Banking Business in Bangladesh

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Banking Business:
Banks are very old form of financial institution that channel excess funds from surplus unit to deficit unit in consideration of a price called Interest. Banking business definitely established on a relationship of Debtor-Creditor between the surplus unit called depositors and the bank and between the deficit unit called borrowers and the bank. Here, opportunity cost of money works as interest is considered the price of the credit. For the development of an economy, bank furnishes a huge contribution and modern economy cannot be imagined without the services of bank. Economic development of a country requires a well organized, smooth, easy to reach and efficient saving-investment process. The function of a single bank is not limited to its geographical region only rather it has reached beyond the border of the country. So, banking business has been shaped as global business and the rest other business greatly depends on the strength of banking business performance. Problems:

A single bank is highly connected with other banks for payment system and other functions of bank. The failure of a single bank not only affects its shareholders and depositors rather it affects rest other banks and even all rest other business. The failure of a single bank creates an economic turmoil situation and is regarded as a disaster for the economy. The recent global recession is also an example of economic disaster that occurred for the failure of banking business. So, the government of any country must have a high concern about the performance of all banks. To supervise and regulate the performance of banking business, there is a supervisory authority called central bank in each country. The supervisory authority creates smooth and efficient atmosphere for fund flow and payment system. Supervisory authority measures the performance and assess the strength and weakness of banks and takes necessary actions.

The banking sector of Bangladesh compared to its economic size is moderately bigger than many other economies of equal level of development and per capita income. There are forty-seven commercial banks operating in this small economy. Although over the last thirty years, the country achieved noticeable success regarding the access to banking services, in 1972 population per branch was 57,700 and in the year of 2010, it was 20,162 per branch. The statistics indicates that getting banking services is not a significant problem for the country. Being the central bank of the country, Bangladesh Bank is responsible to regulate, monitor and supervise all the banks operating in the country. Bangladesh Bank perform both onsite and offsite supervision of banking operation. For offsite supervision, Bangladesh Bank has to rely on various financial statements and other documents as specified by Bangladesh Bank sent by all the scheduled banks. Bangladesh Bank measures the performance of all individual banks usually based on CAMELS ratio. CAMELS ratios mainly indicate the adequacy of the risk based capital, credit growth, credit concentration, single borrower exposure, non-performing loan position, liquidity gap analysis, liquidity ratio, inter-bank dependency, return on assets (ROA), return on equity (ROE), net interest margin (NIM), foreign exchange exposure, market risk and management questionnaire, etc. But, no detailed study has yet been done for the ordinary people, students, researcher to confer the overall knowledge of CAMELS rating systems in the context of Bangladesh. This study unveils all the ratios needed to determine the CAMELS rating of a bank in Bangladesh and shows the calculation procedures of CAMELS rating system in a complete format. Banking sector in Bangladesh is divided into four categories that are State-owned Commercial Banks (SCBs), specialized banks/Development Financial Institutions (DFIs), Private Commercial Banks (PCBs) and Foreign Commercial Banks (FCBs). It is essential to know which type of banks...
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