Bangladesh Commercial Banking Report Q4 2009

Bangladesh Commercial Banking Report Q4 2009

We now rate 59 banking systems, and it is little surprise that the developed states dominate the top spots.
The US and UK come first and second place, respectively, with scores of 88.7 and 88.0 out of 100. Of
crucial importance to both scores is the very high rankings in the crucial 'Risks to realisation of returns -
Market structure' sub-category, which accounts for 42% of the overall score. The two countries are
ranked first and second in this category as well. This sub-category captures the size of the sector, and the
potential for assets and loans to grow in US dollar terms. While both systems have been buffeted by the
global credit crunch and will not post stellar growth numbers in percentage terms for the foreseeable
future, the sheer size of the US and UK's financial systems means that there is massive potential for
deposits, assets and client loans to rise. In addition, the generally solid institutional framework - which
looks set to be augmented with new post-credit crunch regulations - will continue to provide a firm basis
for the sector.
A Mixed Bag For The Developed States
Following just behind the US and UK are a clutch of major developed state economies, including France
(82.9, 3rd) and Germany (80.5, 4th globally), Canada (79.9, fifth), as well as Australia and Italy (78.4,
joint sixth). All of these sectors have reasonable prospects into the medium term, having a large deposit
and loan base, as well as the potential to grow substantially in volume (even if not percentage) terms.
However, several states are notable by their absence in this cluster. Austria falls somewhat short (72.4,
12th) of the pack, along with Greece (69.4, 16th), but it is the poor performance of Switzerland (62.7,
26th) and Japan (56.3, 34th) which really stands out. Both states are going to struggle to post increases in
asset or loan growth in US dollar terms over the forecast period, to 2013, partially as a result of currency
moves to the downside, but also in the case of Switzerland because of the relative weakness of the two
key banking groups, UBS and Credit Suisse which had built up large franchises during the good years.
Asia Rising
Significantly, just behind the main 'pack' of European economies, several Asian states have managed to
post strong performances in our risk ratings. Malaysia (72.1, 11th) and Singapore (77.1, 8th) come in
ahead of Austria. However, Singapore leads the world globally in the 'Risks to realisation of returns -
Country risk' sub-category, with a score of 84.0, while South Korea has a score of 64.0. Singapore's high
score rests on good scores for key elements of BMI's economic, political and business environment risk
ratings, which measure the risks to policy continuity. In contrast, the small size of the economy and
banking sector is a major factor limiting the potential for expansion, especially in a world of lower
liquidity and risk appetite. South Korea, however, has a large domestic economy to provide the deposit
base necessary to fund credit growth.
Elsewhere in Asia, we note that China (overall score 75.1) ranks 9th overall. As the world's third biggest
economy - and still an emerging one at that - it is little surprise that the scope for asset growth in China is
huge. This has allowed the country to be ranked fourth in the 'Limits of potential returns' category (74.0),
and post the highest 'Limits of potential returns - Market structure' sub-category score, at 90.0. What
prevents China from rising any higher is its poor performance in the 'Limits of potential returns - Country
structure' sub-category, at 57.5 (42nd), and the 'Risk to realisation of returns category', at 80.0 (9th). Of
particular concern to BMI is the potential for a collapse of the local system, because much lending is still
state directed and risk management is still embryonic. In addition, despite the size of the whole economy,
per capita GDP remains low. We forecast it at US$3,024 for 2009, with significant income inequalities.
This severely limits the ability of financial institutions to sell premium products in the local markets, and
also means that average deposit levels are still very low.
Emerging Europe, Limited Opportunities
The emerging European states are posting surprisingly mediocre ratings outturns. We highlight the
potential for a systemic crisis in the region as the major Western European banks removing credit and
capital from Central and Eastern Europe. These risks are exacerbated by the deep recessions we see in the
Baltic states, Bulgaria, Russia and Turkey, and the risks of further currency crises that could create even
greater economic dislocations, as the massive economic asymmetries that have built up in the region
unwind. When taken in tandem with the relatively small size of the local economies and the rapid banking
sector expansion seen in recent years, it is little surprise that the highest rated emerging European state is
regional heavyweight Russia, at 73.8 (10th globally), and that the top 'new' EU member is the Czech
Republic, at 64.5 (24th). Coming close to the bottom of both the regional and global peers groups are
Latvia (39.0, 55th) and Ukraine (43.0, 51st), which have both been forced to tap the IMF and EU for
emergency funds.
MENA Below Par
The big story in recent years in the Middle East and North Africa (MENA) banking sectors has been high
oil prices in recent years. Hydrocarbon revenues have swollen bank balances across the Gulf region, with
significant amounts of capital and liquidity finding its way to North Africa as well. With the days of
stellar oil prices gone for now (and not likely to return over the forecast period) the outlook is not so
positive for the region, and this is reflected in the fact that the two highest ranked countries are the UAE
at 14th and Saudi Arabia at 21st. No other MENA state has broken into the top 25 of our 59-strong
ratings universe. Of particular concern is that while some progress has been made on putting the region's
financial infrastructure on a more sustainable footing in recent years, it is still far too dependant upon oil
revenues, and there are few drivers of either economic or commercial banking growth outside the natural
resources sector. Indeed, it is particularly worrying that not one MENA state has broken in to the top 10
states in the 'Limits of potential returns - Market structure' sub-category. The best performer is the UAE,
in 18th place, and even with the growth of Islamic banking products, the boom years are over. We expect
much more moderate growth in the financial space over the forecast period.
Opportunities In Africa
While Africa remains one of the most 'under-banked' regions in the world - and hence one of the most
insulated from the global credit crunch - the commercial banking business environment ratings still reflect
the major problems in operating even in the region's largest economies. South Africa's overall 70.5 rating
score put it in 13th place globally, while in the 'Limits of potential returns - Market structure' category it
scores 73.3, but it receives poor score for 'Risks to realisation of returns - Country risk', at 56.0. The
country's main weaknesses, in common with Kenya and Nigeria, are bureaucracy, external economic risk
and financial market risk, all of which deter potential investors from engaging more fully in the local
market.
Diverse Latin Performance
Again, in Latin America, the ratings do not tell one particular story, with a widely diverse regional picture
developing. Perhaps the most interesting story is among the worst performers, which include Argentina
(43.0, 49th), Colombia (50.3, 43rd) and Venezuela (36.0, 56th). All three economies face difficult times
over the coming years, having been fiscally imprudent. The latter two (especially Venezuela) have
benefited significantly from the oil boom, which has now come to an end. There is little to be optimistic
about in any part of the ratings for these countries, and we anticipate a much weaker performance than in
Brazil (66.5, 123rd), Chile (66.6, 22nd) or even Mexico (67.6, 20th). Of particular note is Brazil's crucial
'Limits of potential returns - Market structure' sub-category rating of 80.0 (seventh globally) and Chile's
reasonably solid 80.0 'Risks to realisation of returns - Market structure' rank of 11th.

Executive Summary ....5
Table: Levels (BDTbn)....... 5
Table: Levels (US$bn) ....... 5
Table: Levels At April 2009 ............. 5
Table: Annual Growth Rate Projections 2009-2013 (%) .. 5
Table: Ranking Out Of 59 Countries Reviewed In 2009 ... 6
Table: Projected Levels (BDTbn) .... 6
Table: Projected Levels (US$bn) ..... 6
SWOT Analysis............7
Bangladesh Commercial Banking SWOT............ 7
Bangladesh Political SWOT............ 7
Bangladesh Economic SWOT .......... 8
Bangladesh Business Environment SWOT.......... 8
Business Environment Outlook.....9
Commercial Banking Business Environment Rating 9
Table: Commercial Banking Business Environment Ratings . 9
Commercial Banking Business Environment Rating Methodology .......... 12
Commercial Banking Business Environment Ratings ..... 13
Global Commercial Banking Outlook........14
Table: Loan Growth, 2006-2013 (% change y-o-y) ........ 15
Table: Loan-To-Deposit Ratios, 2006-2013...... 16
Regional Outlooks.....17
Asia Banking Sector Outlook.......19
Bangladesh Banking Sector Outlook........23
Islamic Banking Overview...........26
Economic Outlook.....33
Table: Bangladesh - Economic Activity ............ 35
Competitive Landscape.36
Market Structure 36
Protagonists.. 36
Table: Protagonists In Bangladesh's Commercial Banking Sector ..... 36
Definition Of The Commercial Banking Universe........... 36
List Of Banks 37
Table: Major State-Owned Banks.. 37
Table: Other Banks.......... 37
Company Profiles......39
Sonali Bank... 39
Table: Key Statistics For Sonali Bank (BDTmn)............. 40
Janata Bank .. 41
Table: Key Statistics For Janata Bank (BDTmn) ............ 42
Agrani Bank.. 43
Rupali Bank .. 44
Islami Bank Bangladesh Ltd .......... 45
Table: Key Statistics For Islami Bank (BDTmn)............. 45
Prime Bank Ltd.. 46
Table: Key Statistics For Prime Bank (BDTmn) ............. 46
Pubali Bank Limited ........ 47
Table: Key Statistics For Pubali Bank (BDTmn) ............ 47
BMI Banking Sector Methodology.............48
Commercial Bank Business Environment Rating... 49
Table: Commercial Banking Business Environment Indicators And Rationale. 50
Table: Weighting Of Indicators ..... 51