Banking Industry In Bangladesh
Bangladesh has being urged to expand its banking sector as a developing nation to support economic progress. The banking sector has grown dramatically in the nation over the past 30 years or so. The banking sector in Bangladesh has even gone farther by pushing the financial inclusion of the extremely poor in rural regions, with microfinance and microcredit serving as the main tools for achieving this goal. The rural economy has benefited from this by becoming more monetised and hence more market-oriented. The rural economy's market orientation also made it easier to shift resources continuously from rural to urban areas. The banking sector itself, particularly state-owned banks, is now the largest danger to attaining sustainable economic growth.
When banks purchase assets, both financial and physical, they also generate new money. It was difficult for economists to acknowledge that bank loans and bank investments do create deposits, or create money, according to Joseph Schumpeter, who wrote in his book History of Economic Analysis roughly 60 years ago. When a customer applies for a loan, the bank simply opens an account for them with the agreed-upon loan amount in it. The borrower formally agrees to repay the loan plus interest within the specified time period by signing a binding contract. This is a potential source of income for the bank. It is now abundantly evident that neither money nor funds have been stolen from any other account or accounts.
According to Bangladesh Bank, by the middle of 2018, three private sector banks and seven state-owned banks had capital shortfalls, necessitating state-funded recapitalization or bailouts of these institutions in order to preserve the public's faith in the banking system. However, these bailouts pose a moral hazard issue and are likely to encourage banks to carry on acting in this way. Additionally, the government must refrain from directing financing to particular industries or ends that are better served by budgetary provisions. The fact that many banks are experiencing capital deficiency shows that the current regulatory capital standards to ensure banks stay financially viable have not produced the anticipated results. That begs the question of whether such specifications are appropriate for the task. In that scenario, they should be reviewed.
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