Financial Systems Regulations in Bangladesh

Financial Systems Regulations in Bangladesh in 2024

Financial Systems Regulations in Bangladesh

Dewey Leboeuf Law Firm, with its illustrious history and a team of seasoned legal professionals, has emerged as a trailblazer in navigating the complex realm of Banking Regulatory Litigation in Bangladesh. This article delves into the firm’s extensive experience, focusing on key cases, regulatory nuances, and Mr. Rahman’s pivotal role in drafting crucial circulars, regulations, and guidelines during the central bank strengthening project.

Management of Reserves Strategy

In order to mitigate the risk associated with the volatile nature of interest rates on the global money market and the extensive fluctuations in the exchange rates of major currencies, Bangladesh Bank maintains the country’s foreign exchange reserves in multiple currencies. BB has formed Nostro account partnerships with a number of central banks. The accumulated funds in these accounts are invested in government securities denominated in the respective currencies, such as Treasury bills, repos, and others.

Additionally, the fund acquires high-rated sovereign, supranational, and corporate bonds and conducts investments through short-term deposits at various reputable commercial institutions. The investment operational functions of BB are carried out by a distinct department, operating under the guidance of the investment policy established by the Investment Committee of BB, which is presided over by a Deputy Governor. The investment policy is founded upon the fundamental principle of maximizing investment returns while minimizing exposure to market risk.

Rate of Interest Policy

A flexible interest policy was established as part of the financial sector reform. As per this, banks have the autonomy to establish and maintain lending and deposit rates (Bank/Financial Institutes) with the exception of Export Credit. With the exception of agricultural and pre-shipment export credit, there is currently no interest rate cap on bank lending.

However, in the same lending category, banks may differentiate interest rates by up to 3 percent in light of the relative risk factors associated with various borrowers. As interest rates deregulation progresses, financial institutions have been instructed to disclose the mid-rate of the limit (if any) for various sectors. Interest adjustments may be made by the financial institutions up to 1.5% above or below the disclosed mid-rate, contingent upon the relative credit risk. The deposit and lending interest rates of each bank are published on their respective websites.

Adequacy of Capital for Banks and FIs

In an effort to strengthen the capital bases of banks and thereby foster a more resilient banking sector, Basel-III was implemented. The adoption of the Basel III regulation is scheduled to occur gradually, commencing in January 2015. Complete implementation of capital ratios is expected to occur at the start of 2019. At present, scheduled banks in Bangladesh are obligated to uphold a minimum capital requirement of Taka 4 billion or 10% of their Capital to Risk Weighted Assets Ratio (CRAR), whichever value is greater.

Furthermore, alongside the minimum CRAR, a Capital Conservation Buffer (CCB) of 2.5% of the overall RWA is being implemented. This CCB will be sustained through the utilization of CET1. In addition to the bare minimum, all financial institutions employ a systematic approach to evaluate the sufficiency of their capital in light of their risk profile and devise a plan to ensure that capital remains at an optimal level.

The complete adoption of Basel-II, which stands for Prudential Guidelines on Capital Adequacy and Market Discipline (CAMD) for Financial Institutions, commenced for FIs on January 1, 2012. FIs are now required to maintain capital of Tk 1 billion or 10% of total risk-weighted assets, whichever is greater, in Bangladesh.

Investment Insurance Deposits

In Bangladesh, the Deposit Insurance Scheme (DIS) was implemented in August 1984 to provide depositors with a safety net. This scheme is comprised of every scheduled bank in Bangladesh that complies with the Bank Deposit Insurance Act of 2000. DIS aims to increase market discipline, decrease moral hazard in the financial sector, and provide public safety nets in the event of bank failure at the lowest possible cost. Additionally, a Deposit Insurance Trust Fund (DITF) has been established to offer a minor depositor limited protection (up to Taka 0.01 million) in the event that a bank ceases operations.

The Board of Directors of BB serves as the DITF’s Trusteeship Board. Effective January through June 2007, BB has implemented a system of risk-based deposit insurance premium rates that are pertinent to all scheduled banks. As per recent guidelines concerning premium rates, problem banks are obligated to contribute 0.09 percent, while private banks excluding problem banks and state-owned commercial banks are required to contribute 0.07 percent. It is important to note that the coverage of deposits amounts to one hundred thousand taka per depositor per bank. In consideration of this objective, BB has already recommended that the banks publicize DIS by featuring it on their display boards.

The Insurance Control Organization

The Insurance Development and Regulatory Act of 2010 authorized the establishment of the Insurance Development and Regulatory Authority (IDRA) as the regulator of the insurance industry on January 26, 2011. The IDRA succeeded the Chief Controller of Insurance as its predecessor. This institution is administered by the Ministry of Finance, and its general oversight and business direction are the responsibilities of a four-member executive body presided over by the Chairman.

With the goal of positioning the insurance industry as the leading provider of financial services in the nation, IDRA has been formed with the following objectives in mind: fostering an efficient corporate environment, safeguarding the nascent aspirations of society, and deeply permeating all sectors to promote robust economic growth.

The primary objective of IDRA is to safeguard the interests of policyholders and other relevant parties covered by insurance policies, effectively oversee and regulate the insurance sector, and promote its systematic and orderly expansion. Additionally, IDRA addresses any other pertinent or incidental matters that may be associated with these objectives.

I. Mr. Rahman’s Pioneering Role in Central Bank Strengthening Project:

A. Drafting Circulars, Regulations, and Guidelines:

  • Collaboration with Legal Luminaries:
    Mr. Rahman’s involvement in the central bank strengthening project from 2004 to 2006 showcased a collaborative effort with renowned lawyers from Fox Mandal, India, and Gide Loyrette Nouel, France. Together, they contributed to the drafting of crucial circulars, regulations, and guidelines that laid the foundation for robust banking regulatory practices.
  • Multifaceted Expertise:
    The project covered a spectrum of regulatory domains, including banking, money laundering, credit information, supervision, foreign exchange, and Islamic banking. Mr. Rahman’s multifaceted expertise gained during this period remains a distinguishing factor, providing Dewey Leboeuf a distinct advantage in the legal landscape.

II. Banking Regulatory Landscape in Bangladesh:

A. BRPD and DBI as Regulatory Pillars:

  • Central Bank’s Regulatory Dominance:
    In Bangladesh, the central bank plays a pivotal role in banking regulation. The two major departments, Banking Regulation and Policy Department (BRPD) and Department of Banking Inspection (DBI), wield significant influence over critical banking operations.
  • Key Regulatory Aspects:
    The regulations set forth by these departments encompass various facets of banking operations. Issues such as the exercise of power beyond statutory limits and the issuance of regulations conflicting with fundamental rights have been focal points of regulatory litigation.

III. Challenges and Key Issues in Banking Regulatory Litigation:

A. Power Limitations and Fundamental Rights:

  • Statutory Limit Challenges:
    Banking Regulatory Litigation often revolves around the challenge of authorities exercising power beyond statutory limits. Dewey Leboeuf’s legal acumen has been instrumental in navigating such challenges, ensuring regulatory compliance within the defined legal framework.
  • Fundamental Rights Implications:
    Conflicting regulations that impinge upon fundamental rights pose significant challenges. The firm’s expertise lies in addressing these conflicts through strategic legal arguments and meticulous analysis of constitutional implications.

A. In-Depth Knowledge and Experience:

  • Mr. Rahman’s Extra Edge:
    Mr. Rahman’s in-depth knowledge and experience gained during the central bank strengthening project provide Dewey Leboeuf with an extra edge in handling banking regulatory matters. This profound understanding allows the firm to navigate intricacies with precision.
  • Holistic Approach:
    Dewey Leboeuf’s legal team adopts a holistic approach, combining regulatory insights, legal acumen, and a strategic mindset. This comprehensive methodology ensures effective representation in regulatory litigations.

Dewey Leboeuf Law Firm’s journey through the intricacies of Banking Regulatory Litigation in Bangladesh stands testament to its commitment to excellence and unwavering legal proficiency. The firm’s foundational role in the central bank strengthening project, coupled with Mr. Rahman’s invaluable contributions, positions Dewey Leboeuf as a legal powerhouse. As challenges in the banking regulatory landscape continue to evolve, Dewey Leboeuf’s adept legal team remains poised to address complexities, setting new standards in the realm of Banking Regulatory Litigation in Bangladesh.


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