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BB to invite bids for new banks

Rejaul Karim Byron
The Bangladesh Bank has at last decided to invite applications this week for giving permission to set up new banks in the private sector.
The BB board of directors at a meeting on Wednesday decided to approve some new banks on fulfilment of some conditions.
Many persons lobbied the government for getting permission to set up new banks but the number of licences may be limited to a maximum of three, according to a central bank official.
Another high official of the BB said the finance ministry made requests in line with political decision, but according to the banking company law, the central bank is the authority to approve new banks.
The official said the central bank will give permission for new banks on the basis of highly professional judgment, and the proposal was placed at the board meeting accordingly.
At the board meeting, a deputy governor, who is involved with the matter, placed arguments for and against approving new banks in the private sector.
The deputy governor in his proposal said, in the last 10 years no new banks were allowed and five banks were merged or acquired, and
the size of the economy also doubled.
During this period credit and deposit shot up by four times and the private banks' shares almost doubled. The profit of the banks increased by six times in the last five years, he said.
In this context, the proposal said a space has been created for allowing new banks; so permission may be given for setting up some banks.
However, the owners of new banks will face stringent conditions. Loan and tax defaulters in the last five years will be barred from applying for launching new banks, according to the conditions.
The BB proposal also portrayed some risks in allowing new banks.
“An unequal competition rather than an equal one prevails in a limited market with the presence of more banks,” the proposal said.
The central bank said, amid a stiff competition, the main source of
income of the banks has been getting squeezed.
The banks are also becoming more interested in off balance sheet (such as more involvement in stockmarket) activities that are not helpful for healthy banking, the BB said.
The central bank also compared the situation in the banking sector with other countries in the subcontinent, and placed a study report at the meeting on the Wednesday.
The study said Bangladesh has 53 bank branches in every 1,000 square kilometres, whereas in Pakistan the number is 24 and in India 10.
However, the population covered by a branch, on an average is 21,065 in Bangladesh, whereas the number is 14,485 in India and 20,340 in Pakistan.
The study said Bangladesh is in the second position in the subcontinent regarding financial deepening. India has the highest deepening.