Major problems of the banking industry a (1)

1
AMERICAN INTERNATIONAL UNIVERSITY-
BANGLADESH (AIUB)
FACULTY OF BUSINESS ADMINISTRATION
REPORT ON
Major problems of the banking industry and strategies to overcome
them: A study on Bangladesh
SUPERVISED BY
Md. Joynal Abedin
Faculty Member
Department of Finance
SUBMITTED BY
Hasan, Md. Ashak Bin
13-24310-2
Maria
13-24380-2
Alam, Md. Iffat Ul
12-21933-1
Hossain, Md. Fahad
13-23440-1
Wahid, Syed Golam
13-23507-1
DATE OF SUBMISSION- 08 December, 2015

2
Major problems of the banking industry and strategies to overcome
them: A study on Bangladesh
ABSTRACT
The main objective of the study is to find out the major problems of the banking industry
and strategies to overcome them based on Bangladeshi bank. We discussed banking
industry and banking system in Bangladesh. Besides this, we discussed major problems
faced by Bangladeshi banking industry such as low quality of assets, lack of governance,
accountability and transparency, inadequacy of effective risk management system etc. We
also study and find out the possible strategies to overcome banking sector problems. We
analyze some point like non-performing loan and capital adequacy based on Bangladesh
”ank’s Financial Stability Report . To prepare this paper we collect our data from
several journals, articles, websites etc. means our project totally based on secondary data. To
gather knowledge to prepare this paper we review many articles and journals and get idea
about our subject that helps us to make this. To fulfill our project we analyze different
variable like distribution of NPL as percentage of outstanding loans, Gross and Net NPL as
percentage of outstanding loans at end December, 2014, Banking sector loan loss provisions:
end December, Top 5 and Top 10 banks based on NPL Size which helps to make our project.
To overcome the problems of banking industry in Bangladesh, we suggest some solution
that will helps to overcome those problems which useful for several people who will study
related this theme.
Hasan, Md. Ashak Bin, Maria,
Alam, Md. Iffat Ul, Hossain, Md. Fahad &
Wahid, Syed Golam

3
Table of contents
1.Introduction …………………………………………………………………………........
04
2. Literature Review ……………………………………………………………………….
04-06
3. Banking industry in Bangladesh ………………………………………………………
06
4. Major Problem Faced by Bangladeshi Banking Industry ………………………….
4.1. Low quality of asset ……………………………………………………………
4.2. Lack of good governance, accountability and transparency ………………
4.3. Inadequacy of effective risk management system ………………………….
06-12
06-07
07-08
08-10
5. Possible Strategies to Overcome Banking Sector Problems ………………………
5.1. Risk Mitigation Strategies …………………………………………………………….
13-15
14-15
6. Data and Method of Analysis ………………………………………………………….
6.1. Data Source …………………………………………………………………………….
6.2. Project Design ………………………………………………………………………….
6.3. Data Analysis……………………………………………………………………
15-16
16
16
16
7. Empirical Result and Discussion ……………………………………………………...
7.1. Non-Performing Loan (NPL) ……………………………………………………..
7.2. Capital Adequacy ……………………………………………………………………..
16-20
16-19
19-20
8. Recommendation ……………………………………………………………………….
21
9. Conclusion ………………………………………………………………………………
21
10. References………………………………………………………………………………
22-23

4
1. Introduction
Banks are among the most important parts of sourcing money for businesses and are now
very active in giving long term loans.). The main functions of banks are to earn money from
deposits and loans. Commercial Banks follow this step strongly. The main function of a
commercial bank is to mobilize deposits and to provide loans to people and organizations to
finance their consumptions and business activities.(Siqqiqi, Parveen and Hossain, 2013).
Thus banks encourage the flow of money to productive use and investment which
accelerates the flow of economic growth (Ashraf Ali &Howlader, 2005).
Bangladesh has improved in its economic sectors in recent years. The changes in
governments have created lots of problems in the economic growth rate of the country.
The problems in the banking sectors have arisen mainly from this problem.The problems
in the banking sectors have arisen mainly from this problem. The Governmental decisions
also have huge impact on the banking problems in Bangladesh. The Major problems are:
1. Low quality of Assets
2. Lack of good governance, accountability and transparency
3. Inadequacy of effective risk management system.
4. Weak institutional control
5. Pre-dominant of individual investors
If there is anydevelopment in the economic reforms of this country only then there will be
any development. Investment increases whenever there is a high level of growth in the
economy. It will be possible by proper financial institutions and proper cash flows from
banks to banks that the problems can be overcome (The Financial Express, 2015).
2. Literature Review
The term corporate governance means the control and directions provided by the
government bodies to maintain the process, system and relations in the corporations. It
includes the rules and responsibilities for making decisions in the corporate
world.Corporate Governance is a very important concept taken into account by most of the
corporations and financial institutions. The main concept of corporate governance is a clear
and equal relation between a corporation and its shareholders. This journal shows how far
the corporate financial sectors practice the corporate governance and how much beneficial it
is for the financial institutions.Corporate Governance helps to avoid big problems. The
proper decisions helps in managing shareholders risks, task specialization and many more.

5
After the financial crises of 2008-2009, the value of corporate governance increased. It is
different for banking financial institutions. The difference in the actions of financial and non-
financialinstitutions regarding this is huge. Therefore it is very important for both of the
sectors(Abedin&Arif, 2015).
Internal mechanism of Corporate Governance points out the internal decision by the board
of directors. Some factors involved in Corporate Governance:
1. Risk and Risk management
2. Culture of the Corporation
3. Market Discipline
4. Board of Financial Institutions.
The research has evaluated five main corporate governance characteristics that has been
practiced in Bangladesh. They are:
1. Legal framework
2. Regulatory frame work
3. Weak institutional control
4. Pre-dominant of individual investors
5. Limited transparence & weak disclosure practices etc. (Huq&Bhuiyan, 2012).
Givoly and Hayn researched on the Conservatism of financial reporting in the years 2001-
2005. After that there were not any indications found of Conservatism later on. This is what
is reflects in this journal. Accumulated Accruals: Long time presence of accruals which are
negative proves reporting of conservatism. Conservatism lies on the bad news of earnings
rather than the good news of economic events. This concept is also becoming monotonous.
Skewned earnings in negativity are calculated due to earnings recognition is done in
negativity. Profitability: 1995-2000: Till 2002 profitability started to decrease while increasing
losses. In 2003 it started to improve (Abedin, Alam and Shahid, 2012).
The main objective of the study is to find out the problem and prospect of mobile banking in
Bangladesh. Mobile banking has been started in Bangladesh but it is yet not so popular due
to the may be low technological benefits. But still most of the private banks have started to
adopt this technology (Ahmed, Rayhan, Islam &Mahjabin, 2011).
There are a series of ongoing reforms in the Bangladesh Bank. After 1982 reforms
adaptation, the assessment of their effect on the ”ank’s performance was reviewed by the
Central Bank Strengthening project. The economic and political impacts on the bank reforms