This country-specific Q&A provides an overview of Banking & Finance laws and regulations applicable in Bangladesh.
What are the national authorities for banking regulation, supervision and resolution in your jurisdiction?
The primary authority of regulatory and supervisory affairs of banks and non-banking financial institutions (“NBFI”) in Bangladesh is the central bank, Bangladesh Bank. It is in charge of granting banking licenses, forming regulations and banking policies, placing such financial and monetary policies into action, monitoring financial organisation and implementing prudential rules in adherence to the laws, oversees currency rate policies and foreign exchange reserves.
State-owned banks and other financial institutions are further supervised by the Ministry of Finance, Financial Institutions Division (FID) section, which ensures the institutions compliance with the laws.
The banks listed with stock exchanges are further required to adhere to the rules and regulations framed by the Bangladesh Securities and Exchange Commission (BSEC). BSEC is the primary regulatory authority of all the public listed companies in Bangladesh.
Which type of activities trigger the requirement of a banking licence?
As per Section 31 of The Banking Companies Act, 1991, no person, establishment or company shall be allowed to conduct “bank business” in Bangladesh without a license issued by Bangladesh Bank. The term “bank business” has been defined under Section 5(p) of the same Act, which means the act of accepting, for the purpose of lending or investment, deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise. Therefore, engaging in the business of (i) accepting deposits from the public, which is repayable on demand, and (ii) withdrawable by cheque, draft, order or in any manner, would require a license under Section 31 of the Banking Companies Act, 1991.
Does your regulatory regime know different licenses for different banking services?
Bangladesh Bank classifies banks operating in Bangladesh into two categories: i) Scheduled Banks and ii) Specialised Banks. Scheduled banks provide day-to-day commercial banking services and are listed by Bangladesh Bank under Article 37(2)(a) of the Bangladesh Bank Order, 1972. In contrast, Specialized Banks are those banks which are established under a law or declared by the Bangladesh Bank as specialized banks.
Currently, there are 62 banks divided into five sub-classes: i) State Owned Commercial Banks, ii) Specialized Banks, iii) Private Commercial Banks, iv) Digital Commercial Banks, and v) Foreign Commercial Banks. All types of banks require a license under Section 31 of the Banking Companies Act, 1991, but licenses are issued based on sub-classes for scheduled banks, not the specific services provided.
Does a banking license automatically permit certain other activities, e.g., broker dealer activities, payment services, issuance of e-money?
A license under Section 31 of the Bank Companies Act, 1991 does not allow a licensee to engage in activities like broker-dealer services, payment services, or issuing e-money without additional licenses. For instance, providing e-money requires a Mobile Financial Service (MFS) license per the Bangladesh Mobile Financial Services Regulations, 2022 where a bank must hold at least 51% shareholding and majority control over the board. Similarly, broker-dealer activities necessitate a Trading Right Entitlement Certificate from the Bangladesh Securities and Exchange Commission. Generally, these services are provided by the Bangladeshi banks through their wholly owned subsidiaries. Payment services including through mobile application does not require additional payment service provider (PSP) or Payment Service Operator (PSO) license the Bangladesh Bank.
Is there a “sandbox” or “license light” for specific activities?
To keep up with the continuous technological advancement in the world, the Bangladesh Bank has introduced a dedicated office, namely, the Regulatory FinTech Facilitation Office (“RFFO”), to offer different fintech products in the domestic market on a pilot project basis. The said office was established by the Bangladesh Bank in the year 2019 with the intention to enable innovators to provide fintech services to the people in Bangladesh within an affordable price range. Under such a scheme, the new innovators have the opportunity to introduce new products in the market under less regulatory strictness and, upon obtaining a positive response from the local market, secure a complete license from the Bangladesh Bank.
Are there specific restrictions with respect to the issuance or custody of crypto currencies, such as a regulatory or voluntary moratorium?
Bangladesh Bank does not recognise the usage of virtual currencies like that of crypto currencies. As per Foreign Exchange Circular No. 24 dated September 15, 2022, it was reiterated that the definition of “currency” given in section 2(b)(i) of the Foreign Exchange Regulation (FER) Act, 1947 does not recognise virtual currencies. Virtual currencies [subset of virtual assets] are neither approved foreign exchange/currency nor approved forms of transactions/investments in accordance with Sections- 2(aa) and 2(bb) of the FER Act, 1947. Retention of export proceeds abroad in any form without limiting to equity/portfolio investment, purchase of physical assets/virtual assets, or maintenance of accounts regardless of currencies, including cryptocurrencies, constitutes a contravention of Section 5(1)(e) of the FER Act, 1947 and is subject to cognisance under Section 23(1) of the said Act as per SRO No. 59-LAW/2021 dated March 08, 2021 and as mentioned in FE Circular No. 39 of November 18, 2021. Any facilitation or exchange/transfer/trading of virtual assets or virtual currencies is thereby not permitted by law.
Do crypto assets qualify as deposits and, if so, are they covered by deposit insurance and/or segregation of funds?
As stipulated above, crypto assets are not permissible for use thereby, would not qualify as deposits.
If crypto assets are held by the licensed entity, what are the related capital requirements (risk weights, etc.)?
It does not apply to the jurisdiction of Bangladesh since the form of asset is yet to be decriminalised by Bangladesh’s financial policies.
What is the general application process for bank licenses and what is the average timing?
A thorough application has to be submitted to the Bank that includes a Feasibility Report consisting of information about shareholders, directors, a proposed business plan, capital structure, and financial projections in order to obtain a bank license in Bangladesh. Applicants must also pass a stringent “fit and proper” test for key personnel and be approved based on criteria such as public interest, management quality, and financial soundness. Depending on the complexity of the application and the time it takes for Bangladesh Bank to review it, the process can take anywhere from a few months to a year. Bangladesh Bank conducts a “fit and proper” test on key staff of the proposed bank to evaluate their experience, competency, and honesty. Setting up the minimum paid-up capital needed to launch a new commercial bank can take more time too.
Is mere cross-border activity permissible? If yes, what are the requirements?
Cross-border activities are stringently monitored and are permissible depending on the type of activity. Primarily the cross-border activities fall under the purview of Foreign Exchange Regulation Act, 1947 and different guidelines issued by the Bangladesh Bank from time to time.
While Bangladesh has little to no-restriction on inwards remittance i.e., remittance from outside the border to Bangladesh (but of course subject to anti-money laundering scrutiny), the outward remittance is highly regulated and subject to different regulatory restrictions. Under the Foreign Exchange Regulations Act, 1947 any remittance requires general or special permission from the Bangladesh Bank. General Permissions for inward remittances and certain outward remittances have been granted by the Bangladesh Bank from time to time by issuing circulars and/or guidelines. If any inward or outward remittance is not permitted under a circular or guideline, then special permission from the Bangladesh Bank will be required.
Foreign investments in Bangladesh are not restricted except few restricted sectors e.g., arms, ammunition, nuclear power, security printing and so on. On the other hand, a Bangladeshi national is not permitted to invest in a foreign country without express approval from the Bangladesh Bank. Nonetheless, the Bangladesh Bank has recently allowed a number of local companies engaged in export-oriented sectors to invest in foreign countries.
Cross-Border Lending & Borrowing is permitted with the permission of Bangladesh where foreign banks and financial institutions can lend to Bangladeshi firms. Subject to interest rate limitations and tenure restrictions, Bangladesh Bank’s Guidelines for Foreign Borrowing allow External Commercial Borrowing (ECB).
In certain situations, (such as export finance), local banks are only permitted to lend to overseas businesses with the Bangladesh Bank’s approval. Other than the foreign nationals, residents in Bangladesh are not permitted to keep deposits in foreign banks without permission from Bangladesh Bank.
Moreover, unless they have a regulated branch in Bangladesh and obtained a banking license from the Bangladesh Bank, foreign banks are not permitted to take deposits from Bangladeshi citizens. There are several exceptions to this however, including Offshore Banking Units (OBUs) that deal with foreign exchange operations.
Cross-border remittance services are permitted, but they have to processed via exchange houses, MFS providers, or banks with licenses from Bangladesh Bank. Unless they create a local entity and receive approval, digital banking and fin-tech companies based outside of Bangladesh are not permitted to provide services directly.
What legal entities can operate as banks? What legal forms are generally used to operate as banks?
A company with a banking license under Section 31 of the Bank Companies Act, 1991 can operate as a banking company and perform banking functions. The company must be public limited in nature and incorporated in Bangladesh with a paid-up capital requirement of not less than Taka 4 billion as prescribed in the Guidelines to Establish Banking Company in Bangladesh issued by the Bangladesh Bank. As per the said guidelines, the share capital will be formed with ordinary shares only. This, hence, bars other legal entities like private limited companies, partnerships or sole proprietors, cooperatives & non-governmental organisations (NGOs) from operating as banks. Additionally, foreign bank branches operate in the country upon obtaining permission from the Bangladesh Investment Development Authority for opening branch offices and obtaining a license from the Bangladesh Bank. As stated above, specialized banks are created through statute while obtains a license from the Bangladesh Bank.
What are the organizational requirements for banks, including with respect to corporate governance?
Bangladeshi banks need to have an effective internal control system, independent risk and audit committees, a well-organized board, and well-defined corporate governance guidelines. Strict control is implemented by Bangladesh Bank from time to time through the issuance of different notifications to guarantee financial stability and transparency and inspection and audit of banking companies. The Banking Companies Act, 1991 limits the total number directors that a banking company may have, maximum shareholding percentage by a shareholder, number of family members that a board may have. The Banking Companies Act further limits concentration of banking business, insurance business and non-banking financial institutions within the same group of persons by restricting cross holding of board seats by the same person. Furthermore, the members of the board need to satisfy the fit and proper test criteria to become a director of banking company.
Do any restrictions on remuneration policies apply?
The Bangladesh Bank has issued circulars regulating remuneration of key executives of a banking company. For example, Bangladesh Bank has issued guidelines on the remuneration of the Chief Executive Officer (CEO) of a bank; the salary is fixed as per the financial condition, scope of operation, business-volume and earning capacity of the bank; qualifications, achievement of the candidate in the past, age and experience and the remuneration paid to the persons occupying same position in the peer banks are taken into consideration.
Has your jurisdiction implemented the Basel III framework with respect to regulatory capital? Are there any major deviations, e.g., with respect to certain categories of banks?
Capital ratios were fully implemented under the Basel III standard starting in 2019. As per Bangladesh Bank, the minimum capital for scheduled banks in Bangladesh is now Taka 4 billion or 10% of the capital to risk-weighted assets ratio (CRAR), whichever is higher. A Capital Conservation Buffer (CCB) of 2.5% of the total Risk-Weighted Assets (RWA) is being imposed in addition to the minimum CRAR; this will be maintained in the form of Common Equity Tier 1 (CET1). Every bank has a method for evaluating overall capital sufficiency with respect to its risk profile and a plan for keeping capital at a sufficient level in addition to the minimum need. Instead of the previous 10–50% down payment, the policy also permitted defaulters to reschedule their categorised loans with a down payment of only 2% of the outstanding balance.
Are there any requirements with respect to the leverage ratio?
The banks are directed to maintain a minimum Tier 1 leverage ratio of 3% and maintain the same on a quarterly basis. The Bangladesh Bank has the goal to increase the leverage ratio to 4% in 2026. The banks are also required to submit their month-end average leverage ratio to the Bangladesh Bank.
What liquidity requirements apply? Has your jurisdiction implemented the Basel III liquidity requirements, including regarding LCR and NSFR?
According to the Banking Regulation and Policy Department Circular No. 18/2014, banks have to maintain the minimum standard Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). The minimum standard for LCR shall be greater than or equal to 100, and for NSFR, it shall be greater than 100. It has been implemented in line with the Basel III Framework.
Which different sources of funding exist in your jurisdiction for banks from the national bank or central bank?
Bangladesh Bank provides funds to banks in Bangladesh through a number of channels. These consist of targeted refinance plans, emergency credit, and continuing liquidity arrangements.
Do banks have to publish their financial statements? Is there interim reporting and, if so, in which intervals?
All the scheduled banks in Bangladesh are required to publish their annual audited financial statements to the Bangladesh Bank within 1 month from the date of finalisation of the same as per the FSD Circular No. 01 dated 28.05.2013 issued by the Bangladesh Bank. Similarly, the scheduled banks are also required to submit their half-yearly audited financial statements to the Bangladesh Bank within 1 month from the date of finalisation of such half-yearly audited financial statements.
Does consolidated supervision of a bank exist in your jurisdiction? If so, what are the consequences?
A dedicated department of the Bangladesh Bank, namely, the Integrated Supervision Management Department (“ISMD”), is responsible for ensuring the supervision of all the banks in Bangladesh through the Integrated Supervision System. Through such system, the Bangladesh Bank monitors the financial status of the banks in Bangladesh. ISMD was established in the year 2014. However, in the year 2020, by issuing a master circular bearing ISMD Circular No. 1 dated 07.09.2020, the Bangladesh Bank directed all the scheduled banks in Bangladesh to submit the branch-wise classified loan statements to the Bangladesh Bank in every quarter of a calendar year. Additionally, the banks are also liable to furnish their annual audit report to ISMD within 15 (fifteen) days of finalization of such report.
Upon receiving the aforementioned documents, the Bangladesh Bank may verify the statements provided by the banks. If any discrepancy is found in the given statements, the Bangladesh Bank may take action against the bank under Section 109 of the Bank Companies Act, 1991 which may result imposition of fine.
What reporting and/or approval requirements apply to the acquisition of shareholdings in, or control of, banks?
Under the Banking Companies Act, 1991 there is a restriction on holding more than 10% shares by any individual, establishment, company, or members of the same family, directly or indirectly, jointly or severally, with others or in any other way. Prior approval of the Bangladesh Bank is required prior to acquiring significant shareholding in a bank in Bangladesh. The term significant shareholding has been defined in the Banking Companies Act, 1991 as holding of share exceeding 5% of the ownership of any banking company by any individual, establishment, company or members of a family, directly or indirectly, severally or jointly with others or in other way.
Does your regulatory regime impose conditions for eligible owners of banks (e.g., with respect to major participations)?
The Bank Companies Act of 1991 restricts the concentration of the shares of a bank on any individual, establishment, company or member of the same family. By virtue of such provision, the said persons cannot hold more than 10% of a bank company even if they are eligible by other means.
Are there specific restrictions on foreign shareholdings in banks?
There is no explicit restriction on holding shares of a banking company in Bangladesh by a foreign shareholder. As per the Guidelines to Establish a Banking Company in Bangladesh, the 10% ceiling, as discussed in question No. 21, may also be relaxed if a foreign financial institution or banking company sets up a bank in Bangladesh through a joint venture.
Is there a special regime for domestic and/or globally systemically important banks?
Till now, the Bangladesh Bank has not implemented any special regime for domestic and/or globally systemically important banks. However, a number of departments of Bangladesh bank supervise all the banks in Bangladesh to minimise the chance of any potential crisis.
What are the sanctions the regulator(s) can order in the case of a violation of banking regulations?
Violations of the banking regulations stipulated by The Bank Company Act (Bangladesh), 1991, are punishable with imprisonment and/or fines. Further, the Bangladesh Bank has the authority to cancel, suspend a license as well as authority to acquire a banking company, wind up a banking company through the supervision of the High Court of Bangladesh.
What is the resolution regime for banks?
Bangladesh lacks a stand-alone bank resolution structure. The Bangladesh Bank has been provided with vast power in relation to addressing crisis in connection with a specific bank including the power to reorganise or dissolve such bank. Under the Banking Companies Act 1991, the Bangladesh Bank has the power to make a scheme of reconstruction, amalgamation or merger of a banking company with another banking company.
How are client’s assets and cash deposits protected?
The government of Bangladesh has established a dedicated system, namely, the Deposit Insurance System, to protect the client’s assets and cash deposit. Additionally, the government has also promulgated an act namely, the Bank Deposit Insurance Act, 2000, to protect the deposits made by the clients of all the banks in Bangladesh.
Does your jurisdiction know a bail-in tool in bank resolution and which liabilities are covered? Does it apply in situations of a mere liquidity crisis (breach of LCR etc.)?
Bangladesh has not formally introduced a bail-in mechanism as of yet. Nonetheless, the Bangladesh Bank has the authority to introduce such a mechanism to defend against any potential crisis. However, there is a precedent of winding up of a non-scheduled bank in Bangladesh on the ground that the said bank failed to maintain LCR. Recently, the Bangladesh Bank has also taken steps to merge the top-rated banks with banks which are constantly performing low for the purpose of avoiding financial mishaps. But such an attempt has not gained popularity and eventually died down.
Is there a requirement for banks to hold gone concern capital (“TLAC”)? Does the regime differentiate between different types of banks?
Bangladesh does not have a formal Total Loss-Absorbing Capacity (TLAC) requirement similar to the Financial Stability Board (FSB) framework for globally systemically important banks (G-SIBs). However, Bangladesh Bank enforces capital adequacy requirements under the Basel III framework (as mentioned in response 14), which provides some loss-absorbing capacity in case of bank’s failure.
Is there a special liability or responsibility regime for managers of a bank (e.g. a "senior managers regime")?
In order to guarantee accountability, risk management, and financial stability, Bangladesh Bank does, in fact, impose a unique liability and responsibility framework on directors and senior managers. Although Bangladesh lacks a formal Senior Managers & Certification Regime (SMCR), bank executives’ personal accountability has been defined by a number of laws and regulations.
In your view, what are the recent trends in bank regulation in your jurisdiction?
The high-yield market is integrating at a growing rate into Bangladesh’s banking and finance ecosystem, opening up new opportunities for companies not typically served by traditional banking.
Digitalisation is another shift that has been seen in the banking industry, even if increasing credit availability to companies in rural areas is still a top priority. With the help of Bangladesh Bank, other banks have been working with IT specialists to enable the younger and more tech-savvy population to obtain loans online due to the growing popularity of digital banking and Mobile Financial Services (MFS).
With Shari’a-compliant loan products, Islamic finance products have been gaining a lot of traction in the lending industry due to the nation’s socioeconomic structure and the majority of its population being Muslims.
Bangladesh Bank also offers a regulatory environment that includes a Refinance Facility at a reduced interest rate to promote female entrepreneurs’ involvement in CMSME activities.
What do you believe to be the biggest threat to the success of the financial sector in your jurisdiction?
There are several factors that have to be counteracted in order to truly flourish in the financial sectors of Bangladesh. The primary obstacles would be money laundering and the cases of corruption which result in increasing number of non-performing loans. Being marred by numerous high-profile cases of corruption, Bangladesh Bank has also been reinforcing guidelines and measures to ensure the mandatory recovery of loans and limit transactions to prevent money laundering, aside from the legislative provisions. Transparency and accountability have to be further integrated into the transaction processes. While Bangladesh is undergoing a shift in the political circumstances, changes in policies may vary the financial activities. Other factors like inflation and devaluation of the national currency also affect the interest rates and borrowing costs.
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