Weekly Newsletter (24 May - 31 May), 2012

Bhutan bans Bangladeshs consumer products

Bhutan has banned import of consumer items from Bangladesh since the month of March this year on grounds of a crunch in foreign currency there. Normally, Bhutan government issues an import license allowing $1.5 lakh worth of goods for six months. Around 10-12 leading Bangladeshi companies were involved in exporting goods to Bhutan. In the year 2010-2011, Bhutan exported goods worth of $19 million while Bangladesh exported only 3.12 million to Bhutan. Bhutan is finally set to sign the long drawn out transit agreement with Bangladesh in the forthcoming meeting between the two countries. The primary objective of the meeting is to heighten bilateral trade and expedite transit facility between the two South Asian nations. The secretary-level meeting between Bangladesh and Bhutan is scheduled to be held in the Bhutanese capital Thimpu in the second week of June (The Independent, May 24, 2012)

DSE indices, turnover fall

Dhaka stocks fell for the third running session with turnover hitting more than two months' low, as most of the investors were inactive in the market adopting 'wait-and-see' policy following further writs issue. The market started with a positive note, gaining more than 45 points within 10 minutes. After that it started to decline amid moderate ups and downs and finally ended 30 points lower. The DGEN fell to 4734.3314 on 31 May, 2012. The broader All Shares Price Index (DSI) fell to 4007.33426 on 31 May, 2012. The DSE-20 Index comprising blue-chip shares also lost 12.76 points or 0.34% to close at 3,676.58.The turnover value shrunk to Tk1.72 billion which was 37.12% lower compared to previous day's Tk2.74 billion. This was also the lowest turnover value since March 12, when it was recorded Tk1.42 billion. The total market capitalization of the DSE stood at Tk2,549.93 billion against Tk2,558.31 billion in the previous session. NBFIs lost 0.77%, banks 0.66%, fuel and power 0.51%, pharmaceuticals 0.44% and telecommunications 0.29%. LankaBangla Finance topped the turnover chart for the fourth straight session and shares worth Tk97.90 million changed hands Thursday. The other turnover leaders were Lafarge Surma Cement, Jamuna Oil, Grameenphone, Beximco Limited, Meghna Petroleum, MI Cement, Fareast Islami Life Insurance, Aftab Automobiles and National Bank.AB Bank First Mutual Fund was the day's highest gainer posting a rise of 9.37%. It was followed by Rahim Textile, Hakkani Pulp and Paper, AIBL First Mutual Fund, Second ICB, Standard Insurance, Power Grid, Rangpur Foundry, NCCBL Mutual Fund-One and Sixth ICB. (The Financial Express, May, 2012)

Foreign aid inflow picks up in April

Total foreign aid inflow to Bangladesh has picked up in the tenth month (April) of the current fiscal year (FY) as the major donors - World Bank and Japan - have disbursed a big chunk of money in the last couple of months. Multilateral and bilateral donors and lenders disbursed US$ 1.64 billion worth of loans and grants during July-April period of FY 2011-12, $ 252 million up from that of FY 2010-11. Bangladesh received $ 538 million worth of loans and grants from the World Bank until April this year compared to $ 254.05 million until March. It has also received an impressive $ 189 million aid from Japan until April this year compared to $ 26.44 million until March. Besides, the Asian Development Bank (ADB) has disbursed $ 416 million, UK's Department for International Development (DFID) $ 132 million and United Nations Development Programme $ 47 million worth of foreign assistance in July-April period of the current fiscal. Out of the total $ 1.64 billion worth of assistance received by the Bangladesh government, $ 1.16 billion has come as loans and $ 483 million as grant in July-April period of FY 201112. (The Financial Express, May 25, 2012)

ADB projects growth below target

Bangladeshs economy is forecast to have grown at 6.32% in the fiscal year to June, a slowdown from last years expansion. The GDP growth rate, in the current 2011-12 fiscal year, has been forecast at 7%, by the government. Asian Development Bank (ADB) had projected that Bangladeshs economy would grow at 6.2% in the current fiscal, 0.80% below the governments projection. However ADB suspect that GDP growth will gain slightly in FY 2013 and the%age point increase would reach 7% by FY2015. For FY2011, the IMF had projected a 6.70% growth, while the actual achievement, reported by Bangladesh Bank, was 6.66%. International Monetary Fund (IMF) had projected Bangladesh's GDP growth to be 5.50%, during the current fiscal year (FY 2011-12), much lower than the governments expectation of 7%. According to ADB unprecedented rise in subsidy requirements, backed by high inflation, has created huge pressure on fiscal management, during FY12. The task-force has to be more effective in solving the deadlock in funds pipe-line that has already gone up to USD 17.5 billion. The task-force should find out the critical issues impacting the foreign-aided projects and should take necessary steps to release the funds to increase ADP implementation. The government should increase public investment, in sectors where private investors refuse to tread and provide incentives for sectors that address problems faced by the masses. Public investment should increase to at least 5 to 7% of the total GDP, from 3.5% at present. Government should maintain subsidy to increase public investment, as well as, gave more importance to increase the utilization of foreign aid. Government should give attention towards removing political intemperance in project implementation. Foreign-aided projects should be given more attention, to grab foreign aid for bigger investments in the public sector. The government should take initiatives to increase the revenue. If necessary, the government has to involve private investors, to increase revenue. (The Independent, May 26, 2012)

Muhith differs with ADB

According to the Finance minister AMA Muhith gross domestic product (GDP) of Bangladesh was terribly under estimated. He observed that the base-year is 15 years' old and many products are kept away from the lists of the GDP calculation. He also added that the Bangladesh Bureau of Statistics (BBS) is trying to update the base year. Hopefully the new accounting system will start from next year. Muhith differed on GDP calculation system considering the incremental capital output ratio. (The Financial Express, May 27, 2012)

BDT gains against major foreign currencies

Taka has appreciated against most major foreign currencies barring the US dollar. The conditions in the country's forex market are now stable and the Bangladesh Taka (BDT) is gaining strength against some leading foreign currencies. During this month, Indian Rupee (INR), British pound sterling (GBP), Euro (EUR), Australian dollar (AUD), Canadian dollar (CAD) and Singapore dollar (SGD) lost ground against BDT, while the exchange rate of US dollar remained unchanged. The interA weekly publication of R&D Division

Weekly Newsletter (24 May - 31 May), 2012

bank buying rates of INR, GBP and EUR were Tk1.44, Tk128.21 and Tk102.50 per unit in that order, on May 27 last. Meanwhile, the INR depreciated against US dollar substantially in May. The exchange rate of INR stood at Indian Rupee 54.24 against one US dollar on May 28 compared to Indian Rupee 53.00 against one US dollar on May 02, 2012. The monthend inter-bank buying rates of other leading foreign currencies like AUD, CAD and SGD were so far lower than their monthbeginning rates, by at least Tk3.0 per unit of such currencies. However, the inter-bank buying rate of the US dollar has remained almost unchanged at Tk81.90 during the month. Currently, the exchange rates remain at Tk79.86 and Tk79.49 against per unit of AUD and CAD while SGD sells at Tk63.88 per unit. The Foreign Exchange reserve came down toUS$9,606.96million on 15 May, 2012 from US$10,306.16million on 15May, 2011. (The Financial Express, May 29, 2012)

Microcredit can reduce poverty by 20% in six years

Microcredit can reduce poverty by 20% within next 5-6 years if there is no big natural calamity in the country. The net savings of the rural poor has increased due to microcredit which contributes to poverty reduction. According to Bangladesh Bureau of Statistics (BBS) country's poverty reduction rate was 8.5% in 2010 which brought down the poverty level to 31%. The savings of the poor people in rural areas has increased. Microfinance Statistics, an annual report of CDF, showed that the net savings of 200 million families has reached Tk300 billion. Microfinancing has been made multidimensional which now fulfils almost all the financial needs of the poor. About 200 million microcredit borrowers have so far received Tk2.70 trillion credit while the outstanding loan amounts to Tk400 billion. (The Financial Express, May 30, 2012)

Banks achieve 94% of spl agri-loan disbursement target

The banks - SCBs, PCBs and FCBs - have cumulatively achieved 94% of their special agricultural loan disbursement target in the first ten and a half months of the current fiscal year (2011-12). From July 1, 2011 to May 10, 2012 the banks disbursed a total ofTK731.43 million as special agricultural credit at 4.0% interest, which is 94.22% of their yearly target ofTK776.30 million. Of the distributed amount, TK11.59 million were disbursed for cultivation of pulses, TK55.72 for oil seeds, TK578.49 million for spices, andTK85.62 million for maize cultivation. (The Financial Express, May 26, 2012)

BB unlikely to extend June 30 deadline

The central bank is unlikely to extend the deadline for doubling the paid-up capital of the non-banking financial institutions (NBFIs) to a minimum Tk1.0 billion to help the latter consolidate their capital base for minimizing risks. Currently, 31 NBFIs are operating in the country. The NBFIs will have to raise their paid-up capital to a minimum of Tk1.0 billion from the existing Tk500 million by June 30. Central Bank earlier asked the NBFIs to increase their capital and meet the required benchmark by issuing rights or bonus shares or floating initial public offerings (IPOs). The amount of paid-up capital has been raised to consolidate the capital base of the country's NBFIs in line with the Basel-II framework, being implemented form January 1 this year. The Basel-II accord has been prepared on the basis of three factors: minimum capital requirement, supervisory review process, and market discipline. Three types of risks - credit risk, market risk, and operational risk - have to be considered for the minimum capital requirement. (The Financial Express, May 29, 2012)

Five new savings schemes to be launched next fiscal

The government is planning to introduce five new savings schemes from the next fiscal year (2012-13), beginning from July 1, in a bid to finance its budget deficit. The new savings instruments include - Sanchayapatra for elderly people, Sanchayapatra for farmers, Sanchayapatra for students, and Sanchayapatra for disabled people. The tenure and maturity period of the certificates will range between three months to five years. With the introduction of the five new schemes, the total number of the government savings tools will reach 10. The government is serious to undertake all out efforts to reduce its bank borrowing through enhancing sale of savings tools, so that enough space is left for private sector for getting bank loans. (The Financial Express, May 30, 2012)

NBFIs need to raise minimum paid-up capital by June 30

Non-banking financial institutions (NBFIs) will require to raise their minimum paid-up capital to Tk1.0 billion from the existing Tk500 million within June 30 this year to help consolidate their capital base for minimising risks, according to the latest directive of the Bangladesh Bank (BB). The NBFIs, however, had sought extension of the deadline up to June 30, 2013.The BB deputy governor cautioned all concerned that the central bank would take measures, if the NBFIs failed to increase their minimum paid-up capital within the deadline. A total of 18 NBFIs have more than fifty% of their capital adequacy requirement while ten NBFIs have it at 10-15%, and one has it at below 10%. Under the latest CAMEL rating, the positions of two NBFIs are strong, 16 are satisfactory, and 10 are fair, he added. (The Financial Express, May 30, 2012)

Moodys downgrades three big Nordic Banks

Moodys Investor Service downgraded credit ratings of three large Nordic banks on Friday, citing their reliance on market funding, tough competition for retail loans, and their exposure to the spreading eurozone debt crisis. The downgrades come at a difficult time for the regions banks and could raise their borrowing costs, although analysts believe Swedish banks will continue to perform better relative to European peers due to their high capitalisation. Moodys downgraded Nordeas and Handelsbankens debt ratings one notch to leave their deposit ratings at Aa3, from Aa2 previously. The spillover from the eurozone debt crisis has triggered a wave of downgrades for banks and sovereigns, and Moodys has already cut ratings for Italian and Spanish banks. It had flagged investors for a one notch cut on Nordea and a two notch downgrade for Handelsbanken. Still, Moodys noted risks also for the Nordic banks, pointing to their high reliance on wholesale funding, modest profitability due to price competition for retail loans and the export-orientated economys exposure to problems in Europe. The asset risks also stemmed from the banks large, mostly variable-rate mortgage books would be vulnerable to credit deterioration if interest rates rise. (New Age, May 26, 2012).

Greeks not alone in bank savings exodus

Worries about a run on Greek banks have rattled Athens this week, after savers withdrew at least 700 million euros . It is not only Greeks who are worried about their savings. Data show depositors have also taken flight from banks in Belgium, France A weekly publication of R&D Division

Weekly Newsletter (24 May - 31 May), 2012

and Italy. Spains Bankia was reported to have seen more than 1 billion euros drained by its customers. Greeks are afraid they could be hit by rapid devaluation if the country leaves the European single currency, while customers at Bankia have been rattled by the governments takeover of the recently floated bank on May 9 and growing uncertainty about the final cost of Spains banking reforms. That flight started at least two years ago, as the debt crisis grew more serious. Greeces banks have lost 72 billion euros in deposits since the start of 2010, or about 30%. Five of Greeces top banks saw 37 billion euros taken out last year, including 12 billion from EFG Eurobank and 8-9 billion apiece at National Bank of Greece, Piraeus and Alpha Bank. Savers have shifted to property, gold and other banks, or stashed it privately. Deposits shifted around Europe dramatically last year, analysis of data from more than 120 listed European banks show. Based on these criteria, some 184 billion euros was taken from Frances biggest listed banks, including around 33 billion from Credit Agricole and 82 billion euros from BNP Paribas. The reduction in deposits at BNP Paribas was largely due to the withdrawal of US money market funds. French banks were hit last year by their heavy exposure to Greece and concerns about their liquidity that forced them to accelerate plans to shrink. Worries the euro zone crisis would spread also saw about 30 billion euros in deposits leave Italian banks, although inflows to BBVA helped limit the net outflow from Spain. (The Daily Sun, May 27, 2012)

Weak rupee may bring cheer to NRIs

A sharp plunge in rupee value to near Rs 55-56 levels against the dollar may be bad news for the markets and the economy, but the currency's depreciation may bring cheer to some including, NRIs remitting money from abroad and expats drawing salaries in dollars. Amid a fall in rupee and stock markets, concerns are rife about a slowdown in economic growth momentum. The rupee has not only lost sheen against the US dollar but also against other currencies. One dollar gets a little over Rs 55 now, which is nearly 12.67% more than what it did on March 1. Similarly, a British pound brings Rs 86.73, (up 10.62 pc), euro brings Rs 69.30 (up 5.83 pc) and Australian dollar Rs 54.02 (up 1.75 pc). The rupee on Thursday hit a record low of Rs 56.38 against the US dollar. While some recovery was seen on Friday, the rupee remained above the 55-level. Besides, for those people who are planning a visit to India now, will get good bargain for their home country currencies now. This translates to having more spending power in India as compared to other favourite destinations like Singapore and Thailand. A weaker rupee could also lead to a rise in gold prices, as investors tend to shift their focus away from riskier assets like stocks to the bullion market. (The Financial Express, May 28, 2012)

China's rising costs deter European business

One in five European companies operating in China may invest elsewhere in the future as wages are getting too high and regulations too cumbersome. According to the European Chamber of Commerce, while China was an increasingly important market for its members, many were deterred by rising prices and regulatory barriers in the world's second largest economy. (The Financial Express, May 30, 2012)

China tags new conditions on lending to BD

China plans to set new terms and conditions for its lending to Bangladesh which are likely to create problems for the government in matters of disbursement and availability of such funds. Bangladesh has sought over US$5.0 billion as loans from the government of China for 29 development projects. Beijing has already finalized loans for the 7th Bangladesh-China Friendship Bridge on the Arial Khan River in Kazirtek, Bangladesh-China Friendship Exhibition Centre in Dhaka, setting up of Shahjalal Fertiliser Factory and 3G telecommunication system upgradation. Chinese lending agency, Exim Bank, has recently sent a letter to it, proposing to skip two steps in the loan approval process. According to the proposal, Beijing will not give "letter of confirmation" to Dhaka for the loan against any project. It will not select the contractor either. If the steps are ignored, the questions will then arise about the selection of the negotiating counterpart of the executing agency and for concluding commercial contract. Under the existing procedure, the selection of contractor is done by the Chinese government and is communicated officially to the government of Bangladesh. (The Financial Express, May 31, 2012)

BD-Pak trade deficit rises 15 times in a decade

Bangladesh's trade deficit with Pakistan has increased fifteen times during the last one decade against a negligible growth in export to the country. Analysts and businessmen blame the trade imbalance on Pakistan's tariff and non tariff barriers (NTBs). According to statistics of the Export Promotion Bureau (EPB), the trade gap between the two countries gradually reached US$ 582.52 million in the fiscal year 2010-11 as against $ 37.15 million in the fiscal 2002- 03. The EPB data also showed that the highly tilted trade gap in favour of Pakistan has widened in the July-April period of the current fiscal (201112) and reached around $ 496.42 million. (The Financial Express, 31 May 2012).

Weekly Interest Rate:

A weekly publication of R&D Division

Weekly Newsletter (24 May - 31 May), 2012

Selected Macroeconomic Indicators Amount/Rate Amount/Rate (Reference date) (Reference date) Wage Earners' 1,001.97 1,082.28 Remittances (April, 2011) (April,12 p*) (In million US$) Export 2,036.17 1,890.98 (In million US$) (April, 2011) (April,12 p*) Import 6,056.10 5408.50 (In million US$) (March, 2011) (March, 2012) Current Account 455.0 995.0 Balance (July-March 11-12P) (FY 2010-2011 p*) (In million US$) Broad Money 4,16,931.10 4,90,327.80 (M2) (March, 2011) (March, 2012 p*) (In core Tk.) Rate of Inflation 10.10 9.93 (Point to Point (March, 2012) (April, 2012) Basis) Item Selected Financial Indicators The interest rate (call money) was constant at 15% throughout the Name Amount/Rate Amount/Rate week. (Reference date) (Reference date) Net NPL (%) LC Opening (In million US$) LC Settlement (In million US$) 0.70 (December, 2011) 29,740.75 (July- March, 2010-11) 23,362.94 (July- March, 2010-11) 1.07 (March, 2012) 27,257.74 (July- March, 2011-12) 26,774.16 (July- March, 2011-12)

A weekly publication of R&D Division