Md. Nazrul IslamJoint Director,

Banking Regulations and Policy DepartmentBangladesh Bank

November 25,2015

Banking Fair Bangladesh-2015

Background, Objectives

Importance of Supervision

Indicators of Supervision

Findings

Limitations and Path forward

2

Global Perspective:

Banking Supervision : key areas of attraction

To strengthen the global financial system-BIS

Weaknesses threaten financial stability both within that country and internationally.

Bangladesh Perspective:

Overall Supervision Concern

Fiscal cost for banks

3

To identify the key factors (external & internal) for effective banking supervision under the BCPs and other local scenarios.

To recommend the areas of improvement for the betterment of the systemic functionality.

4

Supervision and Banking

Sector’s Performance

Supervision and Effective Monetary

Policy

Supervision and Macro-economic

Stability

Supervision and Economic growth

5

NPL+

Wri

teoff

Total

Default G

ross N

PL t

o T

ota

l Loans

Gross

NPL

Capit

al To R

WA

CAR

& Recent

Banking

Scam

6

Year SCBs DFIs PCBs FCBs Total

2010 15.66 24.15 3.15 2.99 7.27

2011 11.27 24.55 2.95 2.96 6.12

2012 23.87 26.77 4.58 3.53 10.03

End of

june,2013 26.4 26.2 6.6 4.7 11.9

December

2013 19.8 26.8 4.5 5.5 8.9

March 2014 22.0 30.9 5.8 5.3 10.5

7Source: Published data

Types of Banks 2009 2010 2011 2012 2013(June)

SCBs 9.02 8.92 11.68 8.13 1.2

DFIs .36 -7.25 -4.49 -7.78 -9.0

PCBs 12.12 10.08 11.49 11.38 11.4

FCBs

28.13 15.63 20.97 20.56 20.3

Total 11.67 9.31 11.35 10.46 9.1

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Source: Bangladesh Bank

9

10

Banking Sector & Financial Sector

Stability

Modified from Lewin’s Force Field

Restraining forces

Driving forces

Status quo

Desired

state

Time

Force-field Model of Change

Banking Sector & Financial Sector Stability

Modified from Lewin’s Force Field11

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Force Field Analysis

Score Driving Forces Restraining Forces Score

3 Amended Legal Frameworks Supervision Friendly Legal

Framework 5

4 Organizational Motivation Socio-Political Environment 4

3 Skilled work force Supervisory Framework 5

3 International Best Practice Internal Governance Framework

and Market Discipline4

3 Standard Management

Informational System

Capital Adequacy and Managing

Material Risk4

4 Forward Looking Leadership Other Factors (Fragmented

Supervisory Points ,

Organizational supervisory

structure and Knowledge

management etc. )

5

20 27

1 (very weak influence), 5 (very strong influence)

External Legal framework Socio-Political Environment

Internal Supervision Framework: KM , Priority of risk ,

Principles Governance Framework: BB should monitor

internal Governance of Banks Capital Adequacy and Managing Material risk: Supervisory College, Develop Robust KM System

and Human resources (numbers, expertise and authority)

Supervision friendly Organizational Structure

13

Limitations

Time Constraints

Real data to measure Government Intervention

Comprehensive rigorous study- laws regulations, policies

Path forward

Supervision-top priority and built communication strategy with Monetary Policy

Factors should be identified with comprehensive study in future for BB’s main objectives

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Thank you

15