FINANCIAL MANAGEMENT OF PUBLIC & PRIVATE SECTOR ENTERPRISE


FINANCIAL MANAGEMENT OF PUBLIC & PRIVATE SECTOR ENTERPRISE


Financial Management of Public & Private Sector Enterprise

CONTENT 
1. DISCUSS GOALS & OBJECTIVES OF FINANCIAL MANAGEMENT OF PUBLIC & PRIVATE SECTOR ENTERPRISE.

2. DISCUSS ABOUT THE FINANCIAL MANAGEMENT PRACTICE OF PUBLIC & PRIVATE SECTOR IN BANGLADESH.

3. WHAT ARE THE TECHNIQUES OF PUBLIC FINANCIAL MANAGEMENT? DESCRIBE IN DETAILS.

4. DESCRIBE ORGANIZATIONS & MANAGEMENT STRUCTURES.

5. DISCUSS ABOUT CONTROL MEASURES OF FINANCIAL MANAGEMENT.

6. WHAT ARE THE PROBLEMS & PROSPECTS OF FINANCIAL MANAGEMENT PRACTICE IN BANGLADESH?

1.DISCUSS GOALS & OBJECTIVES OF FINANCIAL MANAGEMENT OF PUBLIC & PRIVATE SECTOR ENTERPRISE.
 
DEFINITION OF PUBLIC SECTOR ENTERPRISE
Public enterprises are autonomous or semi-autonomous corporations and companies established, owned and controlled by the state and engaged in industrial and commercial activities. Example: Bangladesh Bank, Janata Bank, Agrani Bank, Krishi Bank, Bangladesh Railway Corporation etc.

DEFINITION OF PRIVATE SECTOR ENTERPRISE
Private enterprise is industry and business which is owned by individual people or commercial companies, and not by the government or an official organization. Example: Square company, Uniliver, GSK, Grameenphone, Airtel etc.

DEFINITION OF FINANCIAL MANAGEMENT
The process of managing sources & investment of fund in order to maximize the profit. In broad sense, the process of financial planning, collecting & investing the fund, financial controlling & ensuring production against outsider’s fund & distributing the income in order to maximize the shareholder’s wealth. In other word, the process of planning & controlling the financial resource in order to maximize the profit or shareholder’s wealth.

GOALS OF FINANCIAL MANAGEMENT OF PUBLIC SECTOR ENTERPRISE
Public sector enterprise has an ongoing obligation to build the relationship with Public Bodies to ensure full compliance with the Public Bodies. Every effort is made to ensure the public bodies are structured and supported in its goals and objectives through ongoing pursuit of higher service standards, mutual respect, accountability and transparency.

GOAL 1: Strengthen Public Bodies governance and regulatory frameworks.

GOAL 2: Enhance the profitability, compliance, financial sustainability and service delivery of Public Trading Bodies.

GOAL 3: Enhance the compliance, financial sustainability and service delivery of Public Beneficial and Mutual Bodies.

GOAL 4: Effective identification, implementation and monitoring of PPP and Privatization programs.

GOAL 5: Efficient institutional support services.

OBJECTIVES OF FINANCIAL MANAGEMENT OF PUBLIC SECTOR ENTERPRISE

The general objectives of public sector are:
(a) To provide required investment and promotion of industrial activity by way of indirect public investment either by supplying financial assistance to private sector or to supply infrastructural and basic activities;

(b) To supply socio-economic developmental opportunities which should not be transferred to private sector undertakings;

(c) To nationalize those companies which are foreign dominated,

(d) To supply activities relating to import-substituting and export-promoting which are essential for the development of the country;

(e) To develop savings by mobilizing resources with the help of proper public sector prices more quick than others;

(f) To introduce certain activities to take the benefit of foreign aid and co-operation in the public sector;

(g) To make a balanced regional development by establishing regional promotional undertakings in less developed regions, e.g., D V. C (Damodar Vally Corporation);

(h) To protect the interest of small farmers by transferring all private licences to the corporations of agricultural reforms;

(i) To control the concentration of economic power and wealth as well;

(j) To make a social control on long term capital by supplying the necessary financial assistance through public financial institutions which are quite justified;

(k) To supply necessary finance for various development programmes which are essential for the development of the country;

(l) To make opportunities for employment and to form a rational society which is absolutely desired;

(m) To re-distribute incomes either by raising wage levels and checking higher salary level or by supply outputs at a concessional rate to the poor etc.

(n) To generate surplus resources for future growth and development; and

(o) To use human resources and material resources in a better way.

GOALS OF FINANCIAL MANAGEMENT OF PRIVATE SECTOR ENTERPRISE
Goal 1: To ensure profitability in the market.
Goal 2: To protect equity financing & debt financing.
Goal 3: To provide the information and tools to maximize competitiveness and enable economic growth for Bangladeshi private industries, workers, and customers.
Goal 4: Foster science and technological leadership by protecting intellectual property, enhancing technical standards, and advancing measurement science.
Goal 5: Observe, protect, and manage the Earth’s resources to promote environmental stewardship.

OBJECTIVES OF FINANCIAL MANAGEMENT OF PRIVATE SECTOR ENTERPRISE
(a) To earn high profit. 
 (b) To maximize the wealth of shareholders.
(c) Growth.
(d) To fulfill needs and wants of the people ;

Examples:
Multinational companies
Big corporations



2. DISCUSS ABOUT THE FINANCIAL MANAGEMENT PRACTICE OF PUBLIC & PRIVATE SECTOR IN BANGLADESH.
FINANCIAL MANAGEMENT OF PUBLIC BANK IN BANGLADESH
There are eight public banks in our country. These are: Agrani Bank Limited,
Janata Bank Limited, Rupali Bank Limited, Sonali Bank Limited, Bangladesh Development Bank, BASIC Bank Limited, Bangladesh Krishi Bank, Rajshahi Krishi Unnayan Bank.

FINANCIAL MANAGEMENT OF THESE PUBLIC BANKS ARE SHOWN BELOW:

Trade Financing:
Public banks extend multiple credit facilities to boost up trade, commerce and industry. The credit packages and interest rates are as under:Credit Packages                                                                 Interest Rate (Floating)1.Credit to Trade and Commerce                                                 14%
2.Credit for Power Driven Vehicle/ Water Transport                   14%
3.Overdraft Against:
Fixed Deposits                                                                              13%
SDPS Accounts
Five years period                                                                          12%
Ten years period                                                                           14%
Insurance Policy/ Shares and Debenture of Public Ltd. Co.        14%
Work order of Govt./ Semi Govt. Corp                                        14%
Wage Earners Dev. Bond                                                              13%
4.Housing Loan
Residential                                                                                    13.5%
Commercial                                                                                  14%
5.Small Loan                                                                                14%
6.Consumers credit                                                                      14%
7.Loans To Public Sector Enterprise                                           14%
8.Cash Credit Facilities for Small Business enterprises              14%
9.Cash Credit Facilities against Bricks Manufacturing               14%Investment Banking:
Central Accounts & Fund Management Division at Head Office maintains Investment Portfolio of the Bank. With a view to implementing Government policies & decisions and accelerating the growth of the capital market of the country, surplus funds of Pulic Bank are utilized in the following areas:
A) Short Term:
1. Call loans: An overnight investment to other Banks & Financial Institutions.
2. Treasury Bills: Investment made to the Government through Treasury bills.
B) Long Term:
1. Government/ Public Bonds: Sonali Bank Limited purchases bonds issued by the Govt. of Bangladesh and other Public Bodies.
2. Shares/ Equity Participation: Sonali Bank Limited participate in the IPO and extend bridge finance to the equity of public limited companies, institutions and public bodies.
3. Debentures: Sonali Bank Limited purchases debentures issued by the public bodies and financial institutions under Government.
NATURE OF BUSINESS
The Principle activities of the bank include providing of all kinds of commercial banking services to its customers. The activities can be classified in the following ways: Corporate Banking, Project Financing, SME Finance, Consumer Credit, International Trade, Trade Finance, Loan Syndication, Foreign Exchange Dealing, Rural and Micro Credit, NGO- Linkage Loan, Investment, Government Treasury Function, Money Market Operation, Capital Market Operation, Remittance.

FINANCIAL MANAGEMENT OF BANGLADESH BIMAN
Biman was established with a slogan “Your Home in the Sky” and it started operations in February 1972. After successfully completing a few domestic flights, on 10 February 1972, this aircraft crashed while on a test-flight. Soon after, one Boeing 707 and two Fokker F27 friendship aircrafts were included in the fleet, allowing Biman to begin international flights.
Biman incurred losses of Tk 249.51 crore and Tk 836.25 crore in the fiscal years 2004-05 and 2005-06 respectively. Biman is lacking it capital base and eventually also does not get sufficient finance from the Government to fill the deficit. Being an airline with a very narrow capital base, Biman was forced to borrow externally. These borrowings resulted in payment of huge amount of interest every year, draining a substantial portion of its income. Biman incurred losses from its inception to till to date about Tk 1,900 crore and its debt burden is over Tk 2,100 crore, payable to different organizations and now become unable for debt servicing and it cannot manage its spending without help from the government.

FINANCIAL MANAGEMENT OF BANGLADESH RAILWAY
A comprehensive valuation exercise was carried out by Price water house Coopers (PwC) which has resulted in an asset register as of June 30, 2013. The below opening balances will need to be posted into the new accounting system as at June 30, 2013.Asset category                            Original cost                  Valuation as on June 30,2013
Land                                             2,587,344                                      2,587,344
Structural
Engineering                                 50,636,558                                    30,003,500
works
Equipment                                   51,278,530                                    4,720,210
Rolling Stock                              23,723,176                                     8,994,091
Total assets                                 128,225,609                                   46,305,147
Revenue and expenditure are being recorded in the system from July 2013 on wards, separately for 16 remote accounting units. A consolidated position of expenditure for the 16 units is given for July and August 2013 below. Annual financial statements from the new system will be available from FY 2014 onwards.

FINANCIAL MANAGEMENT OF PRIVATE BANKS IN BANGLADESH
There are 32 conventional commercial Banks, 8 Islamic Shariah based Commercial Banks, 9 foreign commercial Banks, 6 Non-scheduled Banks, 35 Non-Bank financial institutes in our country. A table has been stated below to describe the finance scenario in our country.
Financial report of financing in different sectors (2009).Name                                                           Percentage
Trade financing                                             14.68 %
Import financing                                           13.59 %
Export financing                                           3.33 %
Financial report of financing in different sectors (2015)
Name                                                           Percentage
Trade financing                                              40.91 %
Import financing                                            11.44 %
Export financing                                             4.69 %
Importer / entrepreneurs opened both foreign and local L/C for industrial raw material, industrial goods, essential item and other item in different banks. Consolidated data on L/C collected from 40 commercial bank shows that outstanding foreign L/C increased to BTD 1537.14 billion in 2013(up to September) from BTD 1163.90 in 2009. Trend in L/C opening is given in Chart 1 which shows that about 85 percent (on average) L/C is foreign.3.

WHAT ARE THE TECHNIQUES OF PUBLIC FINANCIAL MANAGEMENT? DESCRIBE IN DETAILS.

TECHNIQUES OF PUBLIC FINANCIAL MANAGEMENT
WORKING IN PUBLIC FINANCIAL MANAGEMENT REQUIRES A STRONG UNDERSTANDING OF FINANCIAL ANALYSIS TECHNIQUES, INCLUDING:
(a) Trend and ratio analysis.
(b) Growth rate.
(c) Time value of money.
(d) Inflation adjustments.
(e) Forecasting techniques.
(f) Cash debt.
(g) Investments.

Trend and ratio analysis:
The analysis of a financial ratio by comparing it to the same ratio in previous years. For example, a person may compare earnings in November 2009 to earnings in November 2008, November 2007 and November 2006. This helps analyze whether a company's financial state is becoming more or less healthy over time.

Growth rates:
Growth rates refer to the percentage change of a specific variable within a specific time period, given a certain context. For investors, growth rates typically represent the compounded annualized rate of growth of a company's revenues, earnings, dividends and even macro concepts such as GDP and the economy as a whole..
PR = 280,000−250,0002,50,000𝑥 10010
PR = 30,0002,50,000𝑥10010
PR = 1210
PR = 1.2%

Time value of money:
The time value of money (TVM) is the idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity. This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received. TVM is also referred to as present discounted value.
Basic Time Value of Money Formula and Example Depending on the exact situation in question, the TVM formula may change slightly. For example, in the case of annuity or perpetuity payments, the generalized formula has additional or less factors. But in general, the most fundamental TVM formula takes into account the following variables: FV = Future value of money PV = Present value of money i = interest rate n = number of compounding periods per year t = number of years Based on these variables, the formula for TVM is: FV = PV x (1 + (i / n)) ^ (n x t) For example, assume a sum of $10,000 is invested for one year at 10% interest. The future value of that money is: FV = $10,000 x (1 + (10% / 1) ^ (1 x 1) = $11,000 The formula can also be rearranged to find the value of the future sum in present day dollars. For example, the value of $5,000 one year from today, compounded at 7% interest, is: PV = $5,000 / (1 + (7% / 1) ^ (1 x 1) = $4,673

Inflation adjustment:
INFLATION ADJUSTMENT is whenever any figure is adjusted for inflation/deflation. It simply means that all fluctuations in price (upward or downward) that are directly attributable to inflation/deflation are reflected into that figure through either adding or subtracting the amount that is directly caused by inflation/deflation.

Forecasting techniques:
Primary forecasting techniques help organizations plan for the future. Some are based on subjective criteria and often amount to little more than wild guesses or wishful thinking. Others are based on measurable, historical quantitative data and are given more credence by outside parties, such as analysts and potential investors. While no forecasting tool can predict the future with complete certainty, they remain essential in estimating an organization's forward prospects.

Delphi Technique:
The RAND Corporation developed the Delphi Technique in the late 1960s. In the Delphi Technique, a group of experts responds to a series of questionnaires. The experts are kept apart and unaware of each other. The results of the first questionnaire are compiled, and a second questionnaire based on the results of the first is presented to the experts, who are asked to reevaluate their responses to the first questionnaire. This questioning, compilation and requestioning continues until the researchers have a narrow range of opinions.

Scenario writing: 
In Scenario Writing, the forecaster generates different outcomes based on different starting criteria. The decision-maker then decides on the most likely outcome from the numerous scenarios presented. Scenario writing typically yields best, worst and middle options.

Subjective approach:
Subjective forecasting allows forecasters to predict outcomes based on their subjective thoughts and feelings. Subjective forecasting uses brainstorming sessions to generate ideas and to solve problems casually, free from criticism and peer pressure. They are often used when time constraints prohibit objective forecasts. Subjective forecasts are subject to biases and should be viewed skeptically by decision-makers.

Time-Series forecasting: 
Time-series forecasting is a quantitative forecasting technique. It measures data gathered over time to identify trends. The data may be taken over any interval: hourly; daily; weekly; monthly; yearly; or longer. Trend, cyclical, seasonal and irregular components make up the time series. The trend component refers to the data's gradual shifting over time. It is often shown as an upward- or downward-sloping line to represent increasing or decreasing trends, respectively. Cyclical components lie above or below the trend line and repeat for a year or longer. The business cycle illustrates a cyclical component. Seasonal components are similar to cyclicals in their repetitive nature, but they occur in one-year periods. The annual increase in gas prices during the summer driving season and the corresponding decrease during the winter months is an example of a seasonal event. Irregular components happen randomly and cannot be predicted.

Cash debt:
A higher current cash debt coverage ratio indicates a better liquidity position. Generally a ratio of
1 : 1 is considered very comfortable because having a ratio of 1 : 1 means the business is able to pay all of its current liabilities from the cash flow of its own operations.

Investment:
An investment is an asset or item that is purchased with the hope that it will generate income or will appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or will be sold at a higher price for a profit.

4. DESCRIBE ORGANIZATIONS & MANAGEMENT STRUCTURES.
TYPES OF ORGANIZATIONAL STRUCTURE IN MANAGEMENT

THERE ARE DIFFERENT TYPEES OF ORGANIZATIONAL STRUCTURE IN MANAGEMENT. FOLLOWINGS ARE SOME OF THEM:

Flat Organizational Structure:
Many small companies use a flat organizational structure, where very few levels of management separate executives from analysts, secretaries and lower-level employees. Flat organizations work best when a company has less than 20 employees, especially if the company employs one or two employees per department. One advantage of using a flat organizational structure for management is that decisions can be made relatively quickly. The flat organizational lacks the typical bureaucracy of taller organizational structures--those with many levels of management.

Functional Organizational Structure:
A functional organizational structure is centered on job functions, such as marketing, research and development and finance. Small companies should use a functional organization when they want to arrange their organizational structure by department. For example, a small company may have a director, two managers and two analysts in the marketing department. The director would likely report to the Chief Executive Officer, or CEO, and both managers would report to the director. In addition, each manager may have an analyst reporting to them. A functional organizational structure works well when small companies are heavily project-focused. Directors can assign certain projects to managers, who can then divvy up tasks with their analysts. The department can then more effectively meet their project deadlines.

Product Organizational Structure:
A product organizational structure has managers reporting to the president or head of the company by product type. Product organizational structures are primarily used by retail companies that have stores in various cities. However, stores in each city may still need a local human resources or marketing department to carry out functions locally. For example, a small department store company may have a vice president of sporting goods, housewares and general merchandise at the corporate office. One manager may report to each vice president. However, each manager may oversee the work of one or more field marketing employees who travel and handle local marketing stores in several states. These field marketing employees may work for the sporting goods manager one week in League City, Texas, then do merchandising for the housewares manager another week in the Sugarland, Texas, market.

Geographical Organizational Structure:
The Small Business Administration is responsible for defining small businesses in different industries. For example, in manufacturing, the SBA usually considers a company with 500 or fewer employees a small business. Point is, small businesses are still large enough to use a geographical organizational structure. A geographical organizational structure is when companies decentralize the functional areas. For example, unlike the product organizational structure, there may be a local marketing, finance, accounting and research development person based in each region. For example, a small consumer products food company may be large enough to place a marketing research manager and analyst in each of six different regions. This can be important because consumers in various areas have different tastes. Hence, a geographical structure will enable the company to better serve the local market.

5. DISCUSS ABOUT CONTROL MEASURES OF FINANCIAL MANAGEMENT.
CONTROL MEASURES OF FINANCAIAL MANAGEMENT
MEANING OF FINANCIAL CONTROL MEASURES
Financial control measures are those measures that is put in place to ensure that financial related assets or properties of an organisation are safeguarded, either from externals or employees of an organisation from any threat whatsoever, whether by theft, loss or misappropriation (intentional or otherwise). Simply put, as those policies, procedures practices and organisational structures which are implemented to reduce financial risk to the organisation. They are developed to provide reasonable assurance to management that the organisation business objectives will be achieved and risk prevented, or detected and corrected.
CLASSIFICATIONS OF CONTROL MEASURES
Class                                                        Function                                                     Example
Preventive
                   • Detect problems before they arise              •Employ only qualified  staff
                                     •Monitor both operation and input         Segregate duties (deterrent factor)                                     •Attempt to predict potential problems  •Control access to physical facilities
                                    before they occur and make adjustments
                                   •Prevent an error, omission or malicious 

                                     act from occurring.
Detective         •Use controls that detect and                         •Duplicate checking of calculations
                       report the occurrence of an error,                    •Past due account reports
                       omission or malicious act.                                      •Internal audit functions 

Corrective      •Minimise the impact of threat                          •Contingency planning
                        •Remedy problems discovered                           •Backup procedures

                         by detective control •Identify 
                         the cause of a problem
                        •Correct errors arising from a problem.


CSF OF FINANCIAL CONTROL MEASURES
Before any control measure can be put in place, an organisation must ensure that a friendly environment for its implementation is created. This could be through:

* The development of good attitude to the controls envisaged by both management and employees. Creation of a good organisational structure i.e. having a good reporting structure.

* Segregating of at least the following function: •Initiation of transaction •Custody of the underlying asset •Recording of transaction.

EXAMPLES OF FINANCIAL CONTROL MEASURES
Financial control can be applied in virtually all aspect of any business. These following are examples of areas where financial control could be applied: Bank account (Bank reconciliation statement preparation) Sales Purchases Cash and cheques Fixed Assets Payroll – Salaries and wages Stock , amongst others.

Bank account (Bank reconciliation statement preparation): This serves as a means of carrying out a periodical check on the activities carried out for the particular period. This is done by comparing the monthly bank statement sent by the bank to the organisation with the similar record maintained by the company for the same period. Any discrepancy is reconciliated so as to have the same balance in both record. These discrepancies may be caused by any of the party.

6. WHAT ARE THE PROBLEMS & PROSPECTS OF FINANCIAL MANAGEMENT PRACTICE IN BANGLADESH?

PROBLEMS FACED BY PUBLIC & PRIVATE ENTERPRISES IN BANGLADESH
THE FOLLOWING ARE THE PROBLEMS FACED BY PUBLIC & PRIVATE ENTERPRISES:

i. Bureaucratic management: The organizations are run by bureaucrats who may not have knowledge of running an enterprise or knowledge of the industry trends and practices.

ii. Lack of autonomy: These enterprises lack freedom and flexibility. They are subject to the control of the politicians and bureaucrats. Due to this, their performance is affected.

iii. Delayed decisions: Decisions are delayed due to red-tapism and bureaucratic procedures. A file may have to pass through many officials for approval before a decision can be taken. By the time a decision is taken, the business environment might have undergone considerable changes.

iv. Unplanned production: Many of the public sector enterprises produce products which are not in tune with the market demand. The needs of consumers are not taken into account while planning production. The result is poor sales and the organization is left with huge unsold stocks which are then disposed off at a discount.

V. No clear-cut price policy: There is no clear cut price policy. Certain organization follow a cost plus price policy, some administered pricing, a few dual pricing followed by those adopting association pricing. There is no clarity with regard to the price policy.

vi. Delays and cost overruns: Due to poor planning, lack of funds, mismanagement etc. many projects face delays and the consequent cost overruns. It is common to find new projects being announced without earlier projects being completed.

vii. High overheads: Many of these organizations incur high overheads. There is very little focus on cost control and cost reduction. Wastage of resources are rampant. Many organizations even maintain entire townships and incur high costs.

viii. Over-staffing: The salary costs and pension costs of many of these organizations are high. It is because government considers these organizations as generators of employment and many of them are overstaffed.

ix. Poor productivity: Due to reliance on outdated technology, lack of upgradation and inefficiencies, low levels of employee motivation and poor work culture, the productivity of many of these enterprises is quite low.

x. Lack of proper planning: Planning is poor and in some cases even absent. Projects are commenced without detailed analysis and planning. This results in losses and delays.

xi. Low capacity utilization: Capacity utilization is very low because of inefficiencies in management, inefficiencies in processes and procedures and low employee efficiency.

xii. Poor profitability: The profitability of the enterprises is quite low due to several inefficiencies in the way in which they are managed. Many enterprises incur heavy losses and the government regularly infuses capital to run them.

xiii. Poor labour management relations: The industrial climate in many of the enterprises is strained. This results in poor employee productivity. Unions are strong and strikes, go-slow tactics and agitations are common. This results in low morale and motivation levels and as a consequence, low output, poor quality of products and services are common.

xiv. High employee turnover: There is no incentive for improved performance, very little freedom to implement innovative ideas and practices, promotions are based on seniority and not on performance, chance of work in new technologies is very less with salary levels very low when compared to the private sector. Therefore many talented employees leave the organization and the rate of employee turnover is high.
xv. Nepotism and Corruption: Many of these enterprises function according to the dictates of politicians. There are many instances of corruption and undue favors being extended to select group of people who enjoy political patronage.

xvi. Poor work ethic: Employees of the public sector enterprises, enjoy job security. In many enterprises there are strong labor unions with political affiliations to protect employee interests. Due to these factors, employees do not feel the need to work in a dedicated manner and contribute to the growth of the organization. Low productivity, poor quality of work, absenteeism etc are common in these enterprises.

xvii. Low quality of output: The output of public enterprises, whether it is a product or a service, is not of high quality. This is due to lack of investment in technology, low employee morale, inferior quality of raw materials, poor work culture and lack of quality focus. Therefore they are not able to compete with the superior quality products and services offered by the private sector.

xviii. Uncertain financial allocation: These units are dependent on the government for funding and the quantum of funds allocation is uncertain. Therefore they are not in a position to plan for long term investment needs in an efficient manner. 

PROSPECTS OF PUBLIC & PRIVATE ENTERPRISE IN BANGLADESH
Recently Bangladesh Bank approved nine new banks in addition to the existing 47 in Bangladesh. This approval created ambivalent reaction in many corners of the society. Some called it a bane to our economy while other justified it as an apt decision. The country's financial sector has been facing severe problems such as liquidity crisis, unhealthy competition for deposit collection and lack of efficient human resources for the last one year. Thus it is safely assumed that these nine new banks will add new challenges for our economy. However, the central bank explained the economic context and rationale behind issuing new bank licenses. The economy has grown and the banking system has become more competitive while 45 per cent of the population still remains unbanked in Bangladesh. Moreover, BB expects that the entrance of the new banks will add to the aggregate capital base of the existing syndications, allowing for larger loans to be granted for productive investment and job-creation. But the economic reasons propounded by Bangladesh Bank for licensing new banks are not cogent enough because the country is facing a downturn as a result of second round effect of global recession. Moreover, in a situation of stagflation, the banking sector is now suffering from deposit shortage and investment fallout. New banks mean paid up capital amounting Tk 36 billion and to be deposited in those banks would be withdrawn from existing banks. This may lead to further deteriorations of the stringent situation prevailing in the banking sector.

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