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FIN 433 - Chapter 17

This document discusses the functions and operations of commercial banks in Bangladesh, detailing the types of banks and their regulatory framework. It outlines the objectives of bank regulations, including ensuring safety, efficiency, and consumer protection, as well as the various direct and indirect regulations in place. Additionally, it covers the components of bank assets, liabilities, and income statements.

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Mahim Iztihad
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9 views25 pages

FIN 433 - Chapter 17

This document discusses the functions and operations of commercial banks in Bangladesh, detailing the types of banks and their regulatory framework. It outlines the objectives of bank regulations, including ensuring safety, efficiency, and consumer protection, as well as the various direct and indirect regulations in place. Additionally, it covers the components of bank assets, liabilities, and income statements.

Uploaded by

Mahim Iztihad
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Financial Markets and Institutions

by Jeff Madura

1
17
Bank Regulation

Chapter Objectives

The specific objectives of this chapter are to:


■ describe the functions of commercial banks,
■ discuss commercial banking operations in Bangladesh,
■ describe the key regulations imposed on commercial banks,
■ explain how regulators monitor banks, and
■ describe the main provisions of the Federal Deposit Insurance Corporation
Improvement Act.

2
Commercial banks

Financial institutions that serve surplus units by


offering a wide variety of deposit accounts, and
transfer deposited funds to deficit units by providing
direct loans or purchasing debt securities.
[Madura, pp. 11]

3
Commercial banks

Companies transacting the business of banking in


Bangladesh
‘Banking’ means 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 check, draft, order or otherwise
[Bank Company Act, 1991]

4
5
Commercial banking in Bangladesh

There are 60 scheduled banks in Bangladesh,


operating under the supervision of Bangladesh Bank
 6 state-owned commercial banks (SOCBs)
 3 specialized banks (SDBs)
 34 conventional private commercial banks (PCBs)
 8 Islami Shariah based PCBs
 9 foreign commercial banks (FCBs)

6
Commercial banking in Bangladesh

There are 60 scheduled banks in Bangladesh,


operating under the supervision of Bangladesh Bank
 6 state-owned commercial banks (SOCBs)
 Janata Bank
 Agrani Bank
 Sonali Bank
 Rupali Bank
 BASIC Bank Limited
 Bangladesh Development Bank Ltd

7
Commercial banking in Bangladesh

There are 60 scheduled banks in Bangladesh,


operating under the supervision of Bangladesh Bank
 3 specialized banks (SDBs)
 Bangladesh Krishi Bank
 Rajshahi Krishi Unnayan Bank
 Probashi Kallyan Bank

8
Commercial banking in Bangladesh

There are 60 scheduled banks in Bangladesh,


operating under the supervision of Bangladesh Bank
 34 conventional private commercial banks (PCBs),
including
 Prime Bank Limited
 United Commercial Bank Ltd
 Southeast Bank Limited
 National Bank Limited
 Eastern Bank Limited
 Bank Asia Limited
 NCC Bank Limited, etc.
9
Commercial banking in Bangladesh

There are 60 scheduled banks in Bangladesh,


operating under the supervision of Bangladesh Bank
 8 Islami Shariah based PCBs
 Islami Bank Bangladesh Limited
 Shahjalal Islami bank Limited
 First Security Islami Bank Limited
 Export Import Bank of Bangladesh Limited
 Al-Arafah Islami Bank Limited
 Social Islami Bank Limited
 ICB Islamic Bank
 Union Bank Limited
10
Commercial banking in Bangladesh
There are 60 scheduled banks in Bangladesh,
operating under the supervision of Bangladesh Bank
 9 foreign commercial banks (FCBs)
 Citibank NA
 HSBC
 Standard Chartered Bank
 Commercial Bank of Ceylon
 State Bank of India
 Habib Bank Limited
 National Bank of Pakistan
 Woori Bank
 Bank Alfalah
11
Bank regulations

Four fundamental objectives of bank regulations


 Provide an efficient and competitive financial system
 Ensure the safety and soundness of banks and financial
institutions
 Provide monetary stability
 Protect consumers from abuses by credit-granting
institutions

12
Bank regulations

Most regulations can be classified in one of three


basic categories
 Safety and soundness (supervision, examination,
deposit insurance, chartering activity, product
restrictions)
 Efficient and competitive financial system (branching,
mergers and acquisitions, pricing)
 Consumer protection

13
Bank regulations

Direct regulations
 Bangladesh Bank Order, 1972
 Bank Company Act, 1991
 Bank Company (amendment) Act 2013
 Companies Act, 1994
 Deposit Insurance Ordinance, 1984
 Bankruptcy Act, 1997

14
Bank regulations

Direct regulations
 Artho Rin Adalat Act, 1990
 Foreign Exchange Regulations Act, 1947
 Financial Institutions Act, 1993
 Co-operative Society Ordinance, 1984
 Financial Reporting Act, 2015
 Anti Terrorism (Amendment) Act, 2013
 Anti-terrorism Act, 2009

15
Bank regulations

Indirect regulations
 Code of Civil Procedures, 1898
 Code of Criminal Procedure Witness Act, 1898
 General Causes Acts, 1877
 Limitation Acts, 1908
 Negotiable Instruments Act, 1881
 Penal Code, 1860
 Trust Act, 1872
 Transfer of Property Act
 Bangladesh Chartered Accounts Ordinance, 1973
16
Balance Sheet

Assets = Liabilities + Owner’s Equity

17
Bank Assets

Cash and due from banks


vault cash, deposits held at central and other financial
institutions, and cash items in the process of
collection
Investment Securities
assets held to earn interest and help meet liquidity
needs

18
Bank Assets

Loans
the major asset, generates the greatest amount of
income, exhibits the highest default risk and are
relatively illiquid
Other assets
bank premises and equipment, interest receivable,
prepaid expenses, other real estate owned, and
customers' liability to the bank

19
Bank Liabilities and Owner’s Equity

Demand deposits
Transactions accounts that pay no interest
Negotiable orders of withdrawal (NOWs)
pay interest set by each bank without central bank's
restrictions
Money market deposit accounts (MMDAs)
pay market rates, but a customer is limited to no more
than six checks or automatic transfers each month

20
Bank Liabilities and Owner’s Equity

Federal funds purchased


Borrowing at the discount window
Repo
Subordinated notes and debentures
notes and bonds with maturities in excess of one year

21
Bank Liabilities and Owner’s Equity

Stockholders' equity
Ownership interest in the bank
Common and preferred stock are listed at par
Surplus account represents the amount of proceeds
received by the bank in excess of par when it issued
the stock

22
The Income Statement

Interest income (II)


Interest expense (IE)
Interest income less interest expense is
net interest income (NII)
Loan-loss provisions (PL)
represent management's estimate of potential lost
revenue from bad loans.
Noninterest income (OI)
Noninterest expense (OE)
Taxes
23
The Income Statement

Interest Income is the sum of interest and fees earned


on all of a bank's assets, including:
 Loans,
 Deposits held at other institutions,
 Municipal and taxable securities, and
 Investment and trading account securities.

24
The Income Statement

Non-interest Expense Is Composed Primarily of


 Personnel expense
 salaries and fringe benefits paid to bank
employees
 Occupancy expense
 rent and depreciation on equipment and
premises
 Other operating expenses
 Utilities
 deposit insurance premiums
25

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