Monthly Business Review - March 2013

1
Volume 9 Issue 03 March 2013
H I G H L I G H T S
DEVELOPED & PUBLISHED BY
Industry & Equity Analysis Team
Credit Risk Management
IDLC Finance Limited
RESEARCH IN FOCUS
• IMF 1st Review under ECF: A
tale of Progress and
Near Misses 2
ECONOMY
• Taka to appreciate
modestly: HSBC 12
• Forex breaks another
milestone 13
TRADE
• ITFC to continue low cost
L/C facility to BPC 14
• SME loan disbursement
exhibits positive growth 15
BUSINESS
• Govt undertakes 6
development projects 17
• Largest ever loan deal with
JICA 17
REGULATORY NEWS
• EFT charges removed: BB 19
• Stock dealer capacity raised
to BDT 30 mn: BB 20
COMMODITY MARKET ROUNDUP
• Global food prices at an
impasse 22
IDLC NEWS
• IDLC declares 30% stock
dividend at its 28th AGM 27
CAPITAL MARKET REVIEW
• Investment Insight: S. Alam
Cold Rolled Steels Limited 32
See page 7
Steelmakers of
Bangladesh
Forging Ahead
amid Overcapacity

Volume 9 Issue 03 March 2013
IDLC
MONTHLY BUSINESS REVIEW
inthisissue
COVER STORY
Steelmakers of Bangladesh: Forging Ahead amid
Overcapacity
Steel ‒ the cornerstone of most advanced economies
path to a progressive society. In Bangladesh, the steel
industry is in a position of continuous flux, with new
entrants, easing restraints on the ship breaking industry
and a booming real estate sector helping things along.
But a low per capita consumption and rising overcapacity
remain key challenges facing the domestic steel sector.
RESEARCH IN FOCUS
IMF 1st Review under ECF: A tale of Progress and Near
Misses
The first review by the IMF finds Bangladesh mostly on
target in meeting program commitments. Inroads have
been made into managing non-concessional debt level,
strengthening financial sector oversight and improving
the trade and investment climate; while further
improvements have been pledged. Going forward,
the IMF envisions the country focusing on structural
fiscal reforms aimed at generating higher tax revenues,
increasing priority spending and consolidating fiscal and
debt sustainability.
IDLC CSR INITIATIVES
IDLC partners with VSO Bangladesh for Model Village
Project
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26
IDLC NEWS
IDLC declares 30% stock dividend at its 28th AGM
27
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contents
ECONOMY
Creeping food prices propel inflation upwards 12
ADP allocation poor: Jul-Feb 13 13
TRADE
BoP appreciates USD 1.1 bn in single month 14
NBR to proactively target revenue collection 15
INVESTOR S CORNER 16
BUSINESS
BD Energy Sector in need of FDI 17
India withdraws duty-free RMG benefits 18
Reconditioned car sector in a slump 18
REGULATORY NEWS
Internet in Rural Areas: BD Govt. 19
NBR identifies key revenue dampeners 20
MARKET ROUNDUP
Major Currency Roundup 21
Commodity Market Roundup 22
INTERNATIONAL
Coke, IFC to finance Asian women entrepreneurs 23
Richest in the world poorer by USD 17.9 bn 24
MONTH IN REARVIEW
Business - Firm Specific 25
Corporate Social Responsibility Initiatives 25
Management Change 26
CAPITAL MARKET REVIEW
Market Commentary 28
Investment Insight: S. Alam Cold Rolled
Steels Limited 32

2
IDLC MONTHLY BUSINESS REVIEW
RESEARCH IN FOCUS
The Extended Credit Facility (ECF) by the International Monetary
Fund (IMF) provides financial assistance to countries with
protracted balance of payments problems. The ECF was created
under the newly established Poverty Reduction and Growth
Trust (PRGT) as part of a broader reform initiative to make the
IMF s financial support more flexible and better tailored to the
diverse needs of Low Income Countries (LICs), including in times
of crisis. The ECF is the natural successor of the Fund s Poverty
Reduction and Growth Facility (PRGF) and is utilized by the IMF for
providing medium-term support to LICs through a mix of tailored
financial resources, concessional financing (lending) terms
and a streamlined flexible program which offers more focused
conditionality in regards to these low-income economies. Like
its predecessor the PRGF, the ECF supports countries economic
programs aimed at moving toward a stable and sustainable
macroeconomic position consistent with strong and durable
poverty reduction and growth, as well as facilitating inflow of
additional foreign aid. Assistance under an ECF arrangement is
provided for a three-year period, and can be extended for up to
two additional years. After the conclusion of an ECF facility ‒ either
through natural expiration or cancellation ‒ eligible LICs may
apply for additional ECF arrangements. The IMF uses quantitative
conditions and proprietary structural benchmarks against which
it assesses the progress LICs have made against the stated goals
and macro-critical reforms agreed to in the ECF agreement, and
a review is typically published at regular intervals assessing the
efficacy/implementation rate of the program in question.
The main objectives of the ECF availed to Bangladesh remain
focused on restoring macroeconomic stability, strengthening
the external position, and generating higher inclusive growth,
with the ultimate result being poverty reduction. Program
targets in 2013 are anchored by continued fiscal and monetary
restraint, building on initial stabilization gains and locking in
reserves outperformance. In March 2013, the IMF published the
first review of the ECF s program performance in conjunction
with the authorities of the Government of Bangladesh. In its
report, the IMF finds that the government s structural measures
aim to modernize the tax regime, strengthen fiscal controls,
solidify financial sector oversight, and improve the trade and
investment climate in order to reduce vulnerabilities and achieve
development priorities, as laid out in Bangladesh s Sixth Five-
Year Plan for FY2011‒15. In short, performance has been broadly
in keeping with commitments.
The medium-term report of the Fund focuses on four key areas
of Bangladesh s macro-economic and reform performance since
being granted the extended credit facility. They are ‒
Fiscal Policy and Debt Management: Securing Fiscal Space
Monetary and Exchange Rate Policy: Further Strengthening
Buffers
Financial Sector Reforms: Bolstering Stability
Investment Climate: Easing Controls
Overall Economic Situation
The IMF report finds that Bangladesh made positive inroads into
most performance criteria (PC) and indicative targets (IT) set by
the IMF s extended credit facility. Positive development in net
international reserves and non-concessional external debt levels
were observed by the IMF. A number of structural benchmarks
were completed with delays or have required more time to build
internal consensus, notably on a new value added tax (VAT) law
and implementation plan and banking law amendments.
The IMF finds that macroeconomic pressures have eased
somewhat, allowing for faster-than-forecast foreign reserve
buildup. However, the spillover effects from the ongoing
Despite numerous incentives to function on the contrary, the economy of Bangladesh keeps growing amidst adversity. Reduced
foreign aid credit flow, middling development in the transport infrastructure, heightened political tensions and lapses in regulatory
compliance by the financial and apparel sector ‒ the blockades to sustained growth are many. In recent times, the outlook for
Bangladesh has received mixed assessment from different global groups. Some, like the American human resource consultancy firm
Aon Hewitt, believe Bangladesh to still be lagging in such matters as access to education, talent development, employment practices
and so on. Yet, Bangladesh keeps trucking on, growing at 6% to 7% over the last few years.
This resiliency has been reflected through positive endorsements by numerous international institutions, banks and focus groups.
Notable examples include Goldman Sachs ‒ who has included Bangladesh in its Next Eleven list of emerging economies alongside
the BRICS nations as having potential to be future growth drivers in the international scene ‒ and the Asian Development Bank, which
finds the country on a sustained growth path despite structural incongruencies along its oftentimes rocky path. Many factors ‒ such as
the robustness of the private sector, most notable the banking and apparel industries ‒ have contributed to this positive realization of
development. One of the key contributors has been the flow of foreign funds into the economy. Historically, Bangladesh had been very
dependent on the amount of foreign grants in regards to its development projects ‒ in 1988 85% of the annual development budget
(ADP) was financed through a mixture of foreign grants and loans. While Bangladesh has strived to reduce this proportion, foreign aid
remains one of the key propellers of infrastructural and reform projects and multilateral lenders being one of the major development
partners of Bangladesh. The International Monetary Fund (IMF) is one such organization. In early April 2012, the IMF approved a loan
to Bangladesh worth almost USD 1 bn under its Extended Credit Facility (ECF), to help the country overcome macroeconomic pressures
and build a reserve buffer. The amount represented the largest loan ever offered to a member country under the IMF s reformed
concessional lending architecture at the time, and was to be disbursed into seven equal installments of USD 141 mn each.
IMF 1st Review under ECF: A tale of Progress and Near Misses

3
Eurozone crisis on EU-bound exports pose sizeable risks in the
event of a worsening European outlook.
Provisional estimates show real GDP growth slowed to 6.3% in
FY2011-12 from 6.7% in the previous fiscal with weaker net exports
and lower investment growth - the main factors contributing
to this slight slowdown. Underpinned by moderating macro-
pressures and food prices, headline inflation receded to 7.7%
year-over-year in December 2012 after reaching a decade-high
12% in September 2011. However, nonfood inflation remains
above the headline rate, but has also moderated.
Despite slower-than-expected export growth, the balance of
payments (BoP) reversed to a small surplus in FY2011-12 from
a moderate deficit in FY2010-11. The improvement was due
primarily to a narrowing of the current account deficit to an
estimated 0.5% of GDP in FY2011-12 compared to 2.0% the
previous year. Import growth was restrained by policy tightening
and lower oil prices in the second half of FY2011-12, as well as by
slowing export growth, given the heavy import content of ready-
made garments exports. On the other hand, remittances growth
picked up in FY2011-12, stemming from an earlier upsurge in
worker flows to the Middle East and Southeast Asia. The capital
and financial accounts provided further support through oil
import-related credits and aid disbursements.
Since early 2012, the BDT/USD exchange rate has stabilized, in
part due to BoP conditions, allowing stepped-up purchases of
foreign exchange by Bangladesh Bank (BB) to rebuild its reserve
buffer. As a result, gross foreign reserves were USD 12.5 bn at
December 2012-end (3.4 months of imports), up by nearly USD
4.0 bn from late 2011.
The IMF finds that fiscal performance in 2012 has been broadly in
line with program targets. The overall budget deficit (excluding
grants) is estimated at 4.0% of GDP in FY2011-12, excluding
fertilizer subsidy overruns to be settled in FY2012-13 (around
0.5% of GDP). Government domestic borrowing has been
restrained since the second half of FY2011-12̶a clear reversal
from the first half.
Additionally, fuel and electricity subsidies were largely contained,
as lower international oil prices and administered price increases
narrowed losses at energy-related state-owned enterprises. The
IMF believes that the effect of these price adjustments on the
economically vulnerable was mitigated in part by higher spending
on social programmes. However, some of these social-related
spending experienced delays in execution. Annual Development
Program (ADP) expenditure fell short of programmed levels in
FY2011-12, but closer engagement with spending ministries
and development partners has led to modestly improved
performance in the first half of FY2012-13. Bangladesh was spot
on in its reduction of non-concessional debt, while most external
arrears were met.
The IMF expected monetary conditions to further tighten in
2012, and benchmark indicators have backed this up for the
outgoing fiscal. Money market rates and Treasury yields rose,
in line with earlier repo rate hikes by the Bangladesh Bank (BB),
and are now positive in real terms. The stock of reserve money
remained within acceptable IMF-approved ceiling at September-
end 2012, restrained by net domestic assets of the central bank
and limits on government borrowing from the Bangladesh Bank.
From a peak of nearly 30% in mid-2011, credit growth slowed
to around 17.5% year-over-year in November 2012. On its part,
BB continued to limit directed liquidity support to primary
dealer (PD) banks and meet discretionary repo needs at the
higher penalty rate, supported by more stable conditions in
the interbank repo and call money markets. More liquidity was
injected primarily through foreign exchange purchases, against
the backdrop of strong remittance flows, but partially sterilized
by the reactivation of auctions of 30-day central bank bills from
November 2012 onwards.
Source: IMF
Source: IMF

4
Macroeconomic Outlook and Risks
Despite improvements in the external position, the growth
outlook for FY2012-13 remains uncertain due mainly to global
factors. The report opines that real GDP growth will moderate
further to 5.8% in FY2012-13 on the back of subdued exports and
private consumption, the latter due mainly to the impact of lower
domestic rice prices during the Aman (winter) harvest on rural
incomes. Inflation is expected to be around 8% in June 2013, but
decline over the medium term, as improvements in infrastructure
is expected to ease supply constraints in the long run.
Notwithstanding a further slowing in export growth and expected
pick up in oil imports in the second half of FY2012-13, the current
account is expected to be roughly in balance in FY2012-13,
supported by an additional rise in remittances growth, with gross
foreign reserves to remain at USD 12.4 bn at the end of the fiscal.
The medium term growth outlook is predicated on a timely
resolution of issues regarding foreign credit flow to the
construction of the Padma Bridge controversy.
Regarding risks facing the Bangladesh economy in the near term,
the IMF feels the balance will be on the downside, potentially
putting pressure on growth and inflation and undermining
financial stability. The IMF envisages five key risks looming on the
horizon for Bangladesh,
Strong intensification of the euro area crisis: About half of exports
go to the European Union (EU), predominantly in the flagship
garment sector where a doubling of total EU market share over
the past five years spurred earlier growth.
Further deterioration in state-owned commercial bank (SOCB)
finances: Two of the four SOCBs fail to meet minimum risk-
weighted capital requirements, with another at risk.
Intensification of pre-election political pressures: Escalating
hostility and lack of fiscal restraint ahead of the upcoming 2013
elections
World oil price shock: Petroleum imports (in USD) have more than
doubled since FY2009-10, driven by increased reliance on liquid
fuel-based power generation.
World food price shock: With food accounting for over two-thirds
of the consumption basket, the poor would be hard hit.
If these risks materialize, the IMF believes that Bangladesh will
need to address any negative fallout through the usage of
exchange rate and fiscal channels, with monetary policy remaining
appropriately restrained to contain inflation and protect reserves.
On the other hand, the report finds that remittances still have
more room to expand, which could help build the reserve buffer
and boost domestic demand due to the increased money supply.
Turning to the domestic front, a further escalation of pre-election
tensions and deterioration in the financial condition of the
state-owned commercial banks pose the greatest risk, possibly
affecting growth prospects and public finances and necessitating
stronger economic governance and tighter financial controls to
avoid undermining public debt sustainability.
The IMF reports that the majority of its engagement with the
Bangladeshi government resolved around commitments by the
latter toward the ECF-program. In that regard, a Memorandum of
Economic and Financial Policies (MEFP) was agreed by both the
parties on February 10, 2013. In it, the government of Bangladesh
committed on consolidating stabilization gains and advancing
growth-critical reforms. Some of these are mentioned as follows.
Fiscal Policy and Debt Management: Securing Fiscal Space
The government s ECF-supported program intends to carry
forward key structural fiscal reforms aimed at generating higher
tax revenues and increasing spending in development sectors,
while keeping a tight rein on fiscal and debt sustainability. The
rate of structural reform has been noted to be slow, by the Fund s
standards. The multi-lateral lender believes that the recent
passage of a landmark VAT law with a single 15% rate could act
as the stepping stone to the government s tax modernization
strategy. The law provides for three taxes, anchored by a creditable
15% VAT that is chargeable by businesses with taxable annual
sales in excess of BDT 8 mn a year (approximately USD 100,000).
The new law also has a non-creditable 3% turnover tax, as well as
a supplementary duty of varying rates that is chargeable on sales
of a specific but streamlined set of goods and services.
While the turnover tax and supplementary duties will continue
to operate in much the same way as under the current law, the
VAT will undergo major changes. The new VAT law will bring
all economic sectors (imports, manufacturing, and services)
under the scope of the VAT, with tax paid on the basis of actual
transactions values instead of highly compressed and arbitrarily
negotiated approved values embedded in the rate schedules (for
manufactures) and on truncated bases (for imports and services)
under the existing law. In addition, the exhaustive list of exempt
goods and services from VAT shall be skimmed to broaden the tax
base. Previous IMF reports estimated that these changes could
increase the tax collections by nearly two percentage points of
GDP a year once the new VAT is fully implemented.
However, regarding nonconcessional external debt, the IMF
still feels that the country should strengthen debt management
practices to ensure that nonconcessional borrowing is carefully
managed, and this should be reflected in the government s
annual borrowing plan, and guided by Bangladesh s medium-
term fiscal and debt sustainability objectives.
The fiscal deficit in FY2012-13 (excluding grants) is targeted at
4.5% of GDP, lower than the budgeted target of 5.0% of GDP, with
ADP spending now better aligned with implementation capacity.
The authorities remained optimistic that programmed revenue
targets could be achieved based on additional revenue measures
(0.6% of GDP) introduced in the FY2012-13 budget. About half of
Source: IMF

5
this came from the removal of tax concessions and exemptions.
The rest came from new fees and rates. Over the medium term,
the Bangladesh economy is expected to adopt a moderate
consolidation path by increasing tax revenue and containing
subsidy costs, providing ample space to increase ADP spending.
Program commitments:
Pressing ahead on tax and revenue administration reforms
The authorities agreed that steady implementation of the
new VAT law coupled with stepped-up efforts to modernize
the tax regime were essential to raising revenues. Due to
delays in passing the law, ministerial approval of a VAT
implementation plan and timetable has been rescheduled
to March 2013, with IMF technical assistance provided
to expedite the process. A VAT steering committee was
established in January 2013 to ensure a smooth VAT roll-out
by FY2015-16. While pressing ahead with a new direct tax
code, Bangladesh has admitted that more work was required
to rationalize the law before seeking cabinet approval.
Strengthening public financial management and expenditure
control
The IMF acknowledges that improvements have been made
in cash and debt management and budget integration.
However, weaknesses remain in the form of weak and
irregular cash-flow forecasting; insufficient cash management
procedures; weak accounting and payments systems as well
as lack of awareness of cash management procedures, and
dispersed debt management responsibilities across several
agencies
Contain subsidy costs
Bangladesh has agreed in part with the IMF to keep total
subsidy at around 3.5% of GDP in FY2012-13, factoring in
government capitalization of all earlier subsidy-related
loan losses at the state-owned commercial banks, with no
additional debts being incurred.
To this end, electricity tariffs were further raised by about
16% in September 2012 and fuel prices were up to 11% in
January 2013. These efforts were undertaken to limit the
gap with international prices and stay within budgeted
limits on fuel subsidies. In addition, the government has
committed to setting retail petroleum prices with a view of
keeping them within BDT 10 per liter of the total landed costs
(including selling and distribution margins). With the latest
fuel price change, the weighted-average difference between
international and domestic prices was less than BDT 10 per
liter, notes the IMF. To further contain subsidy costs through
system loss, the IMF has directed the government to take a
closer look at rental power plants as the level of subsidy to
that particular subsector has been disproportionate. Also,
a more concerted effort was also seen necessary to contain
ballooning fertilizer subsidies through better targeting,
stricter monitoring, and price adjustments, with subsidy cost
capped at BDT 60 bn in FY2012-13.
Source: IMF
Strengthening safety nets and reinforcing priority social
spending
The IMF finds that work to develop better-targeted subsidy
schemes focused on safeguarding the poor is ongoing, with
a national poverty registry being developed with World Bank
assistance to guide the formulation of conditional transfers
and assistance-for-work programs. In the interim, the report
noted that scope exists to top up existing safety nets.
Bangladesh reiterated its commitment to protect space for
social spending over near to medium term, consistent with
the current fiscal framework, and adhere to program-related
targets in this area.
Ensuring sound debt management
The government s debt management policy will be anchored
by a continued reliance on concessional borrowing and
agreed limits on nonconcessional borrowing and guarantees,
with program debt ceilings set accordingly. The global lender
urged that projects utilizing nonconcessional resources be
closely vetted, properly evaluated, and carefully monitored
to ensure sound governance and oversight in the use of
these funds, including guarantees. In addition, the need to
promote fiscal transparency under the existing Public Money
and Budget Management Act was emphasized.
Nonconcessional borrowing and debt sustainability
Under the program, the limit on new nonconcessional
external debt maturing in more than one year will be set
at a cumulative USD 3.75 bn at 2013-end. This constitutes
borrowing of about USD 0.9 bn through 2012 end, new funds
availed in January 2013 worth USD 1.5 bn and further loans
Source: IMF

6
In line with above mentioned goals, the central bank intends
to increase its reliance on indirect instruments for conducting
monetary operations, allowing price signals to gain traction
in a more liberalized interest rate regime. To strengthen its
liquidity forecasting framework, BB, along with the Ministry of
Finance (MoF), agreed to develop better tools for forecasting
the Treasury Single Account. Also, the BB wishes to reduce
devolvement of T-bills and bonds through development of new
auction mechanisms and further measures such as shorter-dated
instruments to activate the secondary market for government
securities.
Financial Sector Reforms: Bolstering Stability
The middle-term country review finds that the weakening
financial position of the state-owned commercial banks highlight
the need to speed up financial reforms and put in place safeguards
to minimize potential recapitalization costs. Financial soundness
indicators show evidence of some back-sliding in asset quality in
the first nine months of 2012 across most types of banks. The IMF
believes the likely cause to be stricter oversight by the BB and the
sluggish export sector. As a safeguard, new loan classification and
provisioning standards in line with international best practices
were introduced. Equity markets remain volatile, with the main
Dhaka index down by half from its December 2010 all-time high,
despite recouping some earlier losses.
Heading out into the second half of FY2012-13 and beyond,
strengthening bank governance and oversight are key agendas
for Bangladesh Bank, believes the IMF. The government looks
to anchor reforms in this area with amendments to the Banking
Companies Act (BCA). An inter-agency drafting committee
finalized an initial set of amendments in June 2012. Also, to
support the strengthening of prudential controls and increase the
effectiveness of supervision, the BB adopted a new organizational
structure in May 2012 aimed at consolidating management of
on-site and off-site supervision activities. Training of on-site
examiners in critical skills is also being accelerated, supported
by ongoing technical assistance from the IMF. To reinforce these
efforts, BB will strengthen its bank resolution framework by
September 2013, finalizing a contingency plan and a lender of
last resort policy. Pertaining to any suggestions, IMF advised local
authorities to pursue full codification of a bank resolution under
the Banking Commission act.
Most importantly, the central bank must better manage the
risks its state-banks, especially in the view of capital shortfalls,
liquidity pressures, and weak governance exhibited by the
big four. In that regard, the BB plans to focus on asset quality,
liquidity management, and internal audit and controls. In
addition, the authorities indicated they would ensure that new
board appointments at the SOCBs would be made in consultation
with the BB and maintain with existing regulations. The IMF also
urged the central bank to undertake aggressive actions on fraud
recoveries and more firmly enforce memoranda of understanding
(MOUs) with the state-banks. To this end, the authorities agreed
to introduce a new ceiling on aggregate net credit extended by
the SCBs to keep new lending in check.
Investment Climate: Easing Controls
The IMF finds that restrictive exchange controls, rooted in the
archaic 1947 Foreign Exchange Regulation Act (FERA), continue
to limit trade and investment in Bangladesh, as noted in recent
Doing Business and global competitiveness surveys. The
government has committed to completing a review of the FERA
and its associated rules by September 2013, with the initial aim of
better facilitating foreign direct investment and portfolio inflows.
Plans of a private-public partnership law by June 2013 are in the
works as well.
Source: IMF
and guarantees of up to USD 1.35 bn for the rest of the year.
Much of these funds shall be used for planned base power
projects. While no formal announcement has been made in
regards to Bangladesh s plan of a sovereign bond issue, the
government has reassured the IMF that the former will stay
within its ECF-approved debt ceiling. The sovereign bond is
to act as a benchmark for more private external borrowing,
with limits on such expected to be eased over time, reflecting
a move towards a more open investment climate.
Monetary and Exchange Rate Policy: Further Strengthening
Buffers
Under the program, monetary and exchange rate policy aims
to contain aggregate demand pressures, further bringing down
inflation and building a reserve buffer, supported by greater
exchange rate flexibility and market-determined interest rates.
Consistent with its latest monetary policy statement, BB agreed
to maintain a relatively restrained monetary policy until nonfood
inflation was firmly entrenched in the single digits, while at the
same time providing sufficient space for private credit growth.
The BB aims to accumulate reserves through foreign exchange
purchases as market conditions allow. Concurrently, it will try to
avoid pegging the exchange rate at risk of stifling market trading,
instead letting the exchange rate absorb external pressures and
sterilizing foreign exchange market interventions, as necessary,
in order to protect monetary targets.

7
- Md. Mehedi Hasan
Steelmakers of Bangladesh: Forging Ahead amid Overcapacity
The first industrial revolution in Britain towards the end of the 18th century and the second one in Germany and the United States
approximately a hundred years later, were similar in many ways despite being removed almost a century from each other. During the
two periods concerned, new products and processes were generated mostly through a steady stream of innovations and inventions.
Many of these inventions and innovations would not have had commercial value without iron and steel as critical inputs. Indeed, the
early spread of industrialization traced to Western Europe between 1750 and 1800 was enabled by the development of iron and steel,
when Britain had industrial monopoly compared to other parts of the world. The same can be said of America in the mid-1800s when
the founding of heavy iron and steel industries and the advent of a nationwide rail network that integrated regions across the USA led
to the birth of modern industrial capitalism. Thus, history teaches us that industrial development and movement of economies from
the primary to the secondary and onto the tertiary stages of production are explicably linked, as the ability of societies in Western
Europe, the Americas and in Japan to cope with their environment and provide for the welfare of their people was possible due to their
progressive development, mastery and use of iron and steel products during different stages of their history.
For developing countries in the 21st century, progress in steel-making technology does not represent starting from scratch; rather
the objective should be to obtain, learn and apply the technologies in existence. In short, developing countries need to absorb
foreign technology through mimicking, self-teaching, investing in foreign licenses, or technical assistance from international bodies/
developed countries and so on.
The economy of Bangladesh is a rapidly developing market-
based economy. According to the International Monetary Fund
(IMF), Bangladesh is ranked as the 44th largest economy in the
world in 2011 in purchasing-power-parity terms and 57th largest
in nominal terms; it has also been included among the Next
Eleven or N-11 of Goldman Sachs and D-8 economies. Over the
last few years the economy has grown at 6%-7% per annum.
Additionally, a separate assessment by the Asian Development
Bank in 2012 also theorizes that the Bangladesh economy should
exhibit stable 6%-plus growth rate for the next two years, buoyed
by a 6.1% growth in the services sector and a massive 9.0%
growth in the industrial sector ‒ led by construction and small-
scale manufacturing efforts targeted at the domestic market.
Prospects indeed look bright for the South Asian nation. However,
infrastructural weaknesses remain. Proper national development
is only possible through expansion of industrial capacity and
infrastructural support by means of self-sufficiency. As stated
before, the movement towards a progressive national economy
thus, partially but strongly depends on how we make steel and
produce deformed bar and other by-products. Historically, the
art of steel shaping and making have long been in practice in
Bangladesh.
Source: World Steel Association

8
Source: Seminar on Quality Steel and Its Importance in Civil Engineering
Applications, BSRM
However, changing times have led to changing consumption
patterns and demands from both domestic and international
audiences; indeed the quality of the steel products has not always
met the level of local and international consumers. According to
local steel manufacturers, Bangladesh consumes 4 mn tons of
steel per annum and per capita steel consumption is 25 kilograms,
which is less than half of per capital steel consumption in India.
Considering the population of Bangladesh being roughly equal
to 160 mn, this penetration is exceedingly poor when compared
to India s 1 bn plus populace. Nonetheless, more than 400 steel
mills of different categories and sizes currently operate in the
country. Together, their combined production capacity stands at
8 mn tons while the industry has a net worth of about BDT 300
bn.
Dynamics of the Steel Industry
Depending on the type of raw materials used, steel can be
produced in two distinct manners.
Conventional Process: Steel Production from Iron Ore
Alternate Process: Steel Production from Scrap Metals
The conventional process of steel manufacturing contributes
approximately 65% of world steel production. Under this method,
steel production is accomplished in an integrated steel plant
through three basic steps. First, we ensure that the blast iron
furnace in which the iron ore is to be melted has all the correct
settings, such as proper temperature and proper containment
measures. Secondly, the iron ore is placed in the furnace and
melted at about 1700°C. This melts the scrap, lowers the carbon
content of the molten iron and helps remove unwanted chemical
elements; here pure oxygen is used instead of air. Finally, the
molten iron is processed through a variety of means to produce
steel.
The alternate process contributes approximately 35% of world
steel production. Plants used in the alternate process are known
as mini steel plants. Steelmaking from scrap metals involves
melting the scrap metals, removing any impurities through
either a Direct Reduced Iron/Sponge Iron and casting it into the
desired shapes. Typically, the alternative process involves the
use of Electric Arc Furnaces (EAF). The EAFs melt scrap metal in
the presence of electric energy and oxygen. The process does
not require the three steps refinement as needed to produce
steel from ore. On a smaller scale, this particular manner of
steel production has proven to be more economical and cost-
reducing. In Bangladesh, most steel factories are producing steel
by following the alternate process due to unavailability of quality
coke and iron ore.
Quality Testing
When we talk about quality of steel, we mean the desired
specification with respect to chemical composition, cleanliness
and gas content. Quality of good steel can be ranked according
to the following carbon level which can be tested through an
Ultrasonic Thickness Machine (UTM).
Figure: Steel making process
Carbon Equivalent (CE) Weldability
0 to 0.35 Excellent
0.36-0.40 Very Good
0.41-0.45 Good
0.46-0.50 Fair
Over 0.50 Poor

9
Production Capacity of Steel Industry in Bangladesh
Currently, the demand of steel is around 4 mn tons per annum
whereas the combined capacity of the industry is around 8 mn
tons. Although the installed capacity of 4 mn tons is not being
utilized currently, this overcapacity may prove tricky as a demand
fall coupled with the overcapacity may pressurize profit margins.
Product Types
There are a few types of steel products manufactured in
Bangladesh, namely
Billet - MS Angle - MS Channel -Flat Bar - Round Bar/ Shaft
40 Grade Deformed Bar - 60 Grade Deformed bar ‒ Deformed
Bar Extreme 500 W
TMT (thermo-mechanical treatment) bar
TMT steel bar is a newer variety of steel used for construction
purposes. Earlier, people had been using TOR Steel (trade name
for deformed bars) for concrete reinforcement in houses and
infrastructure projects, but now usage has shifted more towards
TMT steel. TMT bars offer several advantages over the other
traditional types of steel. No twisting operation is involved in the
production of the TMT steel bar, as a result the steel produced
contains no residual stresses in its makeup. This in turn, increases
the corrosion resistance.
Players of the Steel Industry
As an emerging country that has been average 6% growth over
the last few years, Bangladesh has seen sizeable investment in
the steel sector.
Big business conglomerates such as PHP and Abul Khair Group
have stepped in to take advantage of growing market demand.
Kabir Steel & Re-rolling Mills (KSRM) has set up a 300,000-ton mild
steel rod plant in Chittagong. The plant has been designed by
famous European steel plant designer Pomini, is fully automated
and has the capacity to produce from prime quality billets. The
KSRM announcement came just a month after the country s
largest conglomerate, Abul Khair Group, formally entered the
sector, unveiling a BDT 7000 mn investment for an 800,000-ton
plant.
Bashundhara Group, the realtor-turned-tissue to paper giant, has
also decided to enter the steel production market. At present, the
group s subsidiary Bashundhara Steel Complex Limited (BSCL)
has two Steel Melting Units and two Steel Re-rolling Units with
a capacity of 100,000 metric tons per year; one M. S. and G. I.
Pipe manufacturing units with the capacity of 20,000 metric tons
per year; one LPG Cylinder manufacturing unit with the capacity
of 300,000 cylinders per year and one Ferro-Alloy Plant with the
capacity 7000 metric tons per year which is in the commissioning
stage. Yet another Re-Rolling Mill with TMT technology is under
a trial production run, whose production capacity is expected to
be 60,000 metric tons per year.
Another Chittagong based mill ̶ Ratanpur Steels and Re-rolling
Mills has started marketing 75-grade mild steel rod since late
2011 from its state-of-the-art steel factory worth BDT 2000 mn.
On the other hand, Sarker Steel has automated its factory with
state of the art technology in an effort to increase the quality of its
product offering. Currently, the company has a monthly capacity
of 5000 metric tons. Baizid Steel also produces high quality 75000
psi deformed bar and has an annual capacity of 180,000 metric
tons. Its sister concern ‒ CSS Corporation (BD) Ltd ‒ has a similar
annual capacity of 170,000 metric tons billet.
Net Profit margin in Steel Industry
Full auto technology with billet plant 3% to 4 %
Manual Production process 1% to 2%
Note: Profit margin may vary depending on the market demand & supply
condition, raw material cost, exchange rate, backward linkage etc. Most of
the firms set up their own billet plants which helps them to secure better
margin nowadays.
Business Arenas
Factories of steel and re-rolling mills are mainly located at the
following areas:
Zone Area
Dhaka Demra, Shampur, Matuail, Gazipur
Narayanganj Rupganj, Modonganj
Chittagong Bhaitari, Fouzdarhat, Kumira, BaizidBostami,
Nasirabad
Major Players in Steel Market:
Domestic International
BSRM Steel Mills Limited ArcelorMittal (UK)
Rahim Steel Mills Co. (pvt.) Ltd. Hebei Group (China)
Ratanpur Steel Rerolling Mills Ltd Basosteel Group (China)
Bashundhara Steel Complex
Limited (BSCL)
Posco (Korea)
Sarker Steel Limited (SSL) Wuhn Group (China)
KSRM Steel Plant Ltd Nippon Steel (Japan)
Abul Khayer Steel(AKS) Shagang Group (China)
Baizid Steel Industries Ltd
Saleh Steel Industry Ltd.
On the other hand, world steel capacity utilization ratio in 62
countries in July 2012 declined to 78.7% from 80.4% in June 2012.
Compared to July 2011, it is 0.8 percentage points lower. Overall,
it can be inferred that supply tends to outstrip demand in the
consolidated steel industry.

10
Another big player, Bangladesh Steel Re-rolling Mills (BSRM), has
not remained idle in the face of such broad scale mobilization
in recent times. In turn, it has aggressively engaged in capacity
building. BSRM ‒ producer of high-grade steel ‒ caters to more
than 25% of the total domestic steel demand. BSRM had a
production capacity of 375,000 tons per year in FY 2012. Currently,
it is conducting a trial production run of its newly installed BDT
3.5 bn plant that is expected to have an output level of 300,000
ton per annum. The steel giant has also unveiled plans to invest
another BDT 5000 mn to raise its capacity to around 1 mn tons
within the next five years.
Global Steel Production Status:
World crude steel production for the 62 countries reporting to the
World Steel Association was 130 mn ton (Mt) in July 2012, an increase
of 2.0% compared to July 2011. China s crude steel production for
July 2012 was 61.7 Mt, an increase of 4.2% compared to July 2011.
Elsewhere in Asia, Japan produced 9.3 Mt of crude steel in July 2012,
up by 1.2% compared to the same month last year. South Korea s
crude steel production for July 2012 was 5.9 Mt, an increase of 4.4%
compared to July 2011. In the EU, Germany produced 3.6 Mt of crude
steel in July 2012, a decrease of -2.1% on July 2011. Spain s crude
steel production for July 2012 was 1.0 Mt, 7.0% higher than July
2011. In July 2012, the UK produced 0.9 Mt of crude steel, up by 6.6%
compared to July 2011. Turkey s crude steel production for July 2012
was 3.1 Mt, an increase of 9.7% compared to July 2011. In July 2012,
Russia produced 5.9 Mt of crude steel, an increase of 3.6% compared
to the same month last year. The US produced 7.4 Mt of crude steel
in July 2012, up by 0.9% on July 2011. Brazil s crude steel production
for July 2012 was 3.0 Mt, -4.1% lower than July 2011.
Challenges of steel industry in Bangladesh
After a decade of steady growth, local steelmakers are now facing
tough times due to a surge in production costs and a slowdown
in consumption by both the government and private sector. In
addition, a low pressure of gas, depreciation of the local currency,
rising costs of raw materials, electricity and bank borrowing, and
a tight liquidity situation have hurt the BDT 300 bn steel industry.
Competitive Market: Newly invested companies have started
operations, with even more in the pipeline while existing
companies are looking to expand on existing capacity. The latest
investment boom in rod, a key construction component, is likely
to outpace the country s annual demand for rod and might result
in an investment glut and fierce competition.
Economic Crunch: World recession and the socio-political
situation that prevailed in 2008 stagnated all development
works in the country. This was especially alarming considering
that the government accounts for nearly 40% of the total
steel consumption. At present, consumption has been down
significantly due to a slowdown of the development works of
the present government. Financing issues regarding the Padma
Bridge and disruption credit flow from the World Bank and other
donor firms like JICA, IFC also resulted in an adverse impact on the
steel industry particularly, and the construction sector as a whole.
Moreover, the stock market crash of 2011 negatively affected the
real estate sector badly which lead to the slowdown of demand of
steel rod.
High borrowing cost and Exchange rate risk: High interest rates
of banks and financial institutions were a noteworthy contributor
to the reduced profit margins of the steel producing companies.
Moreover, the cost of producing a ton of 60-grade rod has
increased by BDT 18,000 between January 2011 and January
2012, mainly because of depreciation of the taka against the
dollar. Steelmakers import at least 70% of their raw materials,
thus fluctuations in exchange rate tend to affect them badly.
According to the Bangladesh Bank, Bangladesh imported iron,
steel and base metals worth USD 2004 mn during the FY2010-
2011. However, at present the cost of raw materials is stable in the
international market and a sizeable number of ships have been
stocked in the ship breaking zone (from which a large quantity of
steel is procured). A moderate price trend in the coming years is
expected.
Energy Crisis: The energy crisis in Bangladesh is worsening day
by day. Steelmaking requires exhaustive power requirements, in
the form of uninterrupted power supply and gas in production.
However, the lack of realization of this basic need has posed, and
is posing a serious hindrance to growth in the Bangladeshi steel
industry.
Technology Risk: Many steel factories in the country still use
manual production methods, despite new efficiency-enhancing,
cost-reducing technology being readily available in the market.
An example would be most of the factories in the Shyampur area
of Dhaka. Most of the mills there are on the verge of extinction, as
they cannot compete with automated factories in terms of cost,
efficiency and production volume.
Environmental Risk: Bangladesh possesses no iron ore deposits
or mines, which render ship-scrapping (and ship breaking,

11
by extension) as the major source of raw materials. The ship
breaking industry is currently supplying more than 60% of the
raw materials for local steel industry. However, Bangladeshi ship
breakers found themselves at the forefront of criticism as NGOs
and pressure groups exposed some questionable practices of
the ship-breakers that posed serious environmental and human
hazards. On the ruling of Bangladesh Environmental Lawyers
Association (BELA), the judicial courts of Bangladesh established
certain environmental standards for all ship breakers to adhere
to, and decreed that violation of these standards would result in
a ban. The court s decision meant that by 2010 the ship-breaking
industry had come to a halt. And it lead to the sharp rise of rod
price. However, withdrawal of the ban in late 2011 paved the way
for Bangladesh s comeback in the global ship-breaking sector in
2012. Demand for the ship-breaking sector is expected to remain
high as Bangladesh s building construction sector solely depends
on steel recycled from ship-plates. The demand of steel is poised
to increase as the country is in a phase of real-estate boom
that also encompasses infrastructure development. Also, the
Ministry of Industries (MoI) and international bodies such as the
Norwegian Agency for Development Cooperation (NORAD) has
also shown its interest to support the local ship-breaking industry
in accordance with international standard and law of the land.
Currently, the industry is following government s Ship Breaking &
Recycling Rules act that was instituted in 2011.
Steel plays a vital role in infrastructure and overall economic development of a country. Thus, the growth of steel industry is often
thought to be a parameter of economic progress. This sector has seen increased activity in terms of new investment during the
last few years. To be more cost effective, companies are also upgrading their technology and manufacturing processes. To reduce
the dependency on billet import, local companies are now investing heavily to set up their own billet plants. Most of the mid-level
and large scale steel mills have installed fume-extraction systems and effluent treatment plants (ETP) to protect the environment
by controlling the harmful fumes discharged from the plant. However, excess capacity is very much a reality in the steel industry.
Government support towards facilitation of exporting the excess steel will not only stabilize the domestic market, but also provide the
millers with an extra source of income. In fact, steel manufacturers have been lobbying for the Bangladesh government to approach
India in order to remove the non-tariff barriers for steel exports to the north-east states of the latter country, as Bangladeshi millers
believe that particular region to be a good potential market.
Apart from that, we have seen that the construction sector of Bangladesh has grown at a calculated average growth rate (CAGR) of
12.2% over the last 10 years. This growth is expected to continue. Although the global economy is passing through a difficult time
and our real estate sector is facing a temporary slowdown of demand due to overall macroeconomic pressure and contraction policy
of government, the local manufacturers believe the steel industry should continue to grow at 10% in the next few years, riding on
government programs centering its vision for 2021, a real estate boom in urban areas and an inflow of remittance in rural areas. One
part of those expectations ‒ the real estate boom ‒ has seen slight realization during the tail-end of 2012. Though government steel
consumption has gone down significantly, it is planning few very big projects like Padma Multipurpose Bridge and Metro Rail. The two
projects will cumulatively cost more than USD 6 bn. Successful implementation of these projects holds a very good potential for top
line growth, as steel and steel rods in particular feature prominently as raw materials of the two projects.
Above all the government needs to ensure basic infrastructure, power, gas and an educated workforce -without which, industrial
growth will sputter.
(The writer is working as a Senior Credit Analyst of Credit Risk Management department of IDLC Finance Ltd. He can be reached at HMehedi@idlc.com.)
Prospect of backward linkage (Ship breaking Industry)
Bangladesh s ship-breaking industry was the world s largest until
2009 when various legal campaigns by environmental groups
almost shut down the sector. In 2010, due to court restrictions
only 19 vessels were broken. However, last year, courts lifted the
ban on the import of ships until government ministries formulate
detailed guidelines for the ship-breaking sector. That has seen
business pick up pace again, with 150 ships dismantled in 2011.
Approximately 143 ships have already been broken in the first six
months of 2012. Bangladesh s unique geography is also another
reason why ageing ships are taken to the beaches there. The
industry is worth around USD 1 bn and shipyard-owners say the
sector employs nearly 200,000 workers. Good prospect of this
industry will facilitate more steel production in our country.
Ship breaking scrap contribution to steel production and
consumption in BD (millions)
Steel Consumption 5 m tons
Steel Production 2.2 to 2.5 m tons
Scrap steel from ship breaking (SB) Up to 1.5 m tons
SB Contribution to steel production 50%
SB Contribution to consumption 20-25%
Rerolling mills 250-350
Source: World Bank Report 2010

12
ECONOMY
Taka to appreciate modestly: HSBC
Creeping food prices propel
inflation upwards
The latest issue of the Asian FX Focus
published by the Hong Kong and Shanghai
Banking Corporation (HSBC) envisages
that the recent appreciation exhibited
by the Taka will lose momentum and
moderate, with the USD-BDT forecast to
reach BDT 76 against USD 1 by the end of
2013. Some details of the report include,
The recent downtrend in the USD-BDT
exchange rate is expected to continue
in 2013 on the back of robust current
account flows.
Although the stock market retains
many of its historical weaknesses,
positive developments are expected
in 2013. The Bangladesh Bank s
recent focus on enhancing the short-
dated portion of bills/bonds issues
(which may attract increased foreign
investment) as well as investing in
financial infrastructure (launching an
electronic trading window on the BB s
website, which may make it easier
for foreign investors to trade the BDT
and invest onshore) has been cited as
proof of the positive steps taken to
make the equity markets more stable.
Factors such as reduced food prices,
increased remittance flows possible
upward pressure on asset prices and
non-food inflation and the lead-up to
the elections may pose a suppressive
influence on the appreciation of the
Taka during the third quarter of 2013.
Two of the major determinants
of currency appreciation remain
the current and capital accounts,
respectively. The report finds that
the capital account still remains a
potential point of weakness. Positive
developments are expected in this
direction as well.
Furthermore, the report finds that
the largest driver of the current
account is remittances from overseas
Bangladeshi workers. This flow
is large, given the overall size of
the Bangladeshi economy, and is
substantial enough to keep the
current account in surplus, if going
by the 20% growth observed during
the first half of FY2012-13 is any
indication. However, this strength
is directly dependent on the health
and economic prosperity of countries
where most overseas Bangladeshi
workers are based. This would be the
Middle East region, where more than
60% of remittance flows come from.
A recent World Bank study illustrates
that the growth of remittances will be
stronger during 2013-15, particularly
in regions that rely on remittance
flows from the Gulf Corporation
Council (GCC), the US and Russia.
Another major component of the
current account is the trade balance.
At present there is a deficit, due to
weak demand from Europe and the US,
and a large oil import bill. However,
net outflows from Bangladesh have
been on the reducing end, buoyed by
lower import in grain and consumer
food items due to high domestic
stock levels. Considering that 67% of
Bangladeshi exports head to North
America and the European Union
periphery, a protracted slowdown
in these regions could prove fatal to
the current account condition and
remains a credible concern. The report
finds Bangladesh cognizant of this
threat, and reports that the authorities
have been looking to diversify in new
Emerging Markets. Combined, the
afore-mentioned effects are likely to
result in an appreciation of the Taka.
The report also notes that the proactive
actions taken by the Bangladesh Bank
(BB) to build up its foreign reserves
may have deflationary pressures on
the local currency. Between July 2012
and February 2013, the BB bought
more than USD 3.5 bn in its effort to
protect the interest of the exporters
(textile and apparel in particular) and
migrant workers. Concurrently, the
sudden shortage of the US dollar from
the market led to modest arrested
appreciation of the Taka. The report
opines that the central bank is unlikely
to pursue a different foreign exchange
policy in the near future.
Consumer Price Index (CPI) and Rate of Inflation at
National Levels (Base FY1996=100)
According to the Bangladesh Bureau of Statistics (BBS),
Bangladesh s annual inflation rate picked up in February 2013
due to surging food costs. According to the statistics provided
by the BBS,
Point-to-point inflation accelerated to 7.87% in February
2013 from 7.38% of January 2013 according to the old base
year of 1995-96=100.
Twelve month average food and non-food inflation came
down to 7.10% and 10.44% respectively from last month
resulting general inflation down to 8.19% in February,
2013.
Food inflation in February 2013 was 8.34%, up from 7.21%
recorded in January 2013. Non-food inflation however,
moderated from 7.79% of January to 7.12% in February.
Source: Monetary Policy Department, Bangladesh Bank

13
Forex breaks another milestone
State-owned commercial Banks in
a quandary
ADP allocation poor: Jul-Feb 13
Bangladesh s foreign currency reserves passed the USD 14 bn mark on March 5 for the first time in the country s 42 years history,
standing at USD 14.1 bn. The Bangladesh Bank has attributed the positive trend in the growth of the forex reserve due to strong
remittance growth in recent months, a fall in import levels and a rise in export activity. The deposition of the second tranche of the
IMF s extended credit facility (ECF) has further strengthened the forex balance. According to the Bangladesh Bank (BB), the following
factors contributed to the positive reserve balance.
In the first six months of the FY2012-13, imports dropped by 8%.
In the first eight months of the FY2012-13, total remittance went up by 17.34% to stand at USD 9.88 bn.
Also, during the period of July-March 2012-13, BB purchased foreign currency worth USD 3.28 bn from the country s banks.
Consequently, the central banker decided to use part of the reserve to clear out import bill requirements. The government made a
routine payment of USD 784 mn to the Asian Clearing Union (ACU) against imports during the January-February 2013 period. After the
payment, the country s foreign exchange (forex) reserve came down to USD 13.452 bn on March 10 from USD 14.234 bn of March 7.
The market share of state-owned commercial banks (SCBs) has
been on the declining trend, despite the constant advisory role
played by the Bangladesh Bank (BB) on strengthening operations,
particularly in rural areas through boosting recovery drives. The
BB has advised the SCBs on improvements regarding internal
control, profitability and lowering cost of funds. According to the
annual report of the central bank,
In 2011, the SCBs held 27.8% of the total industry assets as
against 28.5% in 2010. The private commercial banks (PCBs)
share rose to 60.0% in 2011 from 58.8% in 2010.
The foreign commercial banks (FCBs) share in total industry
assets remained unchanged at 6.6% in 2011, while that of the
government-owned development finance institutions (DFIs)
came down to 5.6% in 2011 from 6.1% in 2010.
Total deposits of the banks in 2011 rose to BDT 4509.7 bn
from BDT 3721.9 bn in 2010 showing an overall increase of
21.2%. The SCBs share in deposits decreased by 0.7 percentile
points to 27.4% in 2011 from 28.1% in the previous calendar
year.
On the other hand, 30 PCBs deposits in 2011 amounted to
BDT 2787.5 bn or 61.8% of the total industry deposit against
BDT 2266.5 bn or 60.9% in 2010. Nine FCBs deposits in 2011
rose only by BDT 45.1 bn over the year. In 2011, four DFIs
deposits were BDT 214.4 bn against BDT 183.4 bn in 2010
showing an increase of 16.9% over the year.
The Bangladesh Bank has asked the four SCBs to properly
utilize their extensive branch network to increase their
market share, and to implement the BB s existing core risk
guidelines to minimize their financial risks.
On top of an eroding market share, the SCBs operating expenses
increased significantly in 2012 as compared to 2011, with state
commercial banks stating wage bills as a major component of
growing costs. A lack of proper competitive operation policies
observed by the country s other scheduled banks has also been
blamed for the rising operational costs of the SCBs.
Increase in Operating Expenses
Name of the Bank 2011 2012 Change
Sonali Bank 10.82 11.19 +3.42%
Janata Bank 7.13 7.47 +4.77%
Agrani Bank 6.3 7.02 +11.43%
Rupali Bank 2.95 2.99 +1.36%
Source: Bangladesh Bank
According to data by the country s Planning Commission, the
government has spent only 44% of BDT 550 bn development
budget during the July-February period of the current fiscal. The
performance of the Ministry of Railway in particular has been
below expectations. According to the Planning Division and the
Implementation Monitoring and Evaluation Division (IMED) data,
All 53 government ministries and agencies spent BDT 241.97
bn, 44% from its BDT 550 bn outlay in the development
budget, during the first eight months of the FY2012-13.
During the last financial year of FY2011-12, the government
spent BDT 175.19 bn, 38% of the then-total ADP outlay of BDT
460 bn.
The railway ministry has utilized only 28% of its allocation
under the Annual Development Programme (ADP) in Jul-Feb,
16 percentile points down from the average implementation
rate of 44% quoted beforehand.
The ministries and agencies have spent BDT 164.79 bn, 49%
of BDT 335 bn outlay from the government s own exchequer
and BDT 77.19 bn or 36% from the BDT 215 bn external
resources in the current ADP.
Among the 10 major budget holders in the ADP, the Ministry
of Industries has become the worst-performer as it could
spend only 22% from its BDT 17.22 bn total allocations in
July-February period of the current FY2012-13
The second largest budget holder, the Power Division, is the
best performer among the top 10 development fund holders
as they have spent 61% from their allocations during July-
February period of the current FY2012-13.
In light of the poor usage rates by the various government bodies
and agencies during the current FY2012-13, the government
decided in March 2013 to revise the allocation for the current
fiscal s ADP.
On March 12, the Planning Commission finalized a Revised Annual
Development Progamme (RADP) of BDT 503.66 bn. The RADP
will aim to increase fund allowance to the power and transport
sectors and support activities by the local government bodies.
Of the amount, 63% (BDT 318.66 bn) of the revised development
budget will be funded by the government s domestic budgetary
resources and 37% (BDT 185 bn) will come from external sources.
Additionally, BDT 16.10 bn has been set aside in the RADP in the
form of block allocations for special priority projects. This has
been done so that the development projects can get additional
fund allocations on a need basis.

14
Selected Economic Indicators
Item Period/ As of Value/bn Period/ As of Value/bn +/(-)%
Foreign Exchange Reserve (USD) March'13 14.03 March'12 9.57 46.66%
Workers Remittances (USD) February'13 1.16 February'12 1.13 2.00%
Revenue Collection (BDT) Janurary'13 89.85 January'12 75.59 18.87%
Broad Money (M2) (BDT) Janurary'13 5,624.77 January'12 4,737.04 18.74%
Reserve Money (RM) (BDT) Janurary'13 1,062.44 January'12 907.93 17.02%
Total Domestic Credit (BDT) Janurary'13 5,505.69 January'12 4,817.99 14.27%
Credit to Private Sector (BDT) December'12 4,304.29 December'11 3,748.56 14.83%
Excess Liquidity (BDT) Janurary'13 599.54 December'12 579.91 3.39%
Source: March, 2013, Selected Economic Indicators, Bangladesh Bank
TRADE
BoP appreciates USD 1.1 bn in single month
ITFC to continue low cost L/C facility to BPC
The first seven months of FY 2012-13 saw the trade balance
fall even further to a deficit of USD 4340 mn; however, this gap
was 33.34% higher than the deficit of USD 6144 mn registered
during the same period last FY2011-12. The inflow of workers
remittances in January 2013 remained at similar levels from
December 2012. Thus, a Current Account surplus of USD 821 mn
in July-January 2013 (against a deficit of USD 1300 mn during the
same period of the last fiscal) was recorded. Aided by a Financial
Account surplus of USD 1790 mn (mainly due to the continued
increasing trend of the government borrowing from overseas
sources and higher inflow of FDI, but this figure was lower than
December 2012 numbers) and a year-over-year USD 1474 mn
increase in the government s Secondary Income, Bangladesh s
positive trend in its overall Balance of Payments (BoP) continued
from July 2012 with the BoP registering a surplus of USD 2928 mn
for July-January 2013 against the deficit of USD 813 mn during
July-January 2012. In the course of a single month, the BoP was
an appreciation of USD 1176 mn from December to January 2013.
Export Import growth (year on year)
Source: Export Promotion Bureau, Bangladesh Bank
The Bangladesh Petroleum Corporation
(BPC) has accepted the proposal of the
International Islamic Trade Finance
Corporation (ITFC) ‒ the lending arm of
the Islamic Development Bank (IDB) ‒ to
provide the former with letter of credit
(L/C) facility for the purposes of oil import.
The new deal between the BPC and the
ITFC will allow the country to import
oil and market petroleum products at a
commission price much lower than that
of the state-owned commercial banks
for the current year. Details of the deal
include,
The BPC has estimated that it would
have to import about 5.9 mn ton
of crude oil and refined products
in the current FY2012-13, up 11.3%
from imports of 5.3 mn ton the year
before. The company s import bill
in the current fiscal is estimated at
about USD 5.5 bn, up 14.6% from the
previous year s estimated USD 4.8 bn.
Of the 5.9 mn ton, the BPC has planned
to import 1.4 mn ton crude oil, 3.0 mn
ton of diesel oil, 1.2 mn ton of furnace
oil, and a combined 300,000 ton of
kerosene, jet fuel, petrol and octane.
Bangladesh Petroleum Corporation
uses a combination of loans from
foreign banks, the ITFC and deferred
payment mechanisms to finance its oil
imports.
The ITFC will charge the BPC the same
rate at 0.16% on the L/C in 2013 as
that of the last year. The state-owned
commercial banks are, however,
charging higher commission at 0.40%
from the BPC as commission against
provision of L/C facility to import fuel
oil.

15
NBR to proactively target revenue collection
Manpower Export down in Jan-Feb 2013
SME loan disbursement exhibits positive growth
Spurred by a sizeable downward trend of import-related revenue
collections in the form of taxes and duties in recent times, the
National Board of Revenue (NBR) has taken a move to draw a
detailed work-plan to increase its revenue collections through an
active participation, particularly of its field-level customs officials
across the country.
In the first two quarters of the FY2012-13, the shortfall in
import-related revenue collections stood at BDT 879 mn,
compared to its projected target for the period under report.
Such revenue collections posted a 7.0% growth, though
the projection about this growth rate was much higher for
the current fiscal. The annual target of FY2012-13 for tax on
import-items had previously been set at BDT 356 bn but the
realization of the amount has been harder to materialize
since import of major revenue-generating items has been on
subpar levels so far in the current fiscal year 2012-13.
The shortfall in revenue colletion in total aggregate terms has
reached over BDT 30 bn in the July-January period of FY2012-
13, as the NBR collected BDT 530 bn during the time frame as
compared to the targeted figure of BDT 560 bn.
The slight appreciation of the Taka has had a decidedly
adverse effect on the revenue collections at the import stage.
In terms of the domestic currency, dutiable imported items
are now lower than before, because of appreciation of the
local currency against the US dollar, the reference currency
for all economic operators.
According to the Policy Research Institute (PRI), the revenue
shortfall is most likely because of decline in collections of
supplementary duties (SDs) at the local stage, especially from
the cigarette-manufacturing sector. Most tobacco firms have
shifted production focus towards lower-priced brands due
to the government imposition of low price-slabs for lower
brand of cigarettes. Revenue collection, thus, has significantly
fallen from this sector.
For FY 2012-13, the government has set BDT 1.12 tn as
the revenue collection target for the NBR. Independent
assessment of this target has been on the line of being highly
ambitious , particularly in the context of the present political
turmoil and economic slowdown.
Out of this annual target, the government expects 36% of
revenue collections to come from value added tax (VAT),
31.5% from income tax, 17.8% from supplementary duties
and 12.9% from import duty.
Disbursement of SME loans in 2012 by Bangladesh s banks and NBFIs exhibited strong growth in 2012 when compared to the years
2010 and 2011, according to the Bangladesh Bank.
The banks and non-banking financial institutions (NBFIs) disbursed BDT 682.62 bn in small and medium enterprise (SME) loans in
2012. The amount also surpassed the set target by 18.20% for the same year.
On the other hand, the banks and NBFIs disbursed SME loans amounting to BDT 537.19 bn and BDT 535.43 bn in 2011 and 2010
respectively.
The central bank has set a BDT 722.03 bn SME loans disbursement target for the local and foreign banks and NBFIs for the current
calendar year of 2013, which is 22.35% higher than 2012 s BDT 590.12 bn target,
According to the BB s SME Programme Department, the exemplary performance by the banks and NBFIs in availing greater credit
growth in 2012 to the SME sector can be traced back to the Bangladesh Bank s constant supervision and monitoring, and the
outstanding performance of the banks and NBFIs themselves.
The Bureau of Manpower, Employment
and Training (BMET) shows that the
country s overseas employment
continued to exhibit a declining trend
over the January-February 2013 period
as key manpower export destinations like
the UAE (United Arab Emirates) closed
its door to Bangladeshi manpower from
2012. The dearth of hiring from the UAE
has affected Bangladeshi labor export
the most, since the Middle East country
used to typically comprise a large portion
of total workers sent abroad before mid-
2012. According to BMET data,
Only 70,526 Bangladeshis got foreign
jobs during the January-February
2013 period which is down from
128,179 in the same period in 2012.
A total of 38,337 Bangladeshis went
out of the country for jobs in January
and 32,189 in February 2013. Of them
1,196 workers were employed in the
UAE, 5,206 in the KSA, 26,686 in Oman,
7,956 in Qatar, 4,477 in Bahrain and
9,308 in Singapore in during the same
time period.
The government has plans to send nearly
0.6 mn Bangladeshi nationals abroad in
2013, under both the skilled and unskilled
labor category. At present, nearly 8 mn
Bangladeshis are working in 156 countries
across the world. A total of 607,798
workers went abroad with jobs in 2012,
the number of which was 568,062 in 2011.

16
Category wise Export
USD in mn
Item
July-Feb
12-13
July-Feb
11-12
Change
Knitwear 6,732.09 6,297.10 7%
Woven RMG 7,098.41 6,261.07 13%
Frozen Food 368.90 444.95 -17%
Home Textile 501.90 557.99 -10%
Leather 230.65 206.94 11%
Chemical Products 67.56 73.33 -8%
Foot Wear 285.66 243.82 17%
Engineering Products 249.40 230.63 8%
Agricultural Products 328.77 255.86 28%
Raw Jute 152.06 168.90 -10%
Others 1,385.12 1,167.92 19%
Total 17,400.52 15,908.51 9%
Source: Export performance for Jul-Feb FY2012-13; Export Promotion
Bureau, Bangladesh Bank
Import LC statistics
USD in mn
Item
July - Jan, 2013 July - Jan, 2012
FLCO SOLC OSTLC FLCO SOLC OSTLC
Capital Machinery 1,373 1,175 2,585 1,252 1,499 2,567
Textile Fabrics (B/B & Others) 3,167 2,702 2,571 2,674 2,740 2,673
Rice and Wheat 583 365 346 518 612 366
Chemicals & Chem. Products 2,062 2,165 974 2,450 2,129 1,483
Petroleum & Petro Products 2,327 2,593 1,177 2,745 2,683 1,148
Edible Oil & Oil Seeds 773 628 836 888 870 690
Raw Cotton 1,119 1,051 934 1,197 1,084 1,090
Scrap Vessels 624 498 394 358 659 132
Pulses 228 191 179 132 112 81
Cotton Yarn 568 562 436 491 604 525
Paper and Paper Board 165 165 77 206 201 98
Synthetic Fibre & Yarn 309 272 260 331 434 296
Sugar and Salt 373 550 504 783 592 774
Others 6,611 5,802 5,543 7,162 6,868 5,267
Total 20,282 18,721 16,816 21,186 21,087 17,189
FLCO = Fresh LC Opening, SOLC = Settlement of LC, OSTLC=Outstanding LC
Source: Major Economic Indicators: Monthly Update; March 2013; Bangladesh Bank
Land crisis deflates EPZ investment
INVESTORS’ CORNER
According to information shared by the Bangladesh Export Processing Zone Association (BEPZA), investment in the country s economic zones
fell by 5.39% during the first eight months of the FY2012-13 compared to the same period in the last one. BEPZA attributes this backwardation
to the lack of commercial land available in the EPZs.
Investments worth USD 222.68 mn have been made in EPZs up to February FY2012-13, as against USD 235.37 mn for the same period
during last fiscal.
Land scarcity has been a major issue contributing to the slight fall in EPZ activity, as BEPZA reports that entrepreneurs have been turning
away from BEPZA despite keen interest solely due to the dearth of plots in the Dhaka and Chittagong EPZs.
During the September-February 2012-13 period, BEPZA saw an exodus of 17 entrepreneurs from the export processing zones, with
probable investments worth USD 150 mn not materializing due to the land problem.
Export Processing Zones
Statistics
Cumulative investment in eight EPZs at the end of
February 2013 for the FY2012-13 was USD 2679.64 mn
as compared to USD 2456.95 mn at the end of FY2011-
12.
Cumulative employment in eight EPZs at the end of
February 2013 for the FY2012-13 was 358,772 people
while in FY2011-12 it was 340,021 employees.
Cumulative export in eight EPZs at the end of February
2013 for the FY2012-13 was USD 32,706.40 mn as
compared to USD 29,645.69 mn at the end of FY2011-
12.

17
BUSINESS
Govt undertakes 6 development projects
Bangladesh Energy Sector in need of FDI
Largest ever loan deal with JICA
Germany to ﬁnance
Bangladesh health
MDGs
On March 5, the government approved six development projects
worth BDT 45,070 mn. Of the total cost, BDT 14,310 mn will
come from the government s own fund and the remaining BDT
30,760 mn as project assistance from development partners. The
government plans to use these funds in the following manner,
The Government wants to develop around 1000 km of road at
the union and upazilla levels, rehabilitate 300 km of roads at
the upazila level and construct about 3000 meter of bridge/
culverts at upazila and union level under Northern Bangladesh
Integrated Development Project (NBIDP). Development of
70 growth centres and 74 haat-bazaars and maintenance
of nearly 1,300 km of roads have also been included in the
NBIDP. The government will require BDT 27,060 mn of which
BDT 21,280 mn will be provided by the Japan International
Cooperation Agency (JICA).
Another project, the Eastern Bangladesh Bridge Improvement
Project, will cost the government BDT 11,880 mn and will
be used to widen and reconstruct 118 bridges and culverts
Govt. Development Projects
Source: National Economic Council
on 12 national and regional highways to ensure safe
communications. About 4,500 meter of bridges and culverts
would be constructed under the project.
A recent round-table discussion organized by the Centre for Policy Dialogue (CPD)
explored the existing reasons hindering high levels of foreign direct investment (FDI)
into the country. Speakers at the meet identified lack of good governance, insufficient
rules and regulations, corruption, inadequate infrastructure and logistic support as
major barriers to Bangladesh achieving its FDI potential. There was much emphasis
on the possible positive impacts of FDI in the energy and power sector of Bangladesh.
Insights from the event include:
Bangladesh s energy sector needs foreign funds as it is a hugely capital and
technology-intensive sector. FDI represents an attractive option as it is a non-debt
flow of funds from one country to another.
The share of FDI in the power, gas and petroleum sectors amounted to USD 2.25 bn
in 2010, comprise one-quarter of the total foreign fund that flowed to the country. As
such, more initiatives must be taken by the government to increase this proportion.
The Japan International Cooperation Agency (JICA) has choosen
Bangladesh for its largest ever assistance in the form of a loan
worth nearly USD 1.04 bn (BDT 82.34 bn) for the financing of
four development projects. A part of the loan will be utilised
to construct the second Kanchpur bridge, while the rest shall
be used to the construct the second 2nd Megna and second
Meghna-Gumti bridges on the Dhaka-Chittagong highway and
renovate the existing bridges at the same sites. Details of the deal
include,
The loan will be disbursed in one year s period for
implementation of the above mentioned projects.
The JICA s loan will be concessional with the interest rate at
0.01% per annum with a 40-year repayment period with a 10-
year grace period.
According to the ERD, Japan is the largest bilateral development
partner of Bangladesh. Since independence, it has disbursed
nearly USD 6.5 bn worth assistance towards the development of
the nation.
Name of Project
Amount Proposed
(USD in mn)
Construction of 2nd Kanchpur, Meghna
Meghna-Gumti Bridge
316
Karnaphuli Water Supply Project 380
Northern Bangladesh Integrated
Development Project
224
Renewable Energy Development Project 124
Source: Economic Relations Division
The country s Economic Relations Division
andtheKfWDevelopmentBankofGermany
came to a financing agreement on March
13 which would see Germany disburse
BDT 2010 mn in grants to Bangladesh
to help the country achieve its health-
oriented MDGs (millennium development
goals) such as maternal health, nutrition,
reproductive health, family planning,
control of non-communicable diseases
and immunisation.

18
India withdraws duty-free RMG beneﬁts
USD 133 mn Chinese loan to BD
ICT sector
Reconditioned car sector in a slump
India has decided to impose a 15.36%
duty including a 12.36% countervailing
duty (CVD) and 3.0% additional duty on
the import of readymade garments (RMG)
from Bangladesh, effectively putting
an end to the duty-free export benefits
enjoyed by the country since September
2011. The new charge, proposed in India s
union budget for 2013-14, comprises of
a 12% countervailing duty and a 0.36%
educational tax. This comes on the back
of persistent assertions from the Indian
knitwear and garment manufacturers
lobby that the duty-free import of
The Government of China has decided to provide a USD
133 mn loan to Bangladesh for developing the country s ICT
infrastructure network. The project, titled the Development of
National ICT Infra-Network for Bangladesh Government Phase-
II will be implemented by the Ministry of Information and
Communication Technology. Under the proposed outline of the
venture, all government offices at the district and upazila levels
will be interconnected through a digital network.
The government incurred a revenue loss of BDT 35 bn over
2010-2012 over the country s sluggish reconditioned car sector.
Government policy being favored to new cars in the past two
years have seen the once thriving reconditioned car sector
struggling to make ends meet. Previously, consumers were able
to finance 90% of their reconditioned car purchase through a
bank loan; however the highest permissible limit from a bank
currently stands at 30% of the cost. This increased contribution
on part of the consumer has become a major deterrent for
purchase of reconditioned cars.
garments from Bangladesh was posing
adverse impacts on the local firms in
terms of cost competitiveness. On top
of it, India has also withdrawn another
12.36% of central excise duty on branded
garments manufactured by the Indians,
meaning that Bangladesh has been
thrown into further competition. In effect,
Bangladeshi exporters face the herculean
task of reducing their costs of production
by more than 24% to remain competitive
in the Indian market.
Previously, the inclusion of duty free
access of 46 RMG items in September
2011 led to soaring Bangladeshi exports
to India for 2011-12 since despite the
existence of varying tariff and non-tariff
barriers by different states, the export
of readymade garments (RMG) to India
recorded nearly 55% increase in during
the period, as revenue earnings stood at
USD 50 mn as against that of USD 35.9
mn in 2010-11. However, this presents an
insignificant amount when compared to
India s domestic textile market valued at
more than USD 36 bn.
This comes as a sizeable blow to the
Bangladesh exporters, who were looking
towards India as their next big potential
export destination after America and
Europe. The impact is to be most severely
felt by the small and medium enterprises
(SMEs) of the country, according to the
Bangladesh Garment Manufacturers and
Exporters Association (BGMEA). However,
domestic exporters can take solace from
the fact that compared to Bangladesh s
earnings from its two main export
destinations ‒ the United States and
Europe ‒ earnings from India represent a
small portion of the Bangladesh RMG pie.

19
REGULATORY NEWS
Bangladesh Bank (BB) has decided to withdraw charges on all government receipts and payment to individuals and on electronic
fund transfers (EFT). BB has also revised charges on clearing cheques by lifting charges on cheques amounting to below BDT 50,000 to
facilitate the country s marginal income people. Under the revised provision,
The commercial banks are allowed to charge BDT 10 including value added tax (VAT) from their clients for clearing each cheque
amounting between BDT 50,000 and below BDT 500,000.
Of the amount of BDT 10, the banks will have to pay BDT 8.00 to the BB and the rest BDT 2.00 will be received by the banks.
The banks are also allowed to charge maximum BDT 60 including VAT from their clients for clearing each high-value cheque, while
maximum BDT 25 including VAT for each regular-value cheque.
Of the BDT 60, the banks will get BDT 10, while the BB will get BDT 50. Of the BDT 25, the banks will get BDT 5.0 while the central
bank will receive BDT 20.
High-value means any bank cheque amounting to BDT 500,000 and above, if cleared on the same day through Bangladesh
Automated Clearing House (BACH).
The revised charges on clearing cheques will come into effect from March 2013 in line with BB s directive.
The Bangladesh Bank has decided to revise the schedule of charges based on the negative feedback from external stakeholders. Under
the new system in place, approximately 75% of all cheques will no longer be applicable to EFT charges. The banks earlier charged
their clients maximum BDT 50 with VAT for clearing each high-value cheque, while maximum BDT 7.0 with VAT for each regular-value
cheque. Besides, the banks charged their clients maximum BDT 7.0 with VAT for clearing EFT. They were allowed to impose 15% of VAT
as indirect tax on the services.
The Manila-based Asian Development Bank (ADB) has decided that it will evaluate the
relevance and effectiveness of its operations in Bangladesh. An independent specialist
team from ADB headquarters will be in charge of the audit and will hold meetings
with major ministries and divisions like the Ministry of Education, the Ministry of
Communications, the Ministry of Railways, the Power Division, the Energy Division, and
the Ministry of Primary and Mass Education, during its 10-day visit. This recent move
from the global lender may have been influenced by the recent irregularities concerning
the financing of the Padma Bridge and the halt of foreign credit flow to that massive USD
2.2 bn project. The lender has been financing in the country to assess implementation
snags and obstacles and identify appropriate solutions. According to the ADB, the
lender typically picks countries from its 67-nation portfolio to conduct study cases on,
to ensure that transparent and accountable use of its fund is being made. In that regard,
Bangladesh is 2013 s candidate.
ADB s Bangladesh portfolio currently includes 59 loans, amounting to a total of USD
5.22 bn, and 39 technical assistances (grants) aggregating a sum of USD 30.15 mn.
The average annual assistance by the ADB to Bangladesh currently stands at USD
900 mn.
The ADB s cumulative lending to Bangladesh totalled USD 13.96 bn against 226
loans, while its technical assistance funds for 419 projects stood at USD 216.19 mn
uptill February 2013.
Meanwhile, ADB, in the last couple of years, has emerged as one of the leading
development partners of Bangladesh after the WB and the level of its annual assistance
to the country has crossed over USD 900 mn.
The government has taken an initiative
to provide internet bandwidth at upazila
levels at low cost. The telecom regulator
has awarded around 4,000 km of optical
fibre cable to two companies ‒ Fiber@
Home and Summit Communications
‒ to expand countrywide broadband
connectivity and telecom services. These
two will offer connectivity to some 96,850
government offices, hospitals, colleges,
schools, madrasas in districts and upazilas
at a low, subsidized cost by the next
three years. Fiber@Home will focus on
the districts and upazilas of Chittagong,
Barisal, Rangpur and Rajshahi divisions
while Summit Communications will
provide optical fibre cable capacity to
Dhaka, Khulna and Sylhet divisions and
the greater Mymensingh district. Both
firms will provide connectivity for telecom
operators and internet service providers
on a commercial basis.
EFT charges removed: Bangladesh Bank
ADB to review Bangladesh projects Internet in Rural Areas:
BD Govt.

20
In a meeting with the Parliamentary Standing Committee on
the Ministry of Finance, the National Board of Revenue (NBR)
identified four major reasons for significant shortfall in import tax
collection ‒ among them were, chiefly sluggish trend in import of
major revenue earning commodities and clogged revenue with
different government entities. According to the NBR,
Uptil January 2013, the import revenue collection posted
5.46% negative growth against its target. The NBR collected
BDT 184.80 bn tax from import against its target for BDT
195.49 bn for July-January 2012-13 period. import of products
that falls under 3.0% and 12% customs duty declined in the
current fiscal over the previous year, causing a BDT 1.32 bn
shortfall in revenue collection.
According to the draft Banking Companies (Amendment) Bill 2013 approved on March 18th, a bank can no longer have more than 20
directors. Though the existing law does not specify the number of directors, the ministry of finance (MoF) had earlier tried on several
occasions to bring down the number to 15. Under the new ordinance,
A bank can have a maximum of 20 directors, where 4 can be independent directors.
The amendment will also bring stringent measures to curb frauds in fund collection from people in the name of deposits.
If any non-bank organisation collects deposits from the public, it will now have to take approval from the central bank. Bangladesh
Bank will also monitor the activities of these organisations and take punitive measures against them if any irregularity is detected.
The BB is empowered to remove any chief executive officer of the state banks.
The banks exposure to the capital market will be lowered to 25% of their regulatory capital. The previous law allowed for banks to
invest 10% of their deposits in the equity markets.
The power to suspend any clause of the Act has now been given to the central bank instead of the government, thus thrusting
more executive power in the hands of the Bangladesh Bank. However, in exercising the power, the central bank will consult the
government
The Bangladesh Bank (BB) has raised credit facility for stock
dealers up to BDT 30 mn from existing limit of BDT 10 mn in a bid
to boost the purchasing power of dealers. The BB has raised the
credit facility in view of the prevailing situation in the country s
stock market. The latest move by the central bank comes on the
heels of the Dhaka Stock Exchange (DSE) recently proposing to
the BB for extending the credit facility for stock brokers up to
BDT 200 mn.
Under the previous directive, a stock dealer was allowed to
avail the credit facility up to BDT 10 mn to purchase listed
stocks or debentures.
Under the new ordinance, any bank can provide a loan up to
BDT 30 mn to a stock dealer on the basis of relation, and by
taking a mortgage security. However, the credit facility can
only be used to sell or purchase A and B category stocks or
debentures.
All other conditions for receiving bank loans by stock dealers
will remain unchanged.
At a meeting between the five financial regulators ‒ the
Bangladesh Bank (BB), IDRA, Bangladesh Securities and Exchange
Commission, Microcredit Regulatory Authority and the Registrar
of Joint Stock Companies and Firms ‒ it was decided that banks
will henceforth need to submit insurance cover notes directly
to the Insurance Development and Regulatory Authority (IDRA).
This initiative has been taken by the regulators to create greater
transparency in tax payment and possible tax evasion by
companies, specifically the insurers.
A cover note is a document issued by an insurer as an interim
cover for the period before a formal insurance policy is issued
later on.
The IDRA has found previous instances of insurers giving
different information to the regulatory and to banks, all in
order to pay a lesser tax expense.
As per the directive, similar to banks and non-bank financial
institutions, directors of insurance companies must now avail
a credit report from the BB and present it to the regulator for
a clean bill of health.
Import of telecommunication products including mobile
phone equipments and SIM (subscriber identification
module) cards declined by 16% to 20%.
Some government entities, including Eastern Refinery,
took delivery of products from different customs houses on
deferred payment. The NBR owes BDT 3.61 bn revenue from
those organizations.
Despite these negative trends the NBR s customs wing remain
optimistic of achieving the revenue collection target of BDT 356
bn, as import duty collection regained pace in December-January
2012-13 compared to that of the other months in the current
FY2012-13. Data shows that the customs wing has achieved
7.24% growth in import revenue collection in the first seven
months of the current fiscal over FY2011-12.
NBR identifies key revenue dampeners
Banks’ directors maximum 20
Stock dealer capacity raised to
BDT 30 mn: BB
Banks to submit cover notes: IDRA

21
MARKET ROUNDUP
March 2013, Global Markets, Standard Chartered Bank
Money Market
The Bangladesh interbank call money rate was around 7% on March 27, 2013.
Foreign Exchange Market
Local: The USD/BDT rate fell slightly on March 27, 2013 and the market was very liquid.
International: Mounting concerns that Cyprus s rescue deal could see private investors foot the bill in future euro zone bailouts and
renewed uncertainty in Italy pushed the euro down to a four-month low against the dollar on March 27, 2013. The euro extended falls,
losing 1% on the day against the yen on March 27 on growing worries that a Cyprus rescue deal could see private investors foot the bill for
future euro zone bailouts. Sterling slipped against the dollar on March 27 after data confirmed the British economy contracted in the final
quarter of last year and that the current account conditions deteriorated. China s Yuan closed slightly weaker on that very day, backing
further away from a record high set at the start of the week, after the central bank set a slightly weaker midpoint in response to a rise in
the dollar in global markets.
Major Currency Roundup
Treasury Boll/Bond Auction Information
Auction Date Tenure & Name of the Securities Sale Value (in BDT mn) Weighted Average Yield (%)
28/03/2013 30 days T.Bill 3351.03 7.25
25/03/2013 91 days T.Bill 5385.533 8.70
18/03/2013 182 days T.Bill 5695.729 11.05
25/03/2013 364 days T.Bill 6315.066 10.94
6/3/2013 5yr T.Bond 5363.4 11.82
13/03/2013 10yr T.Bond N/A 12.10
20/03/2013 15yr T.Bond 683.5 12.38
27/03/2013 20yr T.Bond N/A 12.48
Source: Bangladesh Bank
Exchange And Forward Rates (As on March 27, 2013)
Major Currency Exchange Rates
Currency
BC Sell
BDT
TT Buy
BDT
USD 78.45 77.45
EUR 102.02 98.04
GBP 121.08 117.03
AUD 85.58 80.75
JPY 0.85 0.75
CHF 84.42 80.31
SEK 12.09 9.68
Major Currency Exchange Rates
Currency
BC Sell
BDT
TT Buy
BDT
CAD 80.68 75.82
HKD 10.81 8.94
SGD 64.66 60.83
AED 21.54 20.91
SAR 21.09 20.49
DKK 14.26 12.28
KWD 272.51 267.37
Exchange Rate of Some Currencies
Currency
Currency Per
USD
BDT per
Currency
INR 54.28 1.44
PKR 98.37 0.79
LKR 126.77 0.61
THB 29.34 2.66
MYR 3.1 25.14
Source: Standard Chartered Bank
Financial Sector Prices
The weighted average call money rate in the inter-bank market fell to 7.51% in March (up to 28 March) 2013.
The spread of lending and deposit rate narrowed sharply to 5.13% in January 2013 from 5.33% of December 2012.
Bangladesh Bank has changed repo and reverse repo rate at 7.25% and 5.25% respectively after a downward revision by 50 basis point
effective from 01 February, 2013.

22
International Commodity Prices
Commodity Unit Price February 27, 2013 (USD/unit) Price January 29, 2013 (USD/unit) Change +/(-)
Crude Oil Barrel 97.23 92.76 4.82%
Gold Ounce 1603 1604.25 -0.08%
Silver Ounce 28.33 29.07 -2.55%
Nickel Tonne 16722.5 16,850.00 -0.76%
Tin Tonne 23030 23,677.00 -2.73%
Lead Tonne 2115.1 2310.1 -8.44%
Aluminium Tonne 1910.3 2030.3 -5.91%
Zinc Tonne 1899 2112 -10.09%
Copper Tonne 7617.5 7915 -3.76%
Source: LBMA; Worldal; WTRG
Global food prices at an impasse
FAO Food Price Index averaged 210 in February 2013, unchanged from the January
2013 figure. After three straight months of a downward trend, global food prices have
stabilized in February in the 210-212 point range; the index was five points or 2.5%
below the corresponding month in 2012. Since November 2012, increases in the prices
of dairy products and oils/fats have been largely balanced out by declines in the prices
of cereals and sugar. Meat prices were generally stable over the period. In February dairy
prices experienced a spike, followed by slight upward moderation of oils/fats.
Cereal prices went down by 1% from January 2013, but on a year-over-year basis saw an
appreciation of more than 8%. The decline mainly reflects the drop in wheat prices and
to a lesser extent maize, while rice values strengthened slightly due to increase policy
support for the crop in Thailand and India, two of the major producers. Wheat prices
eased in recent weeks, reflecting improved crop prospects in the US.
Oils and fats were up marginally by 0.4% in February 2013, driven by the expected
seasonal production slowdown of palm oil and reduction in inventories from their
current high levels. Lower soy-oil values and weaker demand from the biodiesel sector
inhibited further prices from rising further.
Meat items saw little change from the previous month, and indeed little change since
October 2012. While poultry saw a dip in prices, other types of meat remained largely
unchanged. High feed prices continue to be of prevailing concern to the industry, while
at the same time consumption growth remained small.
Commodity Market Roundup
Cyprus crisis triggers volatile gold, copper movements
With many analysts believing that that the problems with Cyprus are symptomatic of greater economic troubles in the Euro Zone,
investors have been shy about dipping their feet in commodities trading in general. The USD 13 bn bailout has tarnished gold s safe-
haven appeal and further weakened copper prices. Gold continues to track the euro zone crisis, but the bailout helped ease investor
concerns that the region s debt crisis is worsening. However, announcement of an anti-climatic Italian bond auction and concerns
regarding the manner of the Cyprus-style bank bailout, and the likelihood of similar deals being cut by crisis economies and the
European Union, sent investors in the international commodity market into a tizzy, seeking safe haven by investing in large quantities
of gold. Unsurprisingly, the precious metal, gold closed USD 6 per ounce above its opening trade on March 27. However, the price of
gold fell back below the USD 1600 an ounce key resistance level Thursday. Prices of copper also went tumbling near the tail end of
March 2013, as fears regarding the viability of the Eurozone bailout and a 2.8% increase in output from the world s top copper producer
and modest consumption out of Asia weighed on prices for the red metal.
In the domestic scene, the price of gold remained on a downward slump for much of the month, following a similar trend in the
international market.

23
Markets
Index Mar
26th
% Change on year-on-year
One
Week
Dec 31st
, 2012
In local
currency
In USD
United States (DJIA) 14,559.7 0.7 11.1 11.1
United States (S&P 500) 1,563.8 1 9.6 9.6
United States (NAScomp) 3,252.5 0.7 7.7 7.7
Japan (Nikkei 225) 12,471.6 0 20 10.1
China (SSEA) 2,404.9 1.8 1.2 1.5
Britain (FTSE 100) 6,399.4 -0.7 8.5 1.2
Canada (S&P TSX) 12,706.4 -0.5 2.2 0.1
Germany (DAX) 7,879.7 -0.9 3.5 1
Hong Kong (Hang Seng) 22,311.1 1.2 -1.5 -1.6
India ( BSE) 18,704.5 -1.6 -3.7 -3
Pakistan (KSE) 17,872.2 1 5.7 4.5
Singapore (STI) 3,288.5 0.6 3.8 2.2
Source: The Economist
International Market Movement
INTERNATIONAL
International Economic Forecast
Year on year
percentage
change
GDP CPI
2012 2013 2014 2012 2013 2014
Global (PPP
Weight)
2.70% 2.80% 3.70% 4.20% 4.00% 4.30%
Advanced
Economies1 1.20% 1.10% 2.40% 2.10% 1.50% 1.80%
Euro Zone -0.50% -0.10% 1.80% 2.50% 1.30% 1.70%
Developing
Economies1 4.40% 4.70% 5.30% 6.70% 7.00% 7.20%
Forecast as of March 2013 1Aggregated using PPP weight
Source: Wells Fargo Securities, LLC
Bank compensation rebounds amid global crises
Coke, IFC to finance Asian
women entrepreneurs
Compensation at the world s biggest banks rose in 2012, with 35 of them spending a combined EUR 10 bn (USD 13.1 bn) more on staff than
in 2011. Ever since the 2007 financial crisis, the average salary of a banker has been a closely monitored statistic both by the media and
by policymakers, as the massive bailouts of the time were wholly sourced from hundreds of billions of taxpayers dollars. Policymakers in
particular have argued for the truncating of bank wages as they believe that the large bonuses encouraged excessive, catastrophic risk-taking.
A close look at the EuroStoxx 600 ‒ an index that represents large, mid and small capitalisation companies across 18 countries of the European
region ‒ and its American counterpart shows us that bank staff costs rose to EUR 275 bn across the group. Two thirds of the banks analyzed
increased per person compensation, though several banks credited this increase due to redundancy issues. The compensation ratio - the
industry s preferred yardstick, which measures staff expenses against revenue - was up for 18 of the 35 banks. Regardless whether the bank
recorded a pretax profit or loss, many leading banks saw a rise in per person compensation. A separate survey by recruitment agency Morgan
McKinley showed that bank staff who changed jobs in London in January 2013 enjoyed average pay rises of 23%. To the general public, this
rising trend in salaries at a time of austerity is disconcerting.
International banks however, assert that these figures can be deceptive. Banks have been slashing jobs left and right, with 93,000 cut in 2012.
These massive lay-offs incur redundancy costs that are grouped in with overall staff compensation, which also includes pensions and payroll
taxes
The Coca-Cola Company and IFC (International Finance
Corporation), a member of the World Bank Group, have
announced a USD 100 mn, three-year joint initiative to
give women entrepreneurs in Eurasia and Africa access to
finance. Considering both organizations had similar women
empowerment programs already in place, this collaboration
was seen as synergistic. IFC will use its network of local and
regional banking institutions to provide entrepreneurial skills
training to women entrepreneurs involved in small and medium
enterprises (SME) across the Coca-Cola value chain, namely the
supply and distribution chain. The two companies are targeting
businesswomen specifically due to their low access to finance
despite their considerable societal contributions in emerging
and developing economies. Also, they represent significant
untapped economic potential as developing countries tend
to be typically male-dominated. Practical application of the
collaboration has already begun in Nigeria ‒ there Coca-
Cola are working with local Access Bank to avail financing to
women micro-distributors in the Coca-Cola value chain, in
close collaboration with Coca-Cola s bottling partner, Nigerian
Bottling Company.

Monthly Business Review - March 2013

Monthly Business Review - March 2013

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