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Foreign Banks in Bangladesh: impacts and

Challenges
If anyone needed an example of an economy that needed a stable and sustainable banking
system, Bangladesh is it. Banking is the oxygen of the global economy, enabling companies to
grow, trade & invests; enabling individuals to spend and save. Bangladesh’s geographic position
presents a clear advantage for foreign banks because it is virtually located as a bridge between
the emerging markets of South Asia and fastest growing markets of South East Asia and Asian
countries. It is also very close to India and China two large growing countries having positive
effect.
Foreign Bank: A foreign bank is a bank that is obligated to follow the regulations of both the
home and host countries. Because the foreign branch banks' loan limits are based on the parent
bank's capital, foreign banks can provide more loans than subsidiary banks.

There are 9 Foreign Banks in Bangladesh


1. Bank Al-Falah Limited
2. Citibank N.A
3. Commercial Bank of Ceylon PLC
4. Habib Bank Limited
5. HSBC (Hongkong Shanghai Banking Corporation)
6. National Bank of Pakistan
7. Standard Chartered Bank
8. State Bank Of India
9. Woori Bank Ltd.
Advantages of Foreign Banks in Bangladesh:
1. GDP & Job Creation: Entering foreign banks into Bangladesh has a significant impact on
real GDP. As economic growth largely depends on Banks’s profitability so the greater
profitability comes from greater operating efficiency. And foreign banks are more efficient.
Besides this, foreign bank creates job opportunities for local people by themselves or by
investing locally in private sectors.
2. Trade Balance & Stable Credit Sources: Foreign Banks helps to the domestic exporters to
trade efficiently. For having easy access to the international market, foreign banks can obtain the
required information about the importers and their financial conditions. Foreign banks provide
stable credit sources just because they can get additional funding from their parent banks which
have easier access to the international market.
3. SME & Tax Revenue: Foreign banks largely support the SME (Small & Medium
Enterprises) sector of Bangladesh. That’s why they invest in microfinance sectors to give an
incentive to the small entrepreneurs to boost up their business. Moreover, Government of host
country can earn a significant amount of tax revenue from these foreign banks.
4. Offshore Banking & HR Development: Standard Chartered Bank operates the country’s
only offshore banking units inside Dhaka Export Processing Zone (DEPZ) at Savar and
Chittagong Export Processing Zone (CEPZ) that facilitate offshore banking for the country’s
exporters. By developing skill and knowledge of employee foreign banks play a vital role to
strengthen the workforce of the country.
5. Financial Innovation & Crime Prevention: Foreign banks continuously try to innovate new
services for the customers to survive in the competitive market. Introducing new services to the
customers can help the banks to obtain satisfaction of customers that increases the value. Foreign
banks are more capable of installing new method to prevent financial crimes.
6.Enhanced Competition, Increases Profit & Reduces Costs: The entry of foreign bank has
positive impact on the efficiency of the domestic banking sector in Bangladesh which enhanced
competition, increases profits and reduces costs.

7.Contributing to Sustainable Growth: Foreign Banks are contributing to sustainable growth.


These banks are focusing on major for the bank’s sustainability and provide incentives in
Bangladesh are health, sports, education, arts and culture, environment and climate change.

8.Benefits to Exporters: Bangladeshi exporters are getting benefits in terms of finer margins on
loans and better foreign exchange rate.

9.Capitalization: Foreign banks increase in the Bangladesh’s banking sector’s capitalization,


which is an especially urgent issue in times of a crisis.

10.Female Entrepreneurship: To encourage female entrepreneurship in Bangladesh, Standard


Chartered Bangladesh launched “Orjon”, a special term loan product tailored to female-owned
small and medium-sized enterprises. A local beauty company persona took out one of the new
loans, is now stabilized beauty salon business and an average over 5000 customers served each
day.

Disadvantages
1.Unbalanced Competition: Foreign banks entry have created higher unbalanced competition
especially due to the inability of innovate and compete with foreign banks entry advance
innovations, technology and system.

2.Focus on profitable business: Foreign banks entry is more concentrated on domestic


financially sound companies and tends to be less sensitive to those of less profitable business
organizations. They choose low risk firms of domestic economic sector and leave the firms of
riskier sectors to domestic banks.

3.Increasing cost for domestic bank: Domestic banks have to take on greater cost by paying
higher interest on deposits and lower interest rate on loans to attract domestic high net worth
clients and low risk firms of domestic sectors to compete with foreign banks entry.

Challenges of foreign banks in Bangladesh


1.Regulatory compliances: Banks are burdened with rules. The new rules mean new burdens.
Rules might impact normal growth and quality of banks, but compliance of the regulations
cannot be ignored. Risk management, capital adequacy, implementation of BASEL-III
(Implemented in December 21, 2014) may affect profitability.

2.Non-Performing Loan (NPL) and excess liquidity: A Non-Performing Loan is a loan that is
in default or close to being in default. Many loans become non-performing after being default for
90 days but this can depend on the contract terms. The causes of nonperforming loans are usually
attributed to the lack of effective monitoring and supervision on the part of banks (as required by
the BASEL principles of bank monitoring and supervisions), lack of strategies. Effective lenders’
recourse, weaknesses of legal infrastructure, and lack of effective debt recovery

Non-
Performing
Loans(NPLs)

Loss of High loan Erosion of


current loss Financial
banks
revenue provision crisis
capital

High risk High loan Low rate Low


premium price investment economic
growth

3.Advancement of technology: It has become a non-traditional challenge for the banks. FinTech
companies are becoming major competitors for the bank as they are creating a threat to banks
traditional retail banking and payment system. In Bangladesh 18 banks are allowed to operate
mobile banking service. The latest statistics of Bangladesh Bank show that there are 23.9 million
active mobile banking customers out of total 50 million registered mobile banking customers.
Bkash the subsidiary of BRAC Bank Ltd occupies the 80 per cent share of total transactions.

4.Changing behavior of customer: Every financial institution has to meet certain regulatory
standards these things are "necessary, but not sufficient". In other words, banks aren't going to
win business simply by meeting capital requirements; they're going to need to engage their
customers to win business.

5.Utilize data: Recently there was an instance of a billion dollar reserve heist of Bangladesh
Bank, which has raised a serious question for the whole world on whether the banking system is
safe from any cyber intruder. Data are going to be huge assets for the banks. The bank can
become an outsized data bank and it'll be the challenges of bank how they're going to utilize data
for doing business.

On February 22, Home Minister Asaduzzaman Khan Kamal told


reporters that a formal announcement on “The new status will strengthen the country’s image
and international standing”.
Bangladesh awaits a formal approval for inclusion in the list of developing countries.
Bangladesh will formally become a developing country with the approval of United Nations
Economic and Social Council.The government considers the country’s promotion as a major
achievement. A reception will be given to Prime Minister Sheikh Hasina on March 22. On that
day, processions will be brought out throughout the country. This celebration will continue until
March 26, Bangladesh’s Independence Day.