OVERVIEW OF FINANCIAL STRUCTURE OF BANGLADESH.

Financial structure primarily depends on the level of economic and social

development of a particular country. It involves through a historical process
along with the level of development different kinds of financial institution grow
and develop to meet different kinds of needs of economic and social
development. Hence financial structure or system varies from one country to
another. As for Bangladesh, financial structure is at the formative stage. Its
classification is best with problems because rigid classification often becomes
unrealistic. However, for academic process, financial institution in Bangladesh
may broadly be divided into two groups.
A: Banking institutions and
B : Non-bank financial institutions
Table :-01
A chart showing the above classification is given below:
Classification of Banks

Classification of non-bank Financial

institutions

A : Functional

a. Insurance companies

A. Central Bank

b. Investment and Finance companies

B. Commercial Bank

c. Leasing companies

C. Industrial Bank

d. Merchant banking companies

D. Agricultural Bank

e. House holding Finance companies

E. Specialized Bank

f. Stock exchange.

F. Banks Run On Islamic Principles

G. Cooperative Banks
B: Ownership
A. Government Or Nationalized
Banks
B. Private Banks
C. Joint Venture Banks
C: Origin
a. Local Banks
b. Foreign Banks
HISTORICAL

BACKGROUND

OF

BANGLADESH

BANKING

SYSTEM.
Banking history of Bangladesh starting from British period. It is pre-middle age
banking through banking in Bangal by the Subarnabaniks in the middle age;
banking underwent many changes in this region interms of both ownership and
function.
After a decline in banking by the Bengalese in later middle age, they rose again
during British period. This is discussed in brief below.
Bangladeshi banking during British period:
In Presidency Bank of Bengal Sukhomoy Roy-a wealthy merchant was one of
the director. Gopimohan Tagor was one of the director of the `Commercial

Bank (1819). Raghram Goswami was one of the partners of Calcutta Bank
(1824).
In 1829 prince Dwarakanath Tagore-grandfather of Rabindranath Tagoreestablished the Union Bank in Calcutta along with British Partners. This was
the first bank where the Bengalese and British had equal dominance.
In the wake of Swadeshi movement during early twentieth century, Bangalees
founded a good number of banks. These are: Comilla Banking Corporation
(1922) Pioneer Bank New Standard Bank, Hoogly Bank (1932). Nath
Bank. It is said that the district of Comilla Banking institutions in prepartitioned Bengal. Commila Banking Corporation; was established by Naren
Dutta-a Zamindars Industries Dutta and Shantibhusan Duta formed Comilla
Union Bank. Akhil Dutta Founded pioneer Bank during the same time.
A.T.M. Shaidul Islam of Faridpur and former mayor of Calcutta Zakaria funded
Indian Crescent Bank.
Bangladeshi banking during Pakistani period:
During Pakistani period (1947-1971), only two banks were established by the
Bengalese in the then East Pakistan (now Bangladesh), Fully Bengalee owned
bank in the then East Pakistan was Eastern Banking Corporation Bank Ltd.
(1965) and partly Bengalee owned was Eastern Mercantile Bank Ltd. (1959).
The prominent sponsors of Eastern Banking Corporation were industrialist
Jahural Islam, former chief engineer Abdul Jabbar and captain jagadish
Debanath. Among the prominent sponsors of Eastern Mercantile Bank were
O.R. Nizam, M.R. Siddiquy, Khan Bahadur Muzibur, industrialist Habibur
Rahman and A.H. Khan.
Bangladesh period
When Bangladesh was fully liberate on December 16, 1971 the banking sector
was a very small one. It consists of only about 1,100 branches with a total
deposit of about Tk. 300 cores only. The Government of Peoples Republic of
Bangladesh took over the assets and liabilities of all the branches of Pakistan
owned banks operating in Bangladesh and two banks owned by the Bengalese.
On nationalization, the position was as follows:

LIST OF OWNED BANKS BY GOVERNMENT AFTER 1971

Before nationalization in 1972
National Bank Pakistan

Nationalized Banks
Sonali Bank

Bank of Bhawalpur Ltd.

Premier Bank Ltd.
Habib Bank Ltd.

Agrani Bank

Commercial Bank Ltd.

United Bank Ltd.

Janata Bank

Union Bank Ltd.

Muslim Bank Ltd.

Rupali Bank

Standard Bank Ltd.

Australia Bank Ltd.
Eastern mercantile Bank Ltd.
Eastern Banking Corporation

Pubali Bank
Uttara Bank

It will appear from the above information that banking in independent

Bangladesh started with only 06 nationalized commercial banks. In the
subsequent years following independence, however, number of banks has
substantially increased. As of today (2000-2001) number of commercial banks
stands at 4 including 4 Islamic banks and 13 foreign banks in 2000-2001, in
addition to these 46 commercial banks,

there are 09 specialized banks

including 03 agricultural banks, and I cooperative bank. In total more than

6,150 branches were in operation having more than Tk. 81,000 cores of
deposits during 2000-2001.
BANK AND BANKING SYSTEM OF BANGLADESH
Bangladesh inherited from the British via banking during Pakistan period the
to-days banking structure. It presently consists of several categories or classes
of banks excluding bon-bank financial institutions like investment and finance
companies, merchant banking companies, housing development finance
companies, leasing, companies, and stock exchanges etc. categorization or
classification of banks is a very difficult task since no single basis is good
enough to classify them appropriately. Despite that and attempt may be made to
classify them 0 the basis of:

A: Functions and
B: Ownership and
C: Origin
BANKING SECTOR AND ITS CONTRIBUTION TO THE NATIONAL
ECONOMY:
The economic structure of Bangladesh is agriculture based. Most of the
industries of our country are depend on agriculture. For savings and formation
of capital is normally difficult on view of Bangladesh. Moreover, now days
there are various financial institution (government, private and foreign) have
been set-up in the country. Various, Side by side, government has also set-up
various specialized banks and financial institutions. These banks and financial
institutions contribute in different way on your economic development.
Especially, bank business plays an important role on contribution criteria are
listed below:
a.

Creation of medium of exchange

b.

Collection of savings and formation of capital

c.

Supply of capital

d.

Development of home trade.

e.

Help of foreign trade

f.

Industrial development, agricultural development of small and

cottage industries.

g.

Increase government revenue.

h.

Credit to government, public and private firm etc.

PROBLEMS

AND

PROSPECT

OF

BANKING

SECTOR

IN

BANGLADESH.
Introduction
Banks in Bangladesh, in the present from more than half a century old. During
this period, they have undergone many changes both qualitatively and
qualitatively. Numbers of banks and their branches have increase significantly.
Services provided by them have also multiplied. It is by now a mix of both
Government banks and banks in the private sector. Despite these changes can it

be said that they have played an expected role in economic development? The
answer will tend to be negative. The question is why the banks could not
initiate the process of problems of banking sector in Bangladesh. These are:

Problems of banking sector in Bangladesh.

1.

the operations of the banks were and are still limited to city and

commercials areas only. Though, they have to rural areas, yet they are Engaged
in transferring funds from rural or less developed areas urban areas instead of
investing in the areas of their location.
2. Commercial banks mostly financed the trade and commerce & did not pay
adequate attention to small, medium and largely to GDP.
3.

Lending operation of banks and are still based on security including

collateral. This security oriented lending deprived the creditworthy borrowers

who could not offer collateral but had potentialities.
4. When Banks were nationalized after liberation in 1972, they went to rural
areas and expended their business both vertically and horizontally. But in doing
so they lost control over their operations resulting in increasing number of
loosing branches and loan default. The result has been disastrous for the
banking sector in the now to sense that they are not in a position now to
contribute significantly economic growth by mobilizing more resources for
meeting growing in housekeeping.
5. Economic structure of Bangladesh is agriculture based. For this reasons,
industrialization is not spread over all the country. As result banking operation
in not extend, if banks have a desire to expand their business.
6. Bureaucratic process of country is also barrier for expanding banking
business.
7. Government policies & practice, and legal issues are not favorable for
banking business.

8. Infrastructure facilities and security systems of our country is also another

problem of expanding banking business.
Prospect of banking sector of Bangladesh:
1.

Although, Bangladesh is agricultural country, but day by day its economic

activities would be increased.

2.

Garments Industries is an important economic sector of our country. So It

is another sector, where banks can invest their money.

Banks can established new industry on their own capital, because

Bangladesh has low price raw materials and low cost manpower.

4.

Banks can provide credit in small sector, i.e. micro credit scheme (cottage
industry, handicraft, fishing etc.) and make new entrepreneur. For example
Grameen Banks banking system.

5.

Mobilization of funds and investment in the desired sectors/ productive

sectors. As a result people would be aware of banking sectors and transact
with banks.