Fund Management Practices of the Selected Nationalized Commercial Banks in Bangladesh

Abstract

Fund management of commercial bank is a significant issue for its growth and stability. The
unusual difference between cost of fund and return on fund is alarming for the financial health
of any commercial bank. The major objective of the study is to know the position of fund
management, profitability, growth, stability, and productivity trends of Janata Bank Ltd and
Agrani Bank Ltd during the period of 2000-2009 and 2004-2008 respectively. Here the
secondary data are used. In fund management practices, the banks are not in a good position
due to heavy stuck up advances, low recovery rates, excessive over dues, and outstanding
advances. The management of the banks is alert enough to overcome this odd situation. The
recent financial reforms introduced by the Ministry of Finance and Bangladesh Bank have
improved the situation. The overall profitability, productivity, and stability of the banks are
increasingly improving trough the application of modern fund management techniques.
Key Words: Efficiency, stability, liquidity, profitability, productivity, growth rate, fund
management.

Introduction

Banking system as a whole plays an important role in the economy of a country irrespective of its
level of development. Bangladesh as one of the poorest countries in the world, no exception to
this regard, inherited a poor banking system in terms of liquidity, personnel deposits, loan and
advances, discipline and banking work at the time of liberation (1971). After the independence of
Bangladesh, the development strategy which was followed in pre independence period,
underwent a qualitative change. The Government of the People's Republic of Bangladesh adopted
economic policies and programs ensuring social control and ownership of banks, major industries
and insurance companies, which were privately owned during Pakistan period. Accordingly local
as well as Pakistani banks were nationalized and reorganized into distinct new banks incorporated
in Bangladesh in terms of the Bangladesh Banks Nationalization order 1972, which was
promulgated on the 26th March 1972. During this time 6 nationalized commercial banks were
created viz. Sonali Bank, Janata Bank, Agrani Bank, Rupali Bank, Pubali Bank, and Uttara Bank.
No private commercial bank was allowed by the Government to operate except the foreign banks,
which were allowed to function as before. Although some of the objectives of nationalization
such as opening of bank branch in rural areas, mobilizing deposits from small borrowers and
extension of bank credit to the weaker sections of the society have been achieved to a certain
*Senior Lecturer, Faculty of Business, ASA University Bangladesh
**Assistant Professor, Faculty of Business, ASA University Bangladesh
238 ASA University Review, Vol. 6 No. 1, January–June, 2012
extent. The welfare of those sections has not been improved to the extent as expected. Bank credit
to the priority sectors increase at a rate but the actual results expected to be achieved as a result of
expansion of bank credit had been far from satisfactory because of misuse of credit. Allocation of
credit was much below the actual requirements. The effective cost of borrowing in many cases
was very high due to high transaction costs and other costs which had to be high by the small
borrowers. The projects became unprofitable due to high effective cost of borrowing, which
results in failure.

Statement of the Problem

Commercial Banks in Bangladesh have severe problem of stuck up advances in both public and
private sectors. The amount of such advances (excluding inter-bank) is about Tk. 2, 64,182.20
cores in 2009-2010 financial year. Most of the public sector industries have become sick. Many
of our private sector industries have also become sick due to production and marketing
difficulties. In our northern districts in Bangladesh, the industrial projects financed by Sonali
Bank Ltd, Agrani Bank Ltd, Janata Bank Ltd, Bangladesh Development Bank Ltd (BDBL,
formerly known as BSB and BSRS), Rajshahi Krishi Unnayan Bank (RAKUB) and others have
also become sick with some exception. This has raised the cost of fund of the banks. There is low
profit and productivity of the banks. In this context, any research work on fund management may
be beneficial to the authorities, policy makers, and others.
Need for the Study
Management of fund in Commercial bank is very essential for its sucessful survival. An extereme
difference between cost of fund and return on fund is very harmful for the financial base of any
Commercial bank. Agrani Bank Ltd and Janata Bank Ltd have severe financial difficulties and
due to alarming situation our government has appointed foreign consultant to review their
financial performance, World Bank suggests that over staffing should be reduced and even
nationalized commercial banks (NCBs) should be denationalized. There is a strong debate about
this idea. NCBs have social obligations, which are not followed by the private commercial banks.
For our socio-economic development, we need NCBs. If the NCBs are given full autonomy, they
can do well. Their performance may be a good guideline for the privatized commercial banks
(PCBs). We have read the different research studies done earlier but not a single study has been
attached to this fund management of Agrani Bank Ltd and Janata Bank Ltd. This is why we have
taken this study that will be helpful for many of us
Objectives of the Study
1. To know the fund management practices of Janata Bank Ltd during last ten (2000-2009)
years and Agrani Bank Ltd for last five (2004-2008) years.
2. To analyze the profitability condition of the banks and factors governing the same for the
period.
3. To know the productive trends of the banks and the factors for variations during the period.
4. To give suggestions for developing fund management practices in the bank as desired by
World Bank (WB), International Monetary Fund (IMF), and Foreign Consultants.

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