Banking in Bangladesh: History, Types, and Modern Practices

Bangladesh has a long history of banking that dates back to 1873, when the first bank, the Bank of Bengal, was established.

The country's banking system has undergone significant changes over the years, with the introduction of modern banking practices in the mid-20th century.

The first nationalized bank in Bangladesh was the Sonali Bank, established in 1972, which played a crucial role in the country's economic development.

Today, Bangladesh has a robust banking system with a wide range of commercial banks, specialized banks, and Islamic banks, catering to the diverse needs of its population.

The history of banking in Bangladesh is a fascinating story that spans over a century. The British established the first bank in the region in the early 19th century.

However, it wasn't until the 1950s that the banking sector started to take shape in its current form. The Bangladesh Bank, the central bank of the country, was established in 1971.

The 1970s saw a significant milestone in the development of the banking sector with the nationalization of banks. This move further transformed the industry.

The history of banking in Bangladesh begins in the early 19th century when the British established the first bank in the region.

The British established the first bank in the region in the early 19th century, marking the beginning of banking in Bangladesh.

The banking sector started to take shape in its current form in the 1950s, a significant milestone in the country's financial history.

The 1950s saw the banking sector start to take shape in its current form, laying the groundwork for the industry's future growth.

The Bangladesh Bank, the central bank of the country, was established in 1971, giving the government a crucial role in regulating the banking sector.

The establishment of the Bangladesh Bank in 1971 marked a major turning point in the country's banking history, bringing much-needed stability to the industry.

In the modern era, banks have become increasingly reliant on technology to manage their operations. The introduction of online banking in the 1990s revolutionized the way people interact with their accounts.

Digital transactions have become the norm, with a significant portion of banking done online or through mobile apps. In fact, a study found that over 70% of banking transactions are now digital.

The rise of e-commerce has also led to the development of payment systems like PayPal and Stripe, which allow for secure and convenient online transactions. These systems have made it easier for businesses to accept payments from customers.

The use of data analytics has also become a key aspect of modern banking, with banks using data to identify trends and prevent financial crimes. This has helped to reduce the risk of money laundering and other financial crimes.

The modern banking system is also more accessible, with ATMs and mobile banking apps allowing people to access their accounts from anywhere. This has made banking more convenient and accessible to people all over the world.

In Bangladesh, you'll find a mix of specialized banks and state-owned commercial banks. These two types of banks serve different purposes and are owned by the Government of Bangladesh.

Specialized banks, also known as SDBs, focus on specific objectives like agricultural or industrial development. There are three SDBs operating in the country: Bangladesh Krishi Bank, Rajshahi Krishi Unnayan Bank, and Probashi Kallyan Bank.

The state-owned commercial banks, or SOCBs, are fully or majorly owned by the Government of Bangladesh and operate similarly to private commercial banks. There are six SOCBs: Agrani Bank PLC, BASIC Bank Limited, Janata Bank PLC, Rupali Bank PLC, Sonali Bank PLC, and Bangladesh Development Bank.

Here's a list of the SDBs and SOCBs mentioned:

SOCBs:

Let's talk about private commercial banks. They're a type of bank that's owned by private entities.

There are 43 private commercial banks in operation right now. They're a significant part of the banking landscape.

These banks are classified into two types, but we don't know what those types are just yet.

In Bangladesh, there are 9 foreign commercial banks operating as branches of banks incorporated abroad. These banks bring in foreign expertise and capital, contributing to the country's economic growth.

Some of these foreign commercial banks have a long history of operation in the region, such as Habib Bank Limited, which has been serving the Pakistani community in Bangladesh for many years.

The list of foreign commercial banks in Bangladesh is quite diverse, with banks from countries like Pakistan, the United States, the United Kingdom, India, and South Korea.

Here is a list of the foreign commercial banks operating in Bangladesh:

In Bangladesh, banking services are widely available and accessible to the general public. You can find over 80 commercial banks operating in the country, offering a range of services.

Most banks in Bangladesh have a minimum balance requirement for current and savings accounts, which can be as low as 1,000 taka. This makes it easier for people to open and maintain bank accounts.

You can use online banking services in Bangladesh to manage your accounts, pay bills, and transfer funds. Many banks also offer mobile banking apps for convenient access to banking services.

The Central Bank of Bangladesh regulates and supervises all banking activities in the country, ensuring that banks operate within a sound and stable financial system.

Islamic banking is a significant part of the banking system in Bangladesh, with eight Islamic banks operating in the country.

These banks offer Shariah-compliant banking services, which have gained popularity among the population. As of 2017, Islamic banking controls 20% of deposits in Bangladesh, led by Islami Bank Bangladesh Ltd.

The Bangladeshi government has also taken steps to promote Islamic banking, with an overall approval rating of 84% among the country's population.

Islamic banking in Bangladesh operates in a unique way, with some banks offering Islamic-banking services alongside their normal operations. This is the case with several non-Islamic banks in the country.

Bangladesh is home to the world's biggest Islamic microfinance scheme, which is a testament to the country's commitment to Islamic banking.

Here are the 10 Islami Shariah-based PCBs (Public Companies) in Bangladesh, which execute banking activities according to Islami Shariah-based principles:

These PCBs operate in the Profit-Loss Sharing (PLS) mode, which is a key principle of Islamic banking.

The banking industry in Bangladesh is growing rapidly. This growth is largely driven by the increasing use of technology, such as mobile banking and online banking, which provides banks with new channels to reach customers.

The growing middle class in Bangladesh is a significant opportunity for banks to expand their customer base. This demographic shift is creating a demand for financial services, particularly among the emerging middle class.

The government's initiatives to promote financial inclusion, such as providing access to clean water and achieving food security, also provide opportunities for banks to expand their reach.

The current state of the banking industry in Bangladesh is quite complex. As of 2023, there are 62 banking institutions operating in the country, including 44 domestic private commercial banks.

The banking sector can be categorized into four types: state-owned commercial banks, government-owned development finance institutions, private commercial banks, and foreign commercial banks. State-owned commercial banks and government-owned development finance institutions account for 25% of the total banking assets, but they are inefficient and loss-making.

These institutions suffer from poor management, political interference, corruption, and high non-performing loans. The non-performing loan ratio of state-owned commercial banks and government-owned development finance institutions was 24.9% and 54.8%, respectively, as of June 2023.

On the other hand, private commercial banks and foreign commercial banks account for 75% of the total banking assets and are more profitable and competitive. They offer a wide range of products and services, including retail banking, corporate banking, SME banking, Islamic banking, online banking, and mobile banking.

The non-performing loan ratio of private commercial banks and foreign commercial banks was 4.1% and 2.5%, respectively, as of June 2023.

Here's a breakdown of the banking sector's performance as of June 2023:

The banking sector has shown remarkable resilience and growth in the face of the COVID-19 pandemic and the global economic crisis. The total assets of the banking sector increased by 13.6% year-on-year to reach $321 billion as of June 2023.

The banking industry in Bangladesh is a complex landscape with both challenges and opportunities. The high nonperforming loans (NPLs) ratio is a significant challenge for banks in the country.

The lack of skilled workforce hampers the growth of the industry, making it difficult for banks to adapt to the changing market conditions. Regulatory challenges, such as the capital adequacy ratio (CAR) requirements, pose a significant challenge for banks in Bangladesh.

Cybersecurity threats are a growing concern for the industry, which can lead to financial losses and damage to reputation. The high NPL ratio can also lead to a decrease in the overall creditworthiness of banks.

Despite these challenges, there are opportunities for growth and expansion in the banking sector. The growing middle class presents a significant opportunity for banks to expand their customer base.

The increasing use of technology, such as mobile banking and online banking, provides banks with new channels to reach customers. The expansion of Islamic banking presents another opportunity for banks to diversify their product offerings.

The government’s initiatives to promote financial inclusion provide opportunities for banks to expand their reach.

The economy of Bangladesh is expected to recover and grow in the post-pandemic period. The government and the Bangladesh Bank have taken various fiscal and monetary measures to support the affected sectors and stimulate the demand and supply of credit.

The GDP growth of Bangladesh is projected to rebound to 5.1% in 2021. This is a significant improvement from previous years, and it's a sign that the economy is on the right track.

The economic growth will increase the demand and supply of banking services, such as trade finance, project finance, working capital finance, consumer finance, and so on. This means that banks will need to be prepared to meet the growing needs of their customers.

The banking sector in Bangladesh is a complex and multifaceted industry, with four main categories of banks: state-owned commercial banks, government-owned development finance institutions, private commercial banks, and foreign commercial banks. As of 2023, there are 62 banking institutions operating in the country.

The private commercial banks and foreign commercial banks account for 75% of the total banking assets and are more profitable and competitive, offering a wide range of products and services such as retail banking, corporate banking, and online banking. The non-performing loan (NPL) ratio of these banks is relatively low, at 4.1% and 2.5%, respectively.

However, the banking sector also faces challenges, including a high interest rate spread of 3.8% in June 2023, which discourages savings and investments. The credit growth of the banking sector slowed down to 10.5% in June 2023, due to lower demand and supply of credit amid the pandemic and international uncertainty.

Here are some key statistics about the banking sector in Bangladesh:

Scheduled banks are licensed under the Bank Company Act, 1991 (Amended to 2013).

There are currently 62 scheduled banks in Bangladesh.

The Bank Company Act, 1991 (Amended to 2013) is the governing law for these scheduled banks.

This number of scheduled banks gives Bangladesh a relatively robust banking sector.

In Bangladesh, there are non-scheduled banks that are licensed for specific functions and objectives.

These banks don't offer the same range of services as scheduled banks, which is a notable difference.

There are currently 5 non-scheduled banks in Bangladesh, which is a relatively small number compared to scheduled banks.

Ansar VDP Unnayan Bank is one of these non-scheduled banks, with a specific focus on certain functions and objectives.

Karmashangosthan Bank and Jubilee Bank are also part of this category, each with their own unique features.

Grameen Bank is a well-known non-scheduled bank in Bangladesh, known for its innovative approach to banking.

Palli Sanchay Bank is the fifth non-scheduled bank in Bangladesh, serving a specific purpose in the banking sector.

The banking sector has a lot of scope to diversify its products and services to cater to changing customer needs. By offering value-added and differentiated products, banks can tap into niche and untapped markets.

One way to achieve this is through green banking, which focuses on environmentally friendly banking practices. This can help banks appeal to customers who prioritize sustainability.

Islamic banking is another area where banks can diversify, catering to customers who follow Islamic principles and require Sharia-compliant financial services. This can be a lucrative market for banks that adapt their services accordingly.

Small and medium-sized enterprises (SMEs) also require specialized banking services, and banks can capitalize on this by offering SME banking. This can include tailored financial products and services designed specifically for SMEs.

Women banking is another niche market that banks can tap into, offering financial services and products specifically designed for women. This can help banks appeal to a previously underserved customer segment.

By diversifying their products and services, banks can increase their customer base and revenue streams. This can be achieved by leveraging technologies such as artificial intelligence, big data, and blockchain.

In Bangladesh, there are three specialized banks that were established for specific objectives like agricultural or industrial development. These banks are fully or majorly owned by the Government of Bangladesh.

Bangladesh Krishi Bank is one of the specialized banks operating in the country. Rajshahi Krishi Unnayan Bank is another specialized bank that focuses on agricultural development. Probashi Kallyan Bank is also a specialized bank with a specific objective.

These banks have been established to cater to the unique needs of different sectors in the country. They offer specialized services and products that are tailored to the requirements of their respective sectors.

Here's a list of the three specialized banks in Bangladesh:

In Bangladesh, there are specialized financial institutions that cater to specific needs and objectives. These institutions play a vital role in the country's financial sector.

The Bangladesh House Building Finance Corporation (BHBFC) is one such institution that provides housing finance to individuals and families. Another institution, the Palli Karma Sahayak Foundation (PKSF), focuses on microfinance and poverty alleviation.

These specialized financial institutions demonstrate the government's efforts to promote financial inclusion and support the growth of the country's economy.

There are two main types of specialized financial institutions in Bangladesh: the Bangladesh House Building Finance Corporation (BHBFC) and the Palli Karma Sahayak Foundation (PKSF). Here are some key details about these institutions:

These institutions are examples of the government's initiatives to promote financial inclusion and support the growth of the country's economy.

Offshore banking in Bangladesh has a history dating back to 1985 when Bangladesh Bank introduced the Offshore Banking Operation (OBO) through a circular.

Banks operated offshore banking services with Bangladesh Bank approval without a separate law until the Offshore Banking Act of 2024.

The enactment of a separate law allowed banks to promote fixed deposit products, which they had previously used offshore banking operations for by taking foreign loans and lending to local entities.

In Bangladesh, offshore banking operations were initially used by banks to primarily take foreign loans and lend to local entities.

The Offshore Banking Act of 2024 marked a significant development in the banking sector of Bangladesh, enabling banks to expand their services and offerings.

Bangladesh has a well-established banking system, and understanding the different types of banks is essential for anyone looking to bank in the country.

There are six state-owned commercial banks (SOCBs) that are fully or majorly owned by the Government of Bangladesh.

These banks play a crucial role in providing financial services to the public, and they are a great option for those who want to bank with a government-backed institution.

Here are the six state-owned commercial banks in Bangladesh:

In Bangladesh, there are six state-owned commercial banks (SOCBs) that are fully or majorly owned by the Government of Bangladesh.

These banks play a significant role in the country's economy and financial system.

Agrani Bank PLC is one of the major SOCBs in Bangladesh.

BASIC Bank Limited and Janata Bank PLC are also prominent players in the sector.

Rupali Bank PLC and Sonali Bank PLC are two other major SOCBs in the country.

Bangladesh Development Bank is the sixth major SOCB in Bangladesh.

Here's a list of the six state-owned commercial banks in Bangladesh:

In April 2024, the central bank of Bangladesh issued a banking merger policy to merge weak banks with strong banks, both voluntarily and mandatorily.

The merger process is ongoing, with several banks undergoing consolidation. Padma Bank Limited has merged with EXIM Bank PLC, while National Bank Limited did not merge with United Commercial Bank PLC.

BASIC Bank PLC has merged with City Bank PLC, and Bangladesh Development Bank PLC has merged with Sonali Bank PLC. Rajshahi Krishi Unnayan Bank has been merged with Bangladesh Krishi Bank.

Here's a summary of the mergers: