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Regulators of the Financial System


Central Bank
Bangladesh Bank acts as the Central Bank of Bangladesh which was established on December 16, 1971 through the enactment of Bangladesh Bank Order 1972- President’s Order No. 127 of 1972 (Amended in 2003).
The general superintendence and direction of the affairs and business of BB have been entrusted to a 9 members' Board of Directors which is headed by the Governor who is the Chief Executive Officer of this institution as well. BB has 45 departments and 10 branch offices.
In Strategic Plan (2010-2014), the vision of BB has been stated as, “To develop continually as a forward looking central bank with competent and committed professionals of high ethical standards, conducting monetary management and financial sector supervision to maintain price stability and financial system robustness, supporting rapid broad based inclusive economic growth, employment generation and poverty eradication in Bangladesh”.
The main functions of BB are (Section 7A of BB Order, 1972) -

  1. to formulate and implement monetary policy;
  2. to formulate and implement intervention policies in the foreign exchange market;
  3. to give advice to the Government on the interaction of monetary policy with fiscal and exchange rate policy, on the impact of various policy measures on the economy and to propose legislative measures it considers necessary or appropriate to attain its objectives and perform its functions;
  4. to hold and manage the official foreign reserves of Bangladesh;
  5. to promote, regulate and ensure a secure and efficient payment system, including the issue of bank notes;
  6. to regulate and supervise banking companies and financial institutions.

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Core Policies of Central Bank

Monetary policy
The main objectives of monetary policy of Bangladesh Bank are:

  • Price stability both internal & external
  • Sustainable growth & development
  • High employment
  • Economic and efficient use of resources
  • Stability of financial & payment system

Bangladesh Bank declares the monetary policy by issuing Monetary Policy Statement (MPS) twice (January and July) in a year. The tools and instruments for implementation of monetary policy in Bangladesh are Bank Rate, Open Market Operations (OMO), Repurchase agreements (Repo) & Reverse Repo, Statutory Reserve Requirements (SLR & CRR).

Reserve Management Strategy
Bangladesh Bank maintains the foreign exchange reserve of the country in different currencies to minimize the risk emerging from widespread fluctuation in exchange rate of major currencies and very irregular movement in interest rates in the global money market. BB has established Nostro account arrangements with different Central Banks. Funds accumulated in these accounts are invested in Treasury bills, repos and other government papers in the respective currencies. It also makes investment in the form of short term deposits with different high rated and reputed commercial banks and purchase of high rated sovereign/supranational/corporate bonds. A separate department of BB performs the operational functions regarding investment which is guided by investment policy set by the BB's Investment Committee headed by a Deputy Governor. The underlying principle of the investment policy is to ensure the optimum return on investment with minimum market risk.

Interest Rate Policy
Under the Financial sector reform program, a flexible interest policy was formulated. According to that, banks are free to charge/fix their deposit (Bank /Financial Institutes) and Lending (Bank /Financial Institutes) rates other than Export Credit.  At present, except Pre-shipment export credit and agricultural lending, there is no interest rate cap on lending for banks. Yet, banks can differentiate interest rate up to 3% considering comparative risk elements involved among borrowers in same lending category. With progressive deregulation of interest rates, banks have been advised to announce the mid-rate of the limit (if any) for different sectors and the banks may change interest 1.5% more or less than the announced mid-rate on the basis of the comparative credit risk. Banks upload their deposit and lending interest rate in their respective website.

Capital Adequacy for Banks and FIs
Basel-III has been introduced with a view to strenghening the capital base of banks with the goal of promoting a more resilient banking sector. The Basel III regulation will be adopted in a phased manner starting from the January 2015, with full implementation of capital ratios from the beginning of 2019. Now, scheduled banks in Bangladesh are required to maintain minimum capital of Taka 4 billion or Capital to Risk Weighted Assets Ratio (CRAR) 10%, whichever is higher. In addition to minimum CRAR, Capital Conservation Buffer (CCB) of 2.5% of the total RWA is being introduced which will be maintained in the form of CET1. Besides the minimum requirement all banks have a process for assessing overall capital adequacy in relation to their risk profile and a strategy for maintaining capital at an adequate level.

For FIs, full implementation of Basel-II has been started in January 01, 2012 (Prudential Guidelines on Capital Adequacy and Market Discipline (CAMD) for Financial Institutions). Now, FIs in Bangladesh are required to maintain Tk. 1 billion or 10% of Total Risk Weighted Assets as capital, whichever is higher.

Deposit Insurance
The deposit insurance scheme (DIS) was introduced in Bangladesh in August 1984 to act as a safety net for the depositors. All the scheduled banks Bangladesh are the member of this scheme Bank Deposit Insurance Act 2000. The purpose of DIS is to help to increase market discipline, reduce moral hazard in the financial sector and provide safety nets at the minimum cost to the public in the event of bank failure. A Deposit Insurance Trust Fund (DITF) has also been created for providing limited protection (not exceeding Taka 0.01 million) to a small depositor in case of winding up of any bank. The Board of Directors of BB is the Trustee Board for the DITF. BB has adopted a system of risk based deposit insurance premium rates applicable for all scheduled banks effective from January - June 2007. According to new instruction regarding premium rates, problem banks are required to pay 0.09 percent and private banks other than the problem banks and state owned commercial banks are required to pay 0.07 percent where the percent coverage of the deposits is taka one hundred thousand per depositor per bank. With this end in view, BB has already advised the banks for bringing DIS into the notice of the public through displaying the same in their display board.

Insurance Authority
Insurance Development and Regulatory Authority (IDRA) was instituted on January 26, 2011 as the regulator of insurance industry being empowered by Insurance Development and Regulatory Act, 2010 by replacing its predecessor, Chief Controller of Insurance. This institution is operated under Ministry of Finance and a 4 member executive body headed by Chairman is responsible for its general supervision and direction of business.
IDRA has been established to make the insurance industry as the premier financial service provider in the country by structuring on an efficient corporate environment, by securing embryonic aspiration of society and by penetrating deep into all segments for high economic growth. The mission of IDRA is to protect the interest of the policy holders and other stakeholders under insurance policy, supervise and regulate the insurance industry effectively, ensure orderly and systematic growth of the insurance industry and for matters connected therewith or incidental thereto. 

 Regulator of Capital Market Intermediaries
Securities and Exchange Commission (SEC) performs the functions to regulate the capital market intermediaries and issuance of capital and financial instruments by public limited companies. It was established on June 8, 1993 under the Securities and Exchange Commission Act, 1993. A 5 member commission headed by a Chairman has the overall responsibility to administer securities legislation and the Commission is attached to the Ministry of Finance.
The mission of SEC is to protect the interests of securities investors, to develop and maintain fair, transparent and efficient securities markets and to ensure proper issuance of securities and compliance with securities laws. The main functions of SEC are:

  • Regulating the business of the Stock Exchanges or any other securities market.
  • Registering and regulating the business of stock-brokers, sub-brokers, share transfer agents, merchant bankers and managers of   issues, trustee of trust deeds, registrar of an issue, underwriters, portfolio managers, investment advisers and other intermediaries in the securities market.
  • Registering, monitoring and regulating of collective investment scheme including all forms of mutual funds.
  • Monitoring and regulating all authorized self regulatory organizations in the securities market.
  • Prohibiting fraudulent and unfair trade practices in any securities market.
  • Promoting investors’ education and providing training for intermediaries of the securities market.
  • Prohibiting insider trading in securities. 
  • Regulating the substantial acquisition of shares and take-over of companies.
  • Undertaking investigation and inspection, inquiries and audit of any issuer or dealer of securities, the Stock Exchanges and   intermediaries and any self regulatory organization in the securities market.
  • Conducting research and publishing information.

Regulator of Micro Finance Institutions
To bring Non-government Microfinance Institutions (NGO-MFIs) under a regulatory framework, the Government of Bangladesh enacted "Microcredit Regulatory Authority Act, 2006’" (Act no. 32 of 2006) which came into effect from August 27, 2006. Under this Act, the Government established Microcredit Regulatory Authority (MRA) with a view to ensuring transparency and accountability of microcredit activities of the NGO-MFIs in the country. The Authority is empowered and responsible to implement the said act and to bring the microcredit sector of the country under a full-fledged regulatory framework.
MRA’s mission is to ensure transparency and accountability of microfinance operations of NGO-MFIs as well as foster sustainable growth of this sector. In order to achieve its mission, MRA has set itself the task to attain the following goals:

  • To formulate as well as implement the policies to ensure good governance and transparent financial systems of MFIs.
  • To conduct in-depth research on critical microfinance issues and provide policy inputs to the government consistent with the national strategy for poverty eradication.
  • To provide training of NGO-MFIs and linking them with the broader financial market to facilitate sustainable resources and efficient management.
  • To assist the government to build up an inclusive financial market for economic development of the country.
  • To identify the priorities in the microfinance sector for policy guidance and dissemination of information to attain the MRA’s social responsibility.

According to the Act, the MRA will be responsible for the three primary functions that will need to be carried out, namely:

  • Licensing of MFIs with explicit legal powers;
  • Supervision of MFIs to ensure that they continue to comply with the licensing requirements; and
  • Enforcement of sanctions in the event of any MFI failing to meet the licensing and ongoing supervisory requirements.