Proposal for Establishing

a New Commercial Bank.

Course Name: Central Banking Regulations & Supervision

Course Code: EB 609

Proposal for Establishing a New Commercial Bank

Group Members

ID NO

Anwar Jahid

51223027

Md. Asad-uz-zaman

51223048

Md. Abdulla Al Mamun

51324010

Sazal kanti Ray

51324019

Mohammad Mahbub Hasan

51428027

Sayed Shahriar Hasnain

51324047

Amit Chaterjee

51324059

Md. Rabiul Baten

51324046

Anwar Jahid_51223027

Rationale Behind the Study

Understanding the Macroeconomic situation of Bangladesh

Understanding the structure of financial system of our country

Find out the need for new Banks in our financial system

Develop a sound business plan for a proposed new bank

Gain knowledge on financial planning, projection, long run strategy of a

financial institution

Understanding management structure of a commercial bank

Understanding the capital requirement and fund raising of a new company

according to Company Act 1994

Full understanding of Bank Company act 1991

Fulfilling the requirement of being student of the Course Central Banking:

Regulation & Supervision

Status of the new commercial bank

Proposed Name: Investment Bank Ltd.
Head Office: 8/A,Gulshan 1, Dhaka, Bangladesh

Mission & Vision

Mission:

Fast customer service.

Maintain sustainable growth
Follow strong business ethics
Offer quality financial services with latest technology
Provide smooth return on shareholders equity
Attract and retain qualified human resource
Maintain Corporate Social Responsibility
Explore un-banked areas

Vision:

Our vision is to lead the new generation of local commercial banks by

excelling in customer delivery through insight, empowered employees,
smart use of technology and a full range of highest quality products and
services.

Policy of Proposed Bank

Having

a vision of preservation of natural resources

Not being involved in any activities hazardous to
environment
Creating awareness to do an environmental friendly business
More automation in banking operations like sharing of files,
recruitment, transfer, promotion or circulation of instructions
to reduce use of paper
Adopt and implement eco-friendly lending standards
Use of audio-video conference for regular meeting
More use of renewable energy in Branch & Head Office
Focusing on energy efficiency.

Md. Abdulla Al Mamun_51324010

Macroeconomic Situation of Bangladesh

The

macroeconomic performance of Bangladesh has

been excellent. There are of course many problems,
inflation being the most serious, and difficult policy
choices confront the authorities, but overall the
outcome is better than for most developing economies.
The macroeconomic indicators include following items:
GDP Growth, Industry situation, foreign trade, saving
& investment, fiscal and monetary policy etc.

GDP Growth Structure

Per Capita Income

In 2014 per capita income was USD 11,90 which was
USD 374 in 2000-2001.

Foreign Trade Situation

Export income has increased to USD 22.92 billion from USD

6.47 billion.
Import payment has increased to USD 33.66 billion in 20102011 from USD 9.33 billion in 2000-2001

Foreign Exchange Situation

Foreign exchange reserve increased to USD 22.50
billion from USD 1.30(2000-01) billion.

Md. Asad-uz-zaman_ 51223048

Industrial Situation
Bangladesh

economy is now moving on a path of

rapid and sustained growth. Industry has a decisive
influence on the pace of economic growth due to its
increasing of share to GDP generation. The share of
industrial sector to GDP increased steadily and
reached to 30 percent in 2009-10 .
The main industries are Garments, pharmaceutical
industry,
shipbuilding
industry,
information
technology, leather industry, steel industry, electronics
industry and light engineering industry.
In 2012,the industrial production growth rate is 9.5%.

Growth of Industrial Sector

Investment Situation

Investment (% of GDP) for Bangladesh in year 2013 is 26.896

%.(Domestic & Foreign)
This makes Bangladesh No. 52 in world rankings according to
Investment (% of GDP) in year 2013. The world's average
Investment (% of GDP) value is 22.20 %; Bangladesh is 4.70
more than the average.
In the previous year, 2012, Investment (% of GDP) for
Bangladesh was 25.87 % of GDP.
In the following or forecasted year, 2014, Investment (% of
GDP) for Bangladesh was or will be 27.88 %.

Total Investment trend in BD

Growth, Inflation & Monetary Aggregates

Central banks around the world try to keep M2 GR in line with nominal
GDP GR and an optimal inflation level. In Bangladesh, Broad Money grew
12.4X in 1995-2011. In the same time period, GDP on PPP basis grew ~3X
from US$90.7bn to US$267.4bn
In 2006-2012, bank deposits (excluding inter-bank) grew at an average
19.4% per year. During the same period, total advances (excluding interbank) grew by 20.0% on an average.
In 2011, the Bangladesh Bank (BB) turned a corner and put in place a
contractionary monetary policy. Since 2011, repo and reverse repo rates
have been hiked by 225bp. Meanwhile, M2 GR which had peaked at 21.7%
in Dec10 fell to 13.7% in May12, in line contractionary targets.
Other than mopping up the excess liquidity and correction of asset prices
consequently raised BBs monetary policy has also aligned closely with
stipulations of a US$1.0bn Extended Credit Facility (ECF) loan that the
IMF approved

Inflation Rate
Inflation

(Average Consumer Price Change %) for

Bangladesh in year 2013 is 6.542 %
In the previous year, 2012, Inflation for Bangladesh was
8.72 %.

Sazal kanti Ray_51324019

Financial System & Structure

A

financial system is a system that to channel funds from

lenders to borrowers, to create liquidity and money, to
provide a payments mechanism, to provide financial
services such as insurance & pensions and to offers
portfolio adjustment facilities.
It comprises a set of complex and closely interconnected
financial institutions, markets, instruments, services,
practices and transactions.
An economys financial system exists to organize the
settlement of payments, to raise and allocate finance and to
manage the risks associated with financing and exchange.

Financial System & Structure Contd.

The

financial system of Bangladesh is mainly bank

dependent. Though in the recent years, a number of nonbanking financial institutions (leasing and merchant
banks)have been established, yet the banking sector still
captures the lion share of the financial market.
The financial sector of Bangladesh has gone through a lot
of reforms in the past two decades and central bank reform
was a key element of the reform agenda. This study maps
the various reforms that have taken place so far.
Bangladesh Bank is the key player for the financial sector
of Bangladesh as well as for the economy. Bangladesh
Bank is the banker to the government as well as to other
banks.

The Main Constituents of Our Countries Financial System are:

01.Financial Institutions/Intermediaries.
02.Financial Instruments.
03.Financial Markets.

Financials Institutions are:

 The

Financial Instruments are :

The

Financial Markets are:

Sayed Shahriar Hasnain_51324047

Performance of the Banking Sector

The

banking sector in Bangladesh has come under

criticism in the recent past due to increased number of
financial scams and the rising size of loan default.
The performance of the banking sector has also
improved over the years according to various
indications such as capital to risk weighted asset, rate
of non-performing loan (NPL) to total loan,
expenditure income ratio, return on asset, return on
equity, and liquidity.
This has been possible due to various reform measures
and policy support of the consecutive governments

Soundness Indicators of Banking Industry

Soundness Indicators of Banking Industry Contd.

Amit Chaterjee_51324059

Bank wise Classified Loan

Interest Rate Structure and Spreads

Mohammad Mahbub Hasan_51428027

Need For New Commercial Bank

Need For New Commercial Bank Contd.

After analysis the current macroeconomic and financial structure of Bangladesh suggest that, new
commercial bank can be accommodated in current banking industry of Bangladesh which has
good growth prospect.

Over the years, performance of the banking sector has improved significantly as has Bangladesh
Banks supervision capacity and tools:

Net NPL ratios have declined by more than two-thirds since 2004

Return on Assets has more than doubled since 2004 (from 0.69 to 1.78 averages for all banks)

Return on Equity has sharply increased from 9.7% in 2003 to 21% in 2010

BB prepared risk management guidelines to strengthening debt management and increasing the
quality of assets

BB conducted stress testing to increase the shock absorbing capacity of the banking sector

Completed Basel II implementation to increase capital of banks and has started working on the
implementation process of Basel III

Need For New Commercial Bank Contd.

While the economy has grown and the banking system has become more
competitive, 45 percent other population still remains unbanked.

The population per branch (21065) and the ratio of loan accounts per 1000
adults (42) suggests that the outreach of the formal financial sector is lower
than in India and Pakistan.

Capital infusion by these new bank will augment the banking systems
capacity to meet the credit needs of the expanding corporate sector.

The entrance of the new bank will add to the aggregate capital base of these
existing syndications, allowing for larger loans to be granted for productive
investment and job-creation.

Need For New Commercial Bank Contd.

Entry of the new banks can therefore be expected to heighten the quality of

financial services by increasing competition in the banking sector. They will

also facilitate meeting the growing credit demand in the fast expanding
economy.

Moreover, for new banks, the 1:1 ratio of opening rural and urban branches
will increase rural presence of banks, widening financial inclusion.

Schemes related to new financial instruments

proposed

Commercial papers for the purpose of fund raising for large

corporate bodies.

Special financial instrument focusing financing need of State

owned enterprises

Short term instrument for small scale manufacturing concerns.

Special

instrument

Entrepreneurs.

that

may

raise

fund

for

Women

Md. Rabiul Baten_51324046

Fundamental strategy of the proposed new bank

to survive and grow

Promoting capital formation through composing deposits from small scale

depositors
Investment in new enterprises to promote entrepreneurial development in
the economy
Promotion of trade and industry especially small scale manufacturing
concern
Development of agricultural sector of the country
Balanced development of different regions focusing concentration based
risk factors
Influencing economic activity
Strategic course of actions for smooth implementation of Monetary Policy
Export promotion cells
Special concentration of financing CMSMEs; the main developing force for
root level promotion of economy

Branch Expansion Policy

Rural unbanked communities are our main focus

Branch will be established in a ratio of 1:1 as rural and urban

branches

We will try to cover unbanked community of our country in

priority basis

Crowd funding will be our theme to cover those peoples.

We may seek international cooperation for gathering expertise

in this new theme of Crowd Funding

Organization Structure, Management Skills &

MIS

Our Banking group will consist of three separate institutions focusing

financial need of segmented customer base
Large Corporate Bodies
CMSMEs
Retail Consumers
There may have separate CEOs for this three customer segment.
Need of information for any organization is our prime realization.
So we will have strong MIS for developing smooth reporting for regulatory
requirement as well as for assessing individuals within the organization.
Keeping track of ones past doing as well as future planning based on trends
will be assured by proper maintenance of well structured centralized MIS.
If this can be done management skill will be in its supreme position for the
organizational requirements.

Technology Transfer

Payment automation is a Buzzword in the modern financial systems.

We will focus on each and every technology to ensure automated and smooth

payment system for our customer base.

Make your payment faster and smoother will be our motto for technological
advancement.

All technological risk factor will also be considered while implementing our
strategy.

Security is the main force now a days for technologic advancement. We have

plan to deploy specialized security professionals in our technology division.

Existed features of technological development will be with us from very

beginning of our operation

Areas of Operations

Rural savings & credit operation.

Cottage, Micro, Small and Medium Entrepreneurs targeted business

strategies.

Treasury and trade related services for large corporate bodies.

Bank Payment Obligation a new payment method for international trade

settlement will be in our focus of operation for corporate bodies.

Specialized unit for women entrepreneurship development.

Cash management services for MNCs.

Paid up capital requirement

400.00 Crore as required under Bank Company Act 1991.

The share capital is formed with ordinary shares only.

Briefly, the capital will be used as follows: Financing for lending

activities. Development of the Companys initial branch. General
working capital.

The capital contribution made by the sponsors and subscribers of the

proposed bank shall be in a liquid, unencumbered form such as cash

or approved security.

Sponsors and share capital contribution

The bank issued public shares within three (3) years from the date of
commencement of the banking business (2010).

The minimum shareholding stake of each sponsor is Taka 1.00 crore

and the maximum is 10% of the proposed banks total share capital.

Sponsors holding 5% or more shares have signed a capital

maintenance agreement (CMA) stating that they would, jointly and
severally inject additional capital if the bank ever fell below any

minimum capital requirement.

Management of the proposed bank

The Members of Board of Directors are 07(Seven).

The Chief Executive Officer (CEO) of the proposed bank

has more than 15 (fifteen) years of experience in the
banking profession.

Audit Committee is headed by a chairman with two other

members.

Operation of the proposed bank

The ratio of urban and rural bank branch is 1:1 or as per instruction
issued by Bangladesh Bank from time to time.

New Bank has ensured finance 7% of its total lending into

agricultural sector as per instruction issued by Bangladesh Bank.

Proposed bank took part in Corporate Social Responsibility (CSR)

activity during the last Winter by distributing blanket and Rana plaza
building collapsed incident. The new bank will spent 10% or more of

its previous year's net income to CSR.

SWOT Analysis
Strength:
Proficient Board and Directors.
Qualified and Experienced Management
Capital adequacy
Competent Human Resource
Strong Business Network.
Use of Modern technologies
Positive Mindset

Weakness
Low Brand Awareness
Low Access to Rural Market
High Cost of Fund
Intense
Competition
and
no
availability of level playing field.
New in the Industry and limited
network of branches

Opportunities
Low bank to population ratio.
Growing local entrepreneurs.
Developing Rural Market.
Large market of Foreign Remittance.
Use of modern Technologies.
Consistent GDP Growth

Threats
Political unrest and instability
Liquidity Crisis
Global Economic Recession

Required documents/ information submitted to

Bangladesh Bank

A bank draft in the amount of Taka 10 (Ten) lakh in favour of Bangladesh

Bank, attached to the Letter of Application, that serves as a nonrefundable
application processing fee;
Name and address of the Applicant;
Name, address, telephone number of the contact person;
Feasibility Report on the proposed banking company , including an
analysis of Bangladesh's macroeconomic environment, financial system, as
well as a business plan for the proposed bank, financial projections and
sensitivity analyses;
Biographical Reports and proof of citizenship for each promoter/director,
CEO/MD and Heads of Operation, Credit, Finance, Risk Management
,Internal Control and IT of the proposed bank;

Required documents/ information submitted to

Bangladesh Bank (contd.)

Proposed compensation package and other terms of contract of the CEO.

Minutes of the shareholders (sponsors) meeting.

Written agreement by the shareholders to organize the banking company.

Draft Memorandum and Articles of Association;

For a corporate promoter; Board Resolution, Articles of Incorporation and

Bylaws, list of directors and officers, list of shareholdings, audited
financial statements for the latest two years, certified copies of the
Memorandum and Articles of Association.

Required documents/ information submitted to

Bangladesh Bank (contd.)

Sponsors have to submit a business plan where management

strategy of following sector should be elaborately defined;

Risk factors relating to assets of proposed bank.

Strategy for reaching unbanked area specially disadvantaged locality/
group.
A strategy to provide financial services to enhance Bangladesh's
competitiveness by reducing trade related banking fees/charges.
A strategy to provide banking services which could promote export
diversification as well as to provide financial services for nontraditional
export sectors and small & medium entrepreneurs.
New bank should bring new/modern technology (e.g. mobile banking,
internet banking) for providing better service to customers.

Required documents/ information/ analysis submitted

to Bangladesh Bank (contd.)

In addition, the sponsors shall:

having received a Letter of Intent from Bangladesh Bank, the company

shall apply to Bangladesh Bank for a formal license for commencement of
banking business under Section 31` of the Bank Company Act, 1991, and
for a license to open a place of business under Section 32 of said Act in the
manner prescribed there under;
register the proposed company with the Registrar of Joint Stock
Companies under the Companies Act, 1994, as a public limited Company,
and;
obtain a Certificate of Incorporation subject to the approval by Bangladesh
Bank of the draft Memorandum and Articles of Association;
after obtaining the license from Bangladesh Bank, the company shall apply
to Bangladesh Bank for its scheduling under Article 37 of the Bangladesh
Bank Order, 1972.

References
1.
2.
3.
4.
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6.
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8.
9.
10.
11.
12.
13.
14.

Guidelines to establish a Banking Company in Bangladesh- By Bangladesh Bank.

Banking Scenarios of Bangladesh by M. J. A. Siddikee, S. Parvin and M. S. Hossain,
Res. Pub. J. 8(1): 89-95.
Bangladesh-Selected Macroeconomic Indicators November 2012 by International
Monetary Fundation,2012.
Analytical Review of Bangladeshs Macroeconomic Performance in Fiscal Year 2013 By
Centre for Policy Dialogue (CPD).
Banking Law and Practice by Syed Ashraf Ali & R A Howlader.
Market Structure and Performance of Bangladesh Banking Industry: A Panel Data
Analysis by Md. Mostak Ahmed
The Bank Company Act,1991.
Bangladesh Budget FY 2013-14
Bangladesh Economic Review 2012.
Monetary Policy Statement FY12-13.
http://www.bangladesh-bank.org/
http://mof.gov.bd/en/(Ministry of Finance)
http://www.bbs.gov.bd/home.aspx(BBS)/
Dhaka Bank annual report 2012.

Thank You