Private Bank and It's Contribution to Devolope the Industry in Bangladesh

Private Bank and its Contribution to Develop the Industry in Bangladesh

Prepared ByArafat [email protected]

* Arafat Rauf has been received Bachelor of Business Administration (BBA) degree from East West University, Dhaka. Currently working with a leading firm of Bangladesh. His interest fields are Economics and Marketing.

** Its part of my contribution for the private university students of Bangladesh. This report shall not be considered as 100% correct and accurate report. Use only for academic purposes. No research has been taken into consideration while making this report and this is not a research report. AbstractCommercial banks as the most important functionary of the financial system play a dynamic role in the economic development of a nation through mobilization of savings and allocation of credit to productive sectors. However, directed and inefficient credit allocation by the commercial banks of Bangladesh in various economic sectors without adequate credit appraisal and monitoring, inter alia, ultimately led to the widespread loan delinquency, and deteriorating health of the entire financial system. An attempt has been made in this paper to examine and evaluate the nature and extent of involvement of commercial banks in development financing in Bangladesh using different performance indicators like branch expansion, mobilization of savings, sectoral and regional distribution of advances, etc. In their noble effort of development financing, commercial banks are facing various problems such as mismatch of sources and uses of funds, extreme dependence on traditional collateral securities, politicization of credit delivery system, absence of sound legal system for recovery of loans, lack of governments extension facilities in the form of data base, investment counseling, appropriate technology, infrastructure, marketing of products, etc. However, they should increasingly involve themselves in development financing in order to gain long-term viability benefitting themselves as well as the economy, but that should not occur at the cost of viability of the total financial intermediation process.

Keywords: Commercial Banks, Bangladesh, Performance of Commercial Banks, Return onAssets, Return on Equity, Developing Economy, Business Environment

Introduction Bangladesh is a third world country with an under developed banking system, particularly in terms of the services and customer care provided by the government run banks. Recently the private banks are trying to imitate the banking structure of the more developed countries, but this attempt is often foiled by inexpert or politically motivated government policies executed by the central bank of Bangladesh, Bangladesh Bank. The outcome is a banking system fostering corruption and illegal monetary activities/laundering etc. by the politically powerful and criminals, while at the same time making the attainment of services or the performance of international transactions difficult for the ordinary citizens, students studying abroad or through distance learning, general customers etc. The growth and evaluation of financial system of Bangladesh since liberation can be viewed in the three broad phases. The decade of 1970s can be called the period of reconstruction and rehabilitation.The period from 1972 to 1982 was marked by expansion of bank branches, particularly, Nationalized Banks branches to cater the needs of the war torn economy. The period from 1983 to 1990 was the period of denationalization of banks and allowing new banks in the private sector to augment competition in the banking sector. The period from 1990 up till now can be termed as the period of financial liberalization and consolidation of the banking system.Since 1972 the banks of Bangladesh used to operate under a regime of rigid government control and central bank regulations. The regulation covered fixation of interest rate on deposits and credits, direction, of credit to public sector enterprises and to priority sectors, directed expansion of banks branches. During the period, 1972-82 the bank services i.e. deposits mobilization; deployment of credit and branch expansion was significantly in favor of the rural areas compare to the urban areas. Nevertheless, there was no prudential and informational regulation on the banking sector. As a result, the banks persuade a policy of rapid credit expansion without analysis was replaced with socio-economic considerations. On the other hand, the lending rates on priority sectors were kept such a lower rate, which did not cover the risk and cost. Consequently, a huge proportion of assets profile became overdue and profitability of the banks declined. Since 1982, the government of Bangladesh for the first time decided to take restructuring measures in the form of denationalization and privatization of the banks. Nevertheless, they estimated that the operational efficiency and customer service was not improved because of absence of prudential and informational regulations

Objective of the study The main objective of the study is to find out the how private bank of Bangladesh is contributing towards the flourishment of industries of Bangladesh.

1. To depict the present scenario of the banking sector. 2. To find out the how the private banks are helping Bangladesh industries to grow. 3. To provide some recommendations.

Methodology of the Study We have used only secondary sources of data and they are are Books, different report, past research, newspaper, journal, electronic publications. Limitations of the StudyThe present study is a self-funded work and therefore it was not possible to collect opinion of all types of people relating to the private bank. It could be much more representative and comprehensive, if opinion could be collected from other parts of the countryBanksThe word Bank is said to be derived from the Italian word banco i.e. bench. The early bankers, the Jews in Lombardy, transacted their business at benches in the market place. When a banker failed, his banco used to be broken up by the people. From such circumstance, the word bankrupt originated. There are others, who are of the opinion that the word bank is originally derived from the German word back, meaning a joint stock fund, which was, when most of the Italy was under German occupation, Italianized into banco. This appears to be more reasonable.Whoever, being an individual, firm, company or corporation, generally deals in the business of money and credit is called a bank. In our country, any institution which accepts, from the public, repayable on demand or otherwise, and withdraw able by cheque, draft, order or otherwise, is called a bank.A bank is an institution which creates money with money ---W HockA bank is a firm or institution doing a bonafide banking business ---Geoffrey CrowtherA bank is an institution, whose debts are commonly accepted in final settlement of other peoples debts ---R S Sayers A narrower and more common definition of a bank is a financial intermediary that accepts, transfers, and, most important, creates deposits. This includes such depository institutions as central banks, commercial banks, savings and loan associations, and mutual savings banks.BankingOrdinarily, all functions of a bank in the course of its business may be termed as banking. In the Banking Companies Act, 1991 (Act 14 of 1991), the word banking has been defined to mean the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdraw able by cheque, draft, order or otherwise. But any company which is engaged in the manufacture of goods or carries on any trade and which accepts deposits of money from the public merely for the purpose of financing its business is excluded from being deemed to transact the business of banking.Banking, transactions carried on by any individual or firm engaged in providing financial services to consumers, businesses, or government enterprises. In the broadest sense, a bank is a financial intermediary that performs one or more of the following functions: safeguards and transfers funds, lends or facilitates lending, guarantees creditworthiness, and exchanges money. These services are provided by such institutions as commercial banks, central banks, savings banks, trust companies, finance companies, life insurers, and investment bankers.Banker Any person carrying on the business of banking is a banker---British Stamp Law (1881)Beginning of Banking in BangladeshThe people of Bangladesh, having proclaimed independence by the proclamation of independence of independence established the independent Sovereign peoples Republic of Bangladesh. After the surrender of the occupied forces on the 16th day of December, 1971, the Government of the peoples Republic of Bangladesh formally took over the charge of the administration of the territories now constitutes Bangladesh. In an attempt to rehabilitate the war devastated banking of Bangladesh, the Government promulgated a law called the Bangladesh Bank Order, 1971. By this order The State Bank Of Pakistan was declared to be deemed as Bangladesh Bank and the offices, branches, and assets of the said State Bank was declared to be deemed as offices, branches and assets of the Bangladesh Bank. It was also declared by the said acting presidents Order No.2 of 1972 that all currency notes and coins issued by the said state Bank and Government of Pakistan and were in circulation in Bangladesh shall be deemed to have issued by the Bangladesh and continue as legal tender in Bangladesh until otherwise directed. With what has been stated above, the banking life of Bangladesh started with a legal shape.After the independence, banking industry in Bangladesh started its journey with 6 Nationalized commercialized banks, 2 State owned Specialized banks and 3 Foreign Banks. In the 1980's banking industry achieved significant expansion with the entrance of private banks. Now, banks in Bangladesh are primarily of two types: Scheduled Banks: The banks which get license to operate under Bank Company Act, 1991 (Amended in 2003) are termed as Scheduled Banks. Non-Scheduled Banks:The banks which are established for special and definite objective and operate under the acts that are enacted for meeting up those objectives, are termed as Non-Scheduled Banks. These banks cannot perform all functions of scheduled banks.There are56 scheduled banksin Bangladesh who 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. Scheduled Banks are classified into following types: State Owned Commercial Banks (SOCBs): There are4 SOCBswhich are fully or majorly owned by the Government of Bangladesh. Specialized Banks (SDBs):4 specialized banksare now operating which were established for specific objectives like agricultural or industrial development. These banks are also fully or majorly owned by the Government of Bangladesh. Private Commercial Banks (PCBs): There are39 private commercial bankswhich are majorly owned by the private entities. PCBs can be categorized into two groups: Conventional PCBs:31 conventional PCBsare now operating in the industry. They perform the banking functions in conventional fashion i.e interest based operations. Islami Shariah based PCBs: There are8 Islami Shariah based PCBsin Bangladesh and they execute banking activities according to Islami Shariah based principles i.e. Profit-Loss Sharing (PLS) mode. Foreign Commercial Banks (FCBs): 9FCBsare operating in Bangladesh as the branches of the banks which are incorporated in abroad.There are now4 non-scheduled banksin Bangladesh which are: Ansar VDP Unnayan Bank, Karmashangosthan Bank, Probashi Kollyan Bank, Jubilee BankThree Decades of Commercial Banking in Bangladesh

The banking in Bangladesh has passed three decades through different policy environments and comprises central bank at the apex, nationalized commercial banks (NCBs), private commercial banks (PCBs), foreign commercial banks (FCBs) and specialized financial institutions (SFIs). In the decade of seventies, in an atmosphere of fully regulated banking, the nationalized commercial banks played the active role in intermediation and allocation of credit along with the specialized financial institutions. The decade of the eighties witnessed the active operation of both the NCBs and PCBs (local and foreign) in the banking market. In the early eighties, two NCBs (Pubali Bank and Uttara Bank) were denationalised and the PCBs were allowed to function in order to provide a competitive environment to the NCBs with the major consideration of improving the customer services. During this period, the banks operated under strict regulatory framework. NCBs primarily lent to agricultural, industrial and export sectors following the Govt. directives while private and foreign banks lending primarily went to trade and commerce. A number of problems were manifested in the banking sector at that time. To mention a few, these are inadequate mobilization of savings, widespread loan defaults and delinquencies, and inefficient credit delivery which ultimately resulted in a retarded economic growth. In the mid-eighties, revamping the financial sector was felt as a step in the right direction. The 5 Bangladesh Govt. appointed a National Commission on Money, Banking and Credit (NCMBC) to undertake a major study of the financial sector in late 1984 which submitted its report in 1986 suggesting the reforms to be brought about for addressing the problem of loan delinquencies and restoring the financial stability.

In the early nineties, the economy underwent liberalization process as has been adopted in different fields through launching structural adjustment program. In order to redress the structural and operational problems facing the financial sector (as identified by NCMBC), a good number of reform measures were introduced in 1990 via World Banksupported Financial Sector Reform Project (FSRP). At the initial stage two major policy reforms viz. flexible interest rates and loan classification and provisioning were put in place. Other reform measures include abolition of refinancing system and introduction of rediscounting facility by the central bank, establishment of capital adequacy standards, recapitalization of the NCBs, strengthening of central bank supervision, enactment of banking related legislation and amendments thereto providing wider powers to the central bank, checking insider lending, incorporating legal provisions for loan recovery, development of human resources through training, etc. The commercial banks were allowed adequate freedom in various areas of banking operations including fixation of deposit and lending rates, service charges, selection of loan portfolio, etc., which were then administered and regulated by the central bank. The FSRP continued its operations till 1996. In May 1997, another project named Commercial Bank Restructuring Project (CBRP) funded by the World Bank was undertaken to further consolidate, strengthen and make the banking sector more dynamic. Besides, a high-powered Banking Reform Committee (BRC) was constituted in order to carry forward the reform process in the financial sector. The committee submitted its report in December, 1999 and their recommendations are under active consideration of the Government.

Private bank and its contribution to develop the industry in Bangladesh

Lending and deposit business

A banks role as an intermediary is clearest in the credit and deposit business. Clients bring to the bank their savings, i.e. the money they have chosen not to spend. The bank transfers this money to its credit clients in the form of loans. What is on the face of it extremely simple is nevertheless fraught with a great many risks. A banks loans lack liquidity, either partially or totally. This means that the bank cannot sell them in return for demand deposits or central bank funds whenever it likes. On top of this, a borrowers credit rating may change during the life of a loan, thereby changing the value of the loan at that point in time, which reflects the interest and amortization payments expected in the future. Due to the lack of a secondary market, credits are mostly carried in balance sheets at their nominal value, with provisions and write-offs only being formed or effected if there are any indications that the borrower may have trouble meeting payments or is actually in arrears. In some cases, credits may even become entirely worthless if borrowers become insolvent and bankrupt.

Loans

Give loans to company and companies with the help of this money, they start a new business or extend their business, thus by creating new business or expanding more, private banks are helping Bangladeshs industry to grow. Agricultural Financing

Given the role of the agriculture in the economic development of Bangladesh, it is imperative to invest considerable resources for agricultural development of the country. The agriculture sector, the lifeline of the rural economy, which contributes about 30% to the GDP of the country and constitutes the chief source of supply of food, is continuously being deprived of the needed capital. The share of agriculture, fishing and forestry in total outstanding advances of NCBs was 13.2 per cent as on Dec. 31, 1998. The role of PCBs in agricultural financing is meager due to lack of rural branch network and risk averse behavior. The share of this sector of the economy in total outstanding advances of PCBs was only 1.6 per cent as on Dec. 31, 1998. FCBs are almost absent in agricultural financing (Table 4).On the other hand, the share of NCBs in the total outstanding advances in this sector has increased from 40.4 per cent on Dec.31, 1990 to 46.6 per cent on Dec. 31, 1998. The PCBs account for only 2.7 per cent of total outstanding advances in this sector (Table 6). In the 1990s, the share of NCBs in agricultural credit disbursement has been decreased gradually from 33.6 per cent in 1991/92 to 24.5 per cent in 1997/98. From 1994/95 the role of PCBs in agricultural credit disbursement has been sharply increased. In 1992/93 the PCBs constituted only 0.5 per cent of total agricultural credit disbursement in the country, which increased to 9.5 per cent in 1997/98 (Table 7). The share of private sector in outstanding advances of all banks in agriculture and allied activities was 90.1 per cent as on Dec. 31, 1998 (Table 5). It is revealed from the various studies regarding agricultural financing that the target beneficiaries do not get the required credit at all or receive much less than the required amount. A few rural rich get most of the loans with the connivance of bank officials. Those rich farmers who take loan from commercial and agricultural banks borrow not because they need working capital for agricultural activities, but because they take the advantage of low priced institutional credit which they are able to divert to other profitable activities. In a study on Grameen Bank, Hossain (1988) reported that 7 per cent of the rural poor took only 8 per cent of rural institutional loans. Although exploitative in nature, the rural informal credit system has still been effective in meeting the short-term credit needs of the poor.

Industrial Term Loans and Working Capital Financing

This is a new phenomenon in commercial bank lending in Bangladesh. Term loans are designed to fund long and medium term business investments, such as the purchase of equipment or the construction of physical facilities, covering a period of more than one year. Bangladesh does not have a developed capital market. The bulk of the financing for longterm investment is currently supplied by commercial banks as term loans. As on Dec. 31, 1998, 33.1 per cent of total outstanding advances of NCBs went as industrial term loan and 13.1 per cent in working capital financing. The share of industrial term loans and working capital financing in total loan portfolio of NCBs has increased in the 1990s (46.2 per cent on Dec.31, 1998 from 42.7 per cent on Dec. 31, 1990). But the small scale and cottage industries are continuing to be deprived of getting desired formal sector financing. This sub-sector constitutes only 3.6 per cent of total loan portfolio of NCBs as on Dec.31, 1998 (Table 4). Recent studies have shown that informal financing involving high interest rates has played a critical role in the emergence, survival, and growth of many small-scale industries in Bangladesh. Availability, rather than cost of credit is thus the most binding constraint to growth in industrial investment. As on Dec. 31, 1998, 25.5 per cent of total loan portfolio of PCBs went as industrial term loan and working capital financing. But the share of small scale and cottage industries was only 2.7 per cent of total loan portfolio of PCBs. Industrial term loans and working capital financing accounted for 39.1 per cent of total outstanding loans of FCBs as on Dec.31, 1998, which has been concentrated in large and medium scale industries (Table 4).The share of NCBs, PCBs and FCBs in total outstanding advances in industrial term loan financing were 57.2, 14.4 and 3.8 per cent respectively as on Dec. 31, 1998. In working capital financing, NCBs, PCBs and FCBs accounted for 64 per cent, 21.8 per cent and 9.5 per cent of total outstanding advances respectively (Table 8). Table 9 shows the year-wise disbursement of industrial term loans by banks and nonbank financial institutions from 1990-91 to 1998-99. Here we can observe an accelerated credit expansion from 1992-93 onwards. The total disbursement of industrial term loan from institutional sources had increased from Tk 357.92 crore in 1990-91 to a record figure of Tk 1388.13 crore in 1993-94 and then it has more or less stabilized. The major role in such credit expansion was played by the NCBs, whose industrial term loan disbursement had increased from a meager amount of Tk 44.75 crore in 1990-91 to Tk 810.68 crore in 1994- 95. The share of NCBs in total disbursement of industrial term loans had increased during the period from 12.5 per cent to 67 per cent. From 1995-96 the dominant share of NCBs in industrial term loan financing has been gradually decreasing and in 1998-99, it constitutes only 26.2 per cent. In the late nineties, on the other hand, the PCBs and FCBs have enhanced their contributions in industrial financing. The share of PCBs in total disbursement of industrial term loans has increased from 10.7 per cent in 1995-96 to 22.5 per cent in 1998-99. The absolute disbursement figure during this period has been increased from Tk 131.28 crore to 299.11 crore. The share of FCBs also increased from 11.3 per cent (Tk 139.14 crore) in 1995-96 to 20.2 per cent (Tk 269.28 crore) in 1998-99 (Table 9). It is worthwhile to mention that in the late nineties the NBFIs have increased the share in industrial term loan financing from 7.2 per cent (Tk 88.39 crore) to 26.2 per cent (Tk 348.45 crore) through lease financing and equity participation making it the largest source of institutional financing in this area (Table 9).The share of private sector in outstanding industrial term loans has increased from68.8 per cent to 86.9 per cent during 1990-1998 (Table 5). So far the maturities of funds are concerned, the commercial banks are ill-suited to meet the demands of industrial financing. In fact, the practice of borrowing short and lending long has created a serious mismatch between the assets and liabilities of the banks. Fixed deposits of more than one year maturity period constituted 22.2 per cent in NCBs, 20.7 per cent in PCBs and 28.9 per cent in FCBs respectively (Table 10). The NCBs, given their present liquidity position, are barely able to service the demand for investment in this sector. The private banks are even less equipped to undertake term financing on an adequate scale and accordingly had less involvement.But, it should be noted that attempts to stimulate private industrial investment with public financing and administered interest rates during the late 1970s and early 1980s resulted in many pitfalls including inappropriate investments, inadequate project appraisal, overcrowding in certain sectors, and widespread debt defaults. In the context of deregulated environment of present-day banking business, sectoral allocation of credit based on total reliance on market mechanism may not yield the desired results. For example, in the case of private banks, trade financing may be preferred over industrial finance because of quick liquidation of loans and higher turnover rates. Industrial term lending may get the least preference because of short deposit maturities. This would definitely put a large majority of the potential industrial borrowers outside the orbit of industrial credit. Again, the small and cottage industry sub-sector would hardly get any attention of the private sector institutional lenders for their preference to asset-based lending. In order to obviate the difficulty of extending industrial term loan out of the deposit funds having shorter maturities, Agrani Bank has floated a bond to raise Tk 500 crore as a part of a Govt. program to finance new industrial ventures. One fourth of the Tk. 500 crore would be directly invested by the Agrani Bank while other banks would use the rest of the capital for lending money for industries on a long-term basis.

Foreign Trade Financing

Trade financing may be both domestic and international. Financing of international trade has direct relevance to the development of our economy, particularly in the context of developing countries. In Bangladesh, export being the thrust sector is financed at the administered interest rate within a band of 8-10 per cent. Again, import of capital goods, industrial raw materials, semi-processed inputs, etc are directly linked to economic development. Considered from this standpoint, if we examine the performance of commercial banks, it reveals that the share of NCBs and FCBs in the outstanding export credit has decreased in the nineties (NCBs from 67.5 per cent to 59.2 per cent and FCBs from 9.6 percent to 3.2 per cent during 1990-1998) over time while PCBs have registered a slight increase in their share (from 22.4 per cent to 35.3 per cent) during the period (Table 11). In the area of import financing, the share of PCBs in outstanding import credit appears to be much higher relative to other groups of banks and their share has increased over time in the nineties from 44.6 per cent to 50.3 per cent. The share of NCBs and FCBs have slightly decreased over the period (Table 11). But it should be noted that an increasing trend of outstanding advances in foreign trade financing does not necessarily indicate the increasing contribution in this area and may not be a healthy trend indeed. It may be increased due to stocklot factor and resultant creation of forced loans. For example, it has recently been reported in The Daily Star appearing on November 13, 1999 that forced loans worth Tk 882.64 crore, which is 30 per cent of the total loan amount provided by the NCBs to 1,109 RMG units were created as on September 15, 1999 after the NCBs were compelled to shoulder the import liabilities of back-to-back L/Cs as per the banking system and paid this money from their own funds, as garments owners did not export their products in time. Instead of exporting finished products, these garments manufacturers sold their raw materials in the local market subjecting the banks to forced loans.

Financing for Infrastructure

Availability of infrastructure is one of the objective conditions of undertaking development efforts in an economy. A well-knit transport and communication network facilitates the quick movement of people and goods. Besides, increasing construction activities comprising housing, office premises and other ancillary buildings are the manifestations of development. The share of construction, transport and communication in the loan portfolio of commercial banks constitutes 6.5 per cent for NCBs, 10.4 per cent for PCBs and 4.9 per cent for FCBs as on Dec. 31, 1998. On the other hand, the share of NCBs in total outstanding advances of all banks in this sector of the economy was 49.1 per cent. The corresponding shares of PCBs and FCBs were 39.4 per cent and 3.9 per cent respectively (Table 4).

Financing for Poverty Alleviation

The major objective of economic development has been to alleviate poverty by uplifting bottomline population to the development stream through institutional credit. The attainment of this objective deserves urgent attention when about half of the population of Bangladesh is considered as poor and one fourth of the population as hard core poor. In this endeavour, the role of commercial banks does not appear to be commendable. As on Dec. 31, 1998 the NCBs and PCBs accounted for 66.5 per cent and 3.1 per cent of total outstanding loans in poverty alleviation programs of all banks. FCBs did not provide any loan in such programs. The share of poverty alleviation programs in total outstanding advances of NCBs and PCBs were only 1.8 per cent and 0.2 per cent as on Dec.31, 1998, which reflects their meagre involvement in this area (Table 12).

Securities issuing

The universal banks active in the issuing sector face a whole range of potential conflicts of interest, given that issues often involve various parties from within and outside the bank and that these parties are not motivated by the same interests: the issuance unit is interested in the offering, securities trading is looking for high revenues, asset management clients expect the bank to safeguard their interests irrespective of its role in the issuing transaction, the lending unit may have information on the issuer that is otherwise not in the public domain, etc. Defusing and controlling potential conflicts such as these places enormous demands on a banks organizational structure, processes and compliance activities. Only when a bank succeeds in controlling the potential conflicts and managing them on a transparent basis can the different stakeholders involved be sure that their legitimate interests are equitably upheld.

Asset management

Asset management covers a range of banking activities: portfolio management, investment advisory, securities trading and lending business (collateral loans, securities lending and borrowing). With a discretionary portfolio management agreement, clients authorize a bank to undertake, for their account and at their risk, all the actions it deems appropriate within the framework of the normal asset management activities of a bank. Clients expect their assets to be managed professionally and in their best interests. The bank contracts to exercise its undertaking to the best of its knowledge and abilities, taking into account clients circumstances but acting as it sees fit within the scope outlined as part of the investment goals defined with the client.

Mobile Banking in Bangladesh

Now a day it is very popular. Everyone have a mobile banking account. They transfer money, salary, tuition fee through this easy banking. Creating a vast amount of job as the banks agent for the mobile banking service and making money transfer very easy and fast, private banks are helping many industry to grow faster and easier.

Foreign exchange tradingThe last business I mentioned was foreign exchange trading, an activity which has been unjustly attacked as casino capitalism. Various factors have given rise to this perception. First, without a doubt the massive amounts traded in the foreign exchange markets every day. According to figures from the Swiss National Bank, for example, in April 2001 foreign exchange trades in Bangladesh alone amounted to CHF 121 billion each working day. (For the purposes of comparison, the global figure was USD 1,210 billion.) The vast majority of this trading takes place between financial intermediaries, the aim being to exploit even the slightest differences between exchange rates (arbitrage). Only a very small proportion of this trade issued to finance foreign trade and hedge foreign currency positions. Furthermore, the fact that serious economic crises such as the one Argentina is experiencing at present are almost always currency crises may fuel suspicions that it is currency traders with their speculative attacks that trigger such developments.In fact, the very opposite is true. Many people may fail to see the point of the vast amounts of arbitrage transactions, since they are not primarily used for financing purposes. In reality, however, they underpin liquidity in the markets, thus helping them to function smoothly. In less liquid markets, new information would inevitably lead to much greater volatility in rates. A distinction has to be made in the case of protracted currency over- or undervaluations (in terms of interest rates and purchasing power parity), which are a genuine problem, as they could result in the misallocation of resources.

Recommendation Nevertheless, the economic benefits generated by a bank are basically no different from the economic benefits generated by a doctor, teacher or train driver: by exercising, to the best of their knowledge and abilities, their specialist function in competition with others, companies and their employees make their contribution to economic benefit. And their motivation need not be a selfless one. Pilots do not fly planes to generate economic benefit, just as bankers do not grant credits for any such selfless reasons. Economic utility is created as a by-product anywhere women and men function successfully, and this does not apply solely to their jobs.Even though a banker grants loans to many companies and sectors of the economy, this does not mean he can do their work or bear their responsibilities.The argument of economic goals and responsibility is generally seized on by politicians when it is a matter of re-distributing capital, risks, profits or costs.Although not strictly wrong, the economic responsibility argument has the major political advantage that it can be flexibly deployed for absolutely anything. You will look long and hard and probably in vain for any handy definition of a banks economic responsibility that is at the same time general enough. Which is why my suggestion is the following: bankers act responsibly when they ensure that their house is in order and resist the temptation to pass off poor financial performance as a contribution to the economy.

Conclusion It can be concluded that, Private banks of Bangladesh is doing a tremendous job. They are the pioneer for helping many industries to grow in Bangladesh. Without their contribution, Bangladesh would never be the like today. They are continuously helping many industries to start, expanding more and thus helping the overall industries to grow.

Reference

1. Bangladesh Bank website http://www.bangladesh-bank.org/fnansys/bankfi.php accessed 26th November 20122. Banking in Bangladesh, website of Wikipedia http://en.wikipedia.org/wiki/Banking_in_Bangladesh 3. Function of commercial banks in Bangladesh http://www.slideshare.net/atik2050/function-of-commercial-banks-in-bangladesh-21461379 4. The private sector the engine of growth in the bangladesh economyhttp://www.slideshare.net/nick_x_andersen/the-private-sector-the-engine-of-growth-in-the-bangladesh-economy

5. Contribution Of Commercial Banks In Bangladesh Economyhttp://www.studymode.com/subjects/contribution-of-commercial-banks-in-bangladesh-economy-page1.html 6. Banking Industry in Bangladesh: Its Contribution and Performance

http://www.studymode.com/essays/Banking-Industry-In-Bangladesh-Its-Contribution-1273690.html

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