FI
Content
IDENTIFICATION AND C ATEGORIZATION OF FIN ANCIAL INSTITUTIONS IN BANGLADESH Financial Institution Financial institutions are private (shareholder-owned) or public (government-owned) organizations that, broadly speaking, act as a channel between savers and borrowers of funds. There are three main types of financial institutions which are: i. ii. iii. Depository institutions: Contractual saving institutions: Investment intermediary institutions:
It is still difficult to define and categorize all institution in Bangladesh under these three categories due to overlapping and increasingly blurry dividing line. Table: Number of financial institutions under different categories in Bangladesh Category Depository Institution Banks Micro finance Institutions Credit Unions Total Contractual Saving Total Investment Non Banking Financial Institution Life Insurance Companies General Insurance Companies Number 51 600 375 1026 18 44 62 31 49 15 38 238
Intermediary Merchant Bank Asset Management Company Mutual Funds Securities
1|Page
DEFINITION OF SCHEDU LED AND NON-SCHEDULED BANKS Banks fall under the depository category of financial institution. Banks can be classified further into different categories. Banks in Bangladesh are chiefly classified into two types as given below: Scheduled Banks The banks which obtain license to operate under Bank Company Act, 1991 (Amended in 2003) are referred as Scheduled Banks. Scheduled banks operate under full control and supervision of Bangladesh Bank which is empowered to do so through Bangladesh Bank Order, 1972 and Bank Company Act, 1991. There are currently 47 scheduled Banks in Bangladesh. Scheduled Banks are further classified into following types:
State Owned Commercial Banks (SOCBs): Banks which are fully or majorly owned by the Government of Bangladesh.
Specialized Banks (SDBs): Banks which were established for specific objectives like agricultural or industrial development and are also fully or majorly owned by the Government of Bangladesh.
Private Commercial Banks (PCBs): Banks which are majorly owned by the private entities.
Private Commercial Banks (PCBs) can be also classified based on banking approach or principle as given below:
Conventional PCBs: Banks which perform the banking functions in conventional fashion i.e interest based operations.
Islami Shariah based PCBs: Banks which execute banking activities according to Islami Shariah based principles i.e. Profit-Loss Sharing (PLS) mode.
2|Page
Foreign Commercial Banks (FCBs): Banks operating in Bangladesh as the branches of the banks which are incorporated in abroad.
Non Scheduled Banks The banks which are established for specific objective and operate under the acts enacted for attaining those objectives are termed as Non-Scheduled Banks. These banks cannot perform all functions of scheduled banks. At present, there are 4 non-scheduled banks in Bangladesh which are:
1. 2. 3. 4.
Ansar VDP Unnayan Bank, Karmashangosthan Bank, Probashi Kollyan Bank, Jubilee Bank Table: Types of Banks in Bangladesh
Type of Bank Scheduled Bank Non Scheduled Bank
Number
Example 47 Prime bank Limited, One bank Limited 4 Probashi Kollyan Bank, Jubilee Bank
State owned commercial Bank Specialized Bank
4 Sonali Bank, Agrani Bank 4 Bangladesh Krishi Bank, Bangladesh Shilpa Bank
Private Commercial Bank Conventional Commercial Bank Islamic Private Commercial Bank Foreign Commercial Bank Private
30 BRAC Bank LTD, AB Bank Ltd. 23 Dhaka bank Limited, Pubali Bank Limited
7 Al-Arafah Islami Bank Limited, Social Islami Bank Limited 9 HSBC, Standard Chartered Bank
3|Page
DIFFERENCE BETWEEN BANKS AND NON BANKING FINANCIAL INSTITUTIONS (NBFI) In Bangladesh, the financial sector is primarily dominated by Commercial Banks. However, Non Banking Financial Institution (NBFI) is an important part of financial system in Bangladesh. NBFIs operations are regulated under the Financial Institutions Act, 1993. The NBFIs consist of investment, finance, leasing companies etc. Currently, 31 FIs are operating in Bangladesh out of which 2 is fully government owned, 1 is the subsidiary of a SOCB, 13 were initiated by private domestic initiative and 15 were initiated by joint venture initiative. Major sources of funds of FIs are Term Deposit (at least six months tenure), credit Facility from Banks and other FIs, call money as well as bond and securitization. FIs can conduct their business operations with diversified financing modes like syndicated financing, bridge financing, lease financing, securitization instruments, private placement of equity etc Differences between Bank and NBFI Bank NBFI
Bank accepts customer cash deposits and NBFI usually does not accept customer cash then provides financial services such as bank deposits but provides all financial services accounts, loans, share trading account, except bank accounts mutual funds, etc Bank can issue cheques, pay-orders and NBFI cannot issue cheques, pay-orders or demand drafts demand drafts cannot be involved in foreign
Bank can be involved in foreign exchange NBFI financing Bank interacts directly with customers
exchange financing NBFI interacts with banks and governments
Banks engages in a number of activities NBFI is mainly concerned with the term loan relating to finance with a range of customers needs of large enterprises
Bank help in business transactions and NBFI helps in stabilization of the currency savings/investment activities
4|Page
PERCENTAGE SHARE IN TERMS OF FINANC IAL ASSET The NBFI sector in Bangladesh is a growing component of the entire financial sector. They create an opportunity to improve financial intermediation for the economy. Table: Financial Volume of Financial Institutions (In millions Tk) Depository 3,334,729 Contractual Saving 106,642
From the data, it can be seen that depositories have the highest volume of financial asset largely due to commercial banks possessing lion’s share of total financial assets.
REGULATORY BODIES
Type Scheduled Banks and Non-Banking Financial Bangladesh Bank Institutions Insurance Companies Insurance Development and Regulatory Regulator
Authority (IDRA) Microfinance Institutions Microcredit Regulatory Authority (MRA)
Stock Exchange, Stock Dealers & Brokers, Securities and Exchange Commission Mutual Funds, Merchant Banks
5|Page
REFERENCE: http://www.businessdictionary.com/definition/financial-institution.html#ixzz1nWCGIVTO http://boi.gov.bd/about-bangladesh/finance-and-banking http://www.scribd.com/doc/29065718/Financial-System-in-Bangladesh http://www.investopedia.com/terms/f/financialinstitution.asp#axzz1nTvtlQmX Banking and Non Banking Financial Institution’s Basic Differences » BankInfoBD Financial System www.bangladesh-bank.org http://www.bankinfobd.com/blog/banking-and-non-banking-financial-institutions-basic-differences http://www.banglapedia.org/httpdocs/HT/N_0201.HTM http://www.nationalsavings.gov.bd/ http://www.unescap.org/tid/artnet/pub/wp4107.pdf
6|Page
It is still difficult to define and categorize all institution in Bangladesh under these three categories due to overlapping and increasingly blurry dividing line. Table: Number of financial institutions under different categories in Bangladesh Category Depository Institution Banks Micro finance Institutions Credit Unions Total Contractual Saving Total Investment Non Banking Financial Institution Life Insurance Companies General Insurance Companies Number 51 600 375 1026 18 44 62 31 49 15 38 238
Intermediary Merchant Bank Asset Management Company Mutual Funds Securities
1|Page
DEFINITION OF SCHEDU LED AND NON-SCHEDULED BANKS Banks fall under the depository category of financial institution. Banks can be classified further into different categories. Banks in Bangladesh are chiefly classified into two types as given below: Scheduled Banks The banks which obtain license to operate under Bank Company Act, 1991 (Amended in 2003) are referred as Scheduled Banks. Scheduled banks operate under full control and supervision of Bangladesh Bank which is empowered to do so through Bangladesh Bank Order, 1972 and Bank Company Act, 1991. There are currently 47 scheduled Banks in Bangladesh. Scheduled Banks are further classified into following types:
State Owned Commercial Banks (SOCBs): Banks which are fully or majorly owned by the Government of Bangladesh.
Specialized Banks (SDBs): Banks which were established for specific objectives like agricultural or industrial development and are also fully or majorly owned by the Government of Bangladesh.
Private Commercial Banks (PCBs): Banks which are majorly owned by the private entities.
Private Commercial Banks (PCBs) can be also classified based on banking approach or principle as given below:
Conventional PCBs: Banks which perform the banking functions in conventional fashion i.e interest based operations.
Islami Shariah based PCBs: Banks which execute banking activities according to Islami Shariah based principles i.e. Profit-Loss Sharing (PLS) mode.
2|Page
Foreign Commercial Banks (FCBs): Banks operating in Bangladesh as the branches of the banks which are incorporated in abroad.
Non Scheduled Banks The banks which are established for specific objective and operate under the acts enacted for attaining those objectives are termed as Non-Scheduled Banks. These banks cannot perform all functions of scheduled banks. At present, there are 4 non-scheduled banks in Bangladesh which are:
1. 2. 3. 4.
Ansar VDP Unnayan Bank, Karmashangosthan Bank, Probashi Kollyan Bank, Jubilee Bank Table: Types of Banks in Bangladesh
Type of Bank Scheduled Bank Non Scheduled Bank
Number
Example 47 Prime bank Limited, One bank Limited 4 Probashi Kollyan Bank, Jubilee Bank
State owned commercial Bank Specialized Bank
4 Sonali Bank, Agrani Bank 4 Bangladesh Krishi Bank, Bangladesh Shilpa Bank
Private Commercial Bank Conventional Commercial Bank Islamic Private Commercial Bank Foreign Commercial Bank Private
30 BRAC Bank LTD, AB Bank Ltd. 23 Dhaka bank Limited, Pubali Bank Limited
7 Al-Arafah Islami Bank Limited, Social Islami Bank Limited 9 HSBC, Standard Chartered Bank
3|Page
DIFFERENCE BETWEEN BANKS AND NON BANKING FINANCIAL INSTITUTIONS (NBFI) In Bangladesh, the financial sector is primarily dominated by Commercial Banks. However, Non Banking Financial Institution (NBFI) is an important part of financial system in Bangladesh. NBFIs operations are regulated under the Financial Institutions Act, 1993. The NBFIs consist of investment, finance, leasing companies etc. Currently, 31 FIs are operating in Bangladesh out of which 2 is fully government owned, 1 is the subsidiary of a SOCB, 13 were initiated by private domestic initiative and 15 were initiated by joint venture initiative. Major sources of funds of FIs are Term Deposit (at least six months tenure), credit Facility from Banks and other FIs, call money as well as bond and securitization. FIs can conduct their business operations with diversified financing modes like syndicated financing, bridge financing, lease financing, securitization instruments, private placement of equity etc Differences between Bank and NBFI Bank NBFI
Bank accepts customer cash deposits and NBFI usually does not accept customer cash then provides financial services such as bank deposits but provides all financial services accounts, loans, share trading account, except bank accounts mutual funds, etc Bank can issue cheques, pay-orders and NBFI cannot issue cheques, pay-orders or demand drafts demand drafts cannot be involved in foreign
Bank can be involved in foreign exchange NBFI financing Bank interacts directly with customers
exchange financing NBFI interacts with banks and governments
Banks engages in a number of activities NBFI is mainly concerned with the term loan relating to finance with a range of customers needs of large enterprises
Bank help in business transactions and NBFI helps in stabilization of the currency savings/investment activities
4|Page
PERCENTAGE SHARE IN TERMS OF FINANC IAL ASSET The NBFI sector in Bangladesh is a growing component of the entire financial sector. They create an opportunity to improve financial intermediation for the economy. Table: Financial Volume of Financial Institutions (In millions Tk) Depository 3,334,729 Contractual Saving 106,642
From the data, it can be seen that depositories have the highest volume of financial asset largely due to commercial banks possessing lion’s share of total financial assets.
REGULATORY BODIES
Type Scheduled Banks and Non-Banking Financial Bangladesh Bank Institutions Insurance Companies Insurance Development and Regulatory Regulator
Authority (IDRA) Microfinance Institutions Microcredit Regulatory Authority (MRA)
Stock Exchange, Stock Dealers & Brokers, Securities and Exchange Commission Mutual Funds, Merchant Banks
5|Page
REFERENCE: http://www.businessdictionary.com/definition/financial-institution.html#ixzz1nWCGIVTO http://boi.gov.bd/about-bangladesh/finance-and-banking http://www.scribd.com/doc/29065718/Financial-System-in-Bangladesh http://www.investopedia.com/terms/f/financialinstitution.asp#axzz1nTvtlQmX Banking and Non Banking Financial Institution’s Basic Differences » BankInfoBD Financial System www.bangladesh-bank.org http://www.bankinfobd.com/blog/banking-and-non-banking-financial-institutions-basic-differences http://www.banglapedia.org/httpdocs/HT/N_0201.HTM http://www.nationalsavings.gov.bd/ http://www.unescap.org/tid/artnet/pub/wp4107.pdf
6|Page
