ has been conducted by Dr. Prashanta Kumar Banerjee, Professor and Director (RDC), BIBM, A.K.M. AbdullahMd. Ruhul Amin, and Dr. Md. Mosharref Hossain, Assistant Professor, BIBM. The study recorded top ten constraining factors which were immature bond market or lack of diversified financial instruments, lack of long term financing, delays in bidding and implementation of project due to political intervention, high cost of project financing, difficulties in raising adequate fund, lack of policy continuity across different governments, high project costs, delays in negotiation, misallocation and inappropriate risk sharing between public and private stakeholders and lack of government officials’ knowledge in PPP. The overall results suggested that high cost of project financing, credibility of the private sponsor(s), problems of delays in receiving payments, high charge to direct users, lack of fund from donor agencies/foreign fund, lack of transparency in contract award and limited exit options for private sponsor(s) were the most important constraining factors in Bangladesh among many studied constraining factors. The top five challenges for Bangladesh were cost and time overruns, project appraisal/feasibility, project monitoring by Government, transparency and the capacity building. On the other hand, the results of factor analysis revealed that transparency, risk mitigation, project monitoring by government, tariff/toll not being adequate and cost and time overruns were the most significant challenges for PPP project implementation in Bangladesh.
‘An Evaluation of Core Banking Software in Banks of Bangladesh’ has been conducted by Md. Mahbubur Rahman Alam and Md. Shihab Uddin Khan, Associate Professor, BIBM, Kaniz Rabbi, Assistant Professor, BIBM.  It finds that a total of 27 banks in our country are using foreign CBS. Popularity of software developed by our local expert is fading gradually. Again, it finds that the most important factor in their core banking system decisions include technology, regulation, security, compliance and control. No single software vendor dominates the Bangladeshi market. It is remarkable that foreign software vendors have a relatively strong position on this market; Temenos T24, Flexcube, Finacle and MiSYS  are good examples. Among local CBSs Bank Ultimus holds the topmost position in the market. About 10% banks indicated that they planned upgrades or replacements of their banking systems to start within a year. According to the survey a minority (6%) of banks are investing in data analytics to improve risk and fraud management and enhance the customer experience and new product design.

Roundtable discussion
The roundtable discussion comprises of three papers. Mr. Helal Ahmed Chowdhury, Former MD, Publi Bank Limited and Supernumerary Professor, BIBM, and Mr. Md. Arfan Ali, President and MD, Bank Asia Limited acted as designated discussants.
‘Agent Banking: Effectiveness in Financial Inclusion’ has been prepared by Dr. Prashanta Kumar Banerjee, Professor and Director (RDC), BIBM, Md. Mahbubur Rahman Alam, Associate Professor, BIBM, Tanweer Mehdee, Assistant Professor, BIBM, Md. Zakir Hossain, Lecturer, BIBM.
The study explains that agent banking is relatively a new concept in Bangladesh which started in 2014. Considering the penetration of agent banking operation in Bangladesh it is found that DBBL covered all the districts in Bangladesh followed by Bank Asia Ltd. which covered 53 districts. Al-Arafah spreads their agent banking operation in 22 districts whereas MTBL covered only 13 districts in Bangladesh. Transaction volume increased by 1,798.2 per cent which was remarkable in 2015 on a year to year basis but it was 384.3 per cent in 2016.
‘Home Loan of Banks: Trend and Impact’ has been conducted by Md. Mohiuddin Siddique, Professor and Director (DSBM), BIBM, Md. Alamgir and Dr. Mohammad Tazul Islam, Associate Professor, BIBM. The study explains despite this high growth rate of home loan, mortgage debt to GDP ratio, a widely used indicator to measure the depth of housing finance market still remains low at 3.23% in Bangladesh in 2015 in comparison with some other Asian countries such as Nepal (3.5%), India (8%), China (17%), Thailand (19%), Malaysia (37%), Japan (37%), and Singapore (54%).  Among the  total  outstanding  home  loans,  Private  Commercial  Banks  (PCBs)  provided  55%  of  home  loans.  State-Owned Commercial  Banks(SOCBs),  Specialized  Housing  Finance  Institutions,  Foreign  Commercial  Banks, Non-bank financial institutions ( NBFIs)  and  Micro Finance Institutions provide home loans about 21%, 12%, 4%, 8%  and 0.01% respectably. Here the study finds, the ratio of home loan between urban and rural was 95:05 in 2006. However, the gap between urban and rural has been decreasing since 2006.  In 2016, around 17 percent home loan has been disbursed in rural areas while 83 percent home loan has been disbursed in urban areas. The overall NPL ratio 5.45 % was in 2006 whereas the same for home loan was only 1.57%. A wide swing is observed in both these ratios during the reported period. NPL to total loan reached the highest level in 2014 (8.36%) and NPL to home loan was highest in 2014(4.18%).
‘Loan Takeover in Bangladesh: Is it a Healthy Practice?’ has been addressed by Mohammed Sohail Mustafa, CFA, Associate Professor, BIBM, Dr. Md. Mahabbat Hossain, Assistant Professor, BIBM, Tofayel Ahmed and Rahat Banu, Lecturer, BIBM. The study explains in most of the cases of loan takeover, it seems that bad intentions of the parties involved get priority. Subsequently, these taken-over loans do not perform desirably. Sometimes, inefficiency of the banks or expectation of unethical benefits is responsible for occurring such transactions. At present there are no comprehensive regulatory-guidelines in this regard nevertheless, BB is thinking about the matter.

Research Workshops: Technical Session-3
Technical session -3 contains 8 papers. Mr. Helal Ahmed Chowdhury, Former MD, Publi Bank Limited and Supernumerary Professor, BIBM, and Mr. Ahmed Kamal Khan Chowdhury, Former MD, Prime Bank Limited acted as designated discussant of the session.
‘Alternative Delivery Channel: Opportunities and Challenges of the New Banking Environment’ has been conducted by Md. Mahbubur Rahman Alam, Associate Professor, BIBM, Tanweer Mehdee, Assistant Professor, BIBM, Rexona Yesmin and Md. Zakir Hossain, Lecturer, BIBM. They found crime targeting mobile finance users is a continuing challenge. These crimes that include hundi, fraud, extortion, and bribery are  generally  not  new,  but  are,  by  and  large,  assisted by mobile finance products. Though, Bangladesh has a strong law to regulate mobile financial sector; according to Law Enforcement Agencies, implementation of law is yet to achieve up to a minimum standard in MFS sector. Around 44% ATMs are installed in Dhaka City. Very few ATMs are however being operated in rural areas (less than 4.84%). It is mentionable that 48% of the ATMs has been set up by DBBL alone. For internet banking around 82% of the the subscribers live in Dhaka. Most of the POSTs are installed in divisional cities and rural people have very few access in this channel. It is found that training on IT is very much neglected by the banks, though it is a vital issue. Near about 3.3 of total IT budget goes to training purpose and 62% CTOs are not satisfied regarding this issue.  . Among the electronic cards only 58% are chip based EMV secured card. But 42% are less secured magnetic strip card that is vulnerable for skimming-fraud. IT Heads of 91% banks agreed that banking sector should have a center for sharing electronic banking experiences, problems and solutions.
‘An Evaluation of the Performance of New Commercial Bank’ has been conducted by Mohammed Sohail Mustafa, CFA, Associate Professor, BIBM, Tanweer Mehedee, Md. Masudul Haque, Assistant Professor, BIBM and Md. Abdul Halim, Lecturer, BIBM. They found in terms of Volume and Size, last four years, all the nine banks had significant improvement in expanding new branches, acquiring new employees, growth in both aggregate deposits and Loans and Advances, i.e. in overall business, there is an indication of positive trend.  But at the same time some qualitative issues also affected the overall image of the bank.  In case of hiring and retaining manpower, these banks failed establish goodwill in the market.  In recruiting manpower, they affected the old banks by head-haunting their employees in their banks by offering higher position and financial and non-financial packages which ultimately create disequilibria in the entire banking sector. In hiring entry level position like PO or MTO, some of the new banks are emphasizing on referencing or political affiliation rather than the academic and professional qualifications of the candidates. There was no non-performing loan for any of these banks in the year 2013 and 2014. From 2015 to 2016, NPL of these banks are rising and compare to the industry average, only Farmers Bank had so far the highest amount of NPL which is also increasing the leverage risk of the bank. But suddenly the ratio started declining from 2015 and onward.
‘Augmenting Remittances through Banking Channel: Bangladesh Context’ has been presented by Dr. Shah Md. Ahsan Habib, Professor and Director (Training), BIBM, Md. Nehal Ahmed, Professor, BIBM, Dr. Mohammad Tazul Islam, Associate Professor, BIBM.
The study explained the World Bank data showed that remittances to developing countries amount to over 75 percent of the annual global remittance total. Following a continuous increase from 2000 (excepting 2009-10), world migrants’ remittance inflows passing through a stationary period during 2015-2017; Bangladesh is amongst the top ten recipient countries.  In regard to the status of remittances in South Asian countries, India receives lion share of remittance among the south Asian counties by around 59 percent followed by Pakistan by around 18 percent. Bangladesh is the third most remittance receiving record by 11.52 percent among the South Asian counties in 2017. However, the market share of Bangladesh even amongst South Asian countries decelerated sharply during last three years. Nnationalization trends and de-risking initiatives are causing notable changes in terms of costs and compliance requirements. The calculated stock data on migrants and their related remittance status indicate notable fall of remittances in the form of greater gaps in the context of the major host countries (Saudi Arabia, UAE, Kuwait, Oman, Malaysia) in recent time.  There are evidences of growing popularity of mobile based money transfer through illegal channels. Using mobile apps made the informal remittance transactions vibrant and extremely easy, as agreed by some Hundi service providers, recipients and even bankers. Some remitters claimed, growing tendency of building second home by some Bangladeshis in certain countries pulled the demand for foreign currencies and thus incentivizing informal agents.
‘Corporate Ethics and Financial Crime in Banks: Bangladesh Perspective’ has been prepared by Dr. Shah Md. Ahsan Habib, Professor and Director (Training), BIBM, Md. Nehal Ahmed, Professor, BIBM, Dr. Mohammad Tazul Islam and Atul Chandra Pandit, Associate Professor, BIBM, and Kamal Hossain. The study ranked the reasons for the bankers involvement in financial crime. It explained lack of awareness about crime is the first followed by lack of corporate ethics, lack of motivation, poor compensation, lack of exemplary punishment, and lack of integrity of employees and poor corporate governance. The study suggests some issues these are – corporate ethics should be promoted by creating awareness amongst employees; employees should be positively motivated and encouraged to refrain them from crime; employee recruitment in banks should be merit based and be transparent and fair; training on ethical values, regulatory compliance should be enhanced; immediate exemplary punishment should be given for committing financial crime; creating ownership interest among employees; sound banking environment should be created and unhealthy competition should be reduced; creating awareness among all stakeholders about financial crime and the consequences; undue administrative, political, other interference should be treated as crime; and mandatory leave should be ensured and strictly implemented.
‘Disaster Recovery Management in Online Banks: Challenges and Remedial Measures’ has been presented by Md. Shihab Uddin Khan, Md. Mahbubur Rahman Alam, Associate Professor, BIBM, Kaniz Rabbi, Assistant Professor, BIBM, and Md. Saiful Islam. The study finds 88% of the banks have BCP/DRP for IT, but a large number of banks among them did not follow standard guidelines and methodology to develop the BCP/DRP and documents are not formally approved by the senior management or board.  It is also revealed that most of the banks have perception gap to prepare BCP document. As per the survey, only 18% banks do this best practice in preparing BCP. . In 2016, 36% of the banks didn’t conduct DR drill. As per research findings, 76% of the banks conduct auditing of DRP related issues. Again, 89% of the banks said that they have data backup and recovery policy. 55% banks do not practice it properly in their policy document. Only 45% banks are maintaining log sheet. Only 25% banks engage senior level and experienced personnel for backup and recovery activities. Only 60% banks said that they maintain the documentation. Very few banks (20% of total banks) practice it in real sense. The research shows that 50% of the banks do have SLA monitoring process for critical system and the process is not controlled by any automated system. 58% DCs and 18% DRSs have been established in high rise buildings having risk of earthquake and fire. On the other hand, DRSs of maximum banks are also established in Dhaka within an average air distance of 12.5 kilometers from the DC, showing very high risk of natural disaster like earthquake. Among the CTOs of Bangladeshi banks, 62% strongly agree that the distance is not enough to avoid natural disaster like earthquake. It is also found that 76% DRSs are Hot, 17% Warm and 7% are Cold. Though 76% banks mentioned that their DRSs are Hot, but the duration of recovery time mentioned by the banks does not support the strength of a Hot DRS. Also the status of DRS testing is not satisfactory. About 17% banks test it once in a year and 50% of the total banks are afraid of testing the disaster recovery site by shutting down the data center any time. None of the local banks ran their entire business operations for couple of days from DR sites. To ensure the business continuity they need to run the entire business operations at least a month per year from DR sites.
Paper- 17
‘Exploring Barriers of Sustainable Finance in Financial Sector and Policy Propositions to Remove the Barriers (Jointly with Sustainable Finance Department, Bangladesh Bank)’ has been presented by Dr. Shah Md. Ahsan Habib, Professor and Director (Training), BIBM, Tahmina Rahman, Antara Zareen, Assistant Professor, BIBM, Tofayel Ahmed, Lecturer, BIBM.
‘Exploring Merger and Acquisition in the context of the Banking Sector of Bangladesh’ has been prepared by Md. Mohiuddin Siddique, Professor and Director (DSBM), Atul Chandra Pandit, Associate Professor, Tanweer Mehdee, Assistant Professor, and Mohammad Shahriar Siddiqui, BB. The study explains that efficiency of a bank can be measured through the observation of the productivity ratios. It has been found that the efficiency of the merged bank has become lower than that of the pre-merger institutions. Profitability ratios, such as ROE and ROA, both declined after the merger. Prior to merger ROE was 5.91 percent and after merger it is 2.88 percent. Improving asset quality was one of the prime motives behind the merger BSB and BSRS. A gloomy picture has been observed about the asset quality. At pre-merger stage the combined NPL ratio was 28.57 percent. In six years after merger, NPL ratio stood at 46.18 percent. In addition, RWA to TA ratio also indicates poor quality of asset. The study added that majority of the respondents (72%) opined in favor of reducing the number of banks, about 88 percent of the respondents think that the merger or acquisition or takeover may be executed to reduce the number of weak banks, most of the respondents have given opinion against branch merger, about 83 percent of the respondents suggested that merger between one strong bank and one weak bank would be appropriate in Bangladesh, about 77 percent of the respondents believe that merger between two poorly governed banks will not be successful in Bangladesh, there is a mixed opinion regarding the BB initiative to keep weak banks alive, about 72 percent of the respondents believe that weak banks should not be allowed to fail in Bangladesh. Bank failure would be costly for the economy of Bangladesh, about 83 percent of the respondents believe that BB should not have the sole authority but main authority in case of merger in banking sector and about 61 percent of the respondents believe that existing regulatory and guiding framework is not sufficient in regard to merger or acquisition.
‘Prospects and Challenges of Short Term Foreign Currency Financing of Banks in Bangladesh’ has been prepared by a research team comprising of Dr. Shah Md. Ahsan Habib, Professor and Director (Training), BIBM, Antara Zareen, Assistant Professor, BIBM, Tofayel Ahmed, Lecturer, BIBM and A.T. M. Nesarul Haque, VP, MTB. The study finds that sudden growth of private sector credit is clearly visible following the year 2013; and there are adequate evidences that point towards sudden growth of banking sector’s foreign currency liabilities following the initiation of buyers’ credit or UPAS activities in the country. There are instances when the facilities are misused by the traders like commercial importers availed the facilities. In several instances, traders are taking advantages of the absence of precise definitions of raw materials and capital machineries. Traders of the country are obtaining benefits of the export bill discounting by the OBUs. The sources of fund of OBUs for such activities should come under monitoring for the greater interest of keeping eye on banking sectors’ foreign currency liabilities. There are evidences that OBUs of the country are using foreign sources extensively to finance UPAS, export bill discounting, and offer credit to the industrial units in EPZs.  The existing macro picture of short term foreign currency borrowing by the private sector is not alarming by any indicator.


Written by Manager

Monday 26th February 2018