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Recently released market study: Bangladesh Commercial Banking Report Q3 2012

New Financial Services market report from Business Monitor International: "Bangladesh Commercial Banking Report Q3 2012"


Boston, MA -- (SBWIRE) -- 09/18/2012 -- Politicking To Take Its Toll On Stressed Banking Sector BMI View: Despite the reservations of the central bank and the IMF, the government's persistent (likely politically-motivated) willingness to allow new entrants in the country's saturated banking sector will continue to present a major risk to the existing players in the market. Crucially, existing banks are already under pressure from slowing asset growth, falling net interest margins, tightening liquidity conditions, and high exposure to the country's trade sector, which is suffering from weak European economic conditions. In our view, the government's persistent demand to allow new entrants into Bangladesh's saturated commercial banking sector, despite the ongoing reservations of Bangladesh Bank (BB), will continue to present a major risk to the current players in the market, who are already under immense pressure. According to the central bank's latest publication on banking statistics (for Q311), the country currently has 47 banks in total, most of which are domestic private banks (23). The central bank, which opposes the government's request as it does not see the need for more banks (given how saturated the market is), recently gave into political pressure by deciding to send a shortlist of 16 proposed banks to the prime minister's office. The move will not help Bangladesh's case in terms of its pursuit of a US$1.0bn IMF loan, as the international lender shares the central bank's concern. Although the main opposition Bangladesh Nationalist Party (BNP) opposes the ruling Awami League (AL)'s push for new banks, we note that the risk of political parties forcing new banks into the industry is not specifically tied to one party. Indeed, according to The Daily Star, since the 1980's, the country's main political parties have pushed for the establishment of new banks during their respective tenures, with the ruling AL approving 13 in its previous term. The current batch of proposed banks includes major shareholders such as Hussain Muhammad Ershad (chairman of Jatiya Party, the AL's largest coalition partner) and Fazle Noor Taposh (an AL lawmaker and Prime Minister Sheikh Hasina's nephew). To be sure, given the government's centre-left slant, we are unsurprised about its willingness to intervene in the status quo. While we continue to believe that, over the long term, greater competition is a net positive for the maturation of the country's banking sector, the irregular and controlled 'stop-start' nature of additional competition and the implicit protection existing banks receive when licenses dry up could counter (or at least limit) any potential gains made over the long run. Banking Sector Still Under Severe Pressure As previously mentioned, the potential flood of new entrants in the coming months should put added pressure on the already struggling existing players in the industry in the short term. Starting off with the broader trends, due to a slowdown in client loan growth, total banki

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