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Good corporate governance is instrumental to effective functioning of any organization, which aligns the corporate practices with the long-term objectives of the organization. Recent studies on corporate governance in the banking sector of Bangladesh have identified transparency, accountability, risk management, political influence, and direct influence of the directors and owners to be the core issues to analyze the corporate governance. This study attempts to critically examine the corporate governance status in the banking sector of Bangladesh, making a comparison of profitability and asset quality among three banking groups: state owned commercial banks (SOCBs), private commercial banks (PCBs) and foreign commercial banks (FCBs). The findings of the research depict that the FCBs demonstrate higher average return on equity (ROE) and lower level of average Non-Performing Loan (NPL) ratio whereas the SOCBs face the lowest average ROE and the highest NPL ratio on an average. However, the PCBs show lowest average NPL ratio along with the higher ROE than SOCBs. The study concludes that FCBs demonstrates better policy formulation and execution of standard corporate practices to protect the wealth of the shareholders than PCBs and SOCBs do. In light of the findings, the study suggests that proper documentation, effective auditing and stricter borrower selection criteria, training of the personnel and capacity enhancement are must for the SOCBs to keep its corporate governance practice up to the marks. The same applies to PCBs to regain the public trust.&nbsp

Why banks should be concerned about incorporating environmental, social and governance (ESG) criteria in the lending process? What is the motivation? This study aims to find the motives for considering environmental, social and governance (ESG) criteria in bank lending process. A primary survey has been conducted to know the current status and motivation for incorporating ESG factors in investment decisions. Sample comprised 30 private commercial banks (PCBs) operating in Bangladesh. Data collected were analyzed with graphs, descriptive statistics, and regression analysis. Findings of the study indicate that banks are mostly considering basic environmental, social and governance factors set by regulators qualitatively. They are lagging behind in considering the advanced ESG criteria needed for sustainable and efficient credit risk management. Based on motivation for incorporating ESG factors, it was found that banks pioneering in incorporating ESG factors in lending decisions are compensated through better financial performance. Findings of the study are expected to encourage practitioners and policy-makers to take more pragmatic steps to incorporate ESG risk factors quantitatively in lending decision-making process.

Financial regulation affects government revenue whenever it imposes both the mandatory quantity and price of government bonds. This paper studies a banking regulation adopted by the National Bank of Ethiopia in April 2011, which forces all private banks to purchase a fixed negative-yield government bond in proportion to private sector lending. Having access to monthly bank balance sheets, a survey of branch costs and public finances documentation, the effect of the policy on government revenue can be tracked. This is compared to three plausible revenue-generating alternatives: raising funds at competitive rates on international markets; distorting the private lending of the state-owned bank; and raising new deposits through additional branches of the state-owned bank. Three main results emerge: the government revenue gain is moderate (1.5-2.6 percent of the tax revenue); banks comply with the policy and amass more safe assets; banks' profit growth slows without turning negative (from 10 percent to 2 percent).

In absence of deposit insurance, underdeveloped financial systems can exhibit a coordination failure between banks, unable to commit on safe asset holding, and depositors, anticipating low deposit repayment in bad states. This paper shows conditions under which a government can solve this failure by imposing safe asset purchases, which boosts deposits by increasing depositor repayment in bad states. In so doing, financial regulation stimulates bank profits if subsequent deposit growth exceeds the intermediation margin decline. As a result, it also promotes loans and branch installation with deposits. Two empirical tests are presented: 1) a regulation change by the National Bank of Ethiopia in 2011; 2) the introduction of bank taxes in Antebellum USA (1800-1861). Analyzing bank balance sheets and long-term branch installation, the regulation effects are isolated exploiting heterogeneity in bank size and policies introduction respectively, and find increases in branches, deposits, loans, and safe assets, with no decline in overall profits.

This Technical Note evaluates state bank corporate governance practices in Bosnia and Herzegovina. The analysis was completed during October 27-November 18, 2014. This TN is not a formal assessment against the Basel Committee’s Principles for Enhancing Governance; rather, it assesses key issues and provides a set of recommendations to the authorities with the view to strengthen state bank governance and the State’s ownership structures in Bosnia and Herzegovina. The governments of the Federation of Bosnia and Herzegovina (FBiH) and the Republic of Srpska (RS) are involved in their domestic banking systems through equity stakes and subordinated debt investments in certain banking institutions. Banks’ supervisory boards are not performing their intended leadership role.

The purpose of the paper is to present a more granular view of such projects through the in-depth focus on a limited number of case studies, with a view to understanding what factors in the design of such lending have helped achieve objectives of expanded access, and what forms of interventions may have been less successful. It examines the nature of Bank lending vehicles, the partnering borrower institutions, the country environments in which its loans were extended, as well as broader elements of good practice that make for loan success. It examines the beneficiaries targeted and results achieved. It aims to draws lessons that suggest what factors could lead to success or failure in Bank operations focused on financial access. The remainder of the paper is organized as follows: section two briefly describes the set of the Bank s projects selected for detailed review. Sections three to six contain the core findings of the review. Section 3 focuses on alternative forms of borrower institutions that have served as vehicles for Bank projects, particularly, public sector banks, apex bank structures that include the private sector, rural banks, nonbanks, non-governmental organizations (NGOs) and microfinance institutions, in terms of the degree to which the Bank has been able to successfully partner with such institutions to expand financial access. It also looks at alternative forms of Bank loan design, policy-based loans, investment loans and lines of credit, Learning and Innovation Loans (LILs), matching grants, technical assistance and combinations thereof, and reviews evidence on the role of loan structure (including partnerships with other donors/lenders) and project success. Section four considers the effect of the broader business environment, in terms of financial regulation. Section five reviews elements of good practice that have contributed to success in lending that could be applicable to loans with any objective, and examines their application in the present context. Section six tries to construct a bottom line, reviewing available evidence on outcomes and impact; especially in terms of the ultimate beneficiaries reached. Section seven, the final section, summarizes the main messages emerging from the review and concludes with observations about ways forward.

The Report on the Observance of Standards and Codes - Accounting and Auditing (ROSC A&A) program is part of a 12-module joint World Bank-IMF initiative to assist member countries to strengthen their financial systems by improving their capacity to comply with internationally recognized standards and codes. The ROSC A&A program focuses on the institutional framework underpinning national accounting and auditing practices, and degree of conformity with international standards and good practices. This 2014 update to the Report on the Observance of Standards and Codes – Accounting and Auditing (ROSC A&A) assesses the degree to which the policy recommendations of the 2003 ROSC A&A review have been implemented, identifies issues that have emerged since the last review, and proposes a number of policy recommendations aimed at further improving the quality of corporate financial reporting and auditing which contributes to improving country’s business climate, investors’ confidence and economic growth potential of Bangladesh. The policy recommendations should form the basis for a prioritized, stakeholder-driven Country Action Plan (CAP), aimed to assist in further enhancing financial reporting processes in accordance with international standards and good practices, taking into account Bangladesh’s country specific circumstances.

Job creation and economic growth through private sector development have become primary areas of focus for policy makers around the world in the aftermath of the global financial crisis. Recent evidence points to the importance of small and medium enterprises (SMEs) in providing employment across countries. In addition to employing the largest number of people in aggregate, SMEs generate the most new jobs. But SMEs also face many challenges in day-to-day operations and to grow. This note is a report back on the state of the credit gap for MSMEs with this new and updated data, while providing additional focus on the sizable informal enterprise sector in the developing world. In addition, this report examines various operational challenges that small and informal firms face, and some formalization obstacles they often cite as the primary reasons for not registering their business. A framework to differentiate the informal sector is offered, with the intention of segmenting the vast landscape of informal firms some of which exist today due to opportunistic behavior, while others are just trying to survive and to better design specific interventions depending on the stage of development and the willingness of the firm to register its business. The rest of this report is organized as follows. Section I focuses on the credit gap for formal MSMEs, and offers some innovative models and interventions that can be used to more fully meet the financial and non-financial needs of formal MSMEs. Section II focuses exclusively on informal enterprises, and goes beyond the access to finance paradigm, describing the operational challenges faced by informal firms, reviewing the experiments that have tried to induce higher rates of formalization, and looking at a series of private sector models that if combined, could more fully meet the needs of informal firms.

In 2011 the Ghanaian government issued a policy establishing Public Private Partnerships (PPPs) for the purpose of implementing infrastructure projects and improving the capacity of services provision. A World Bank Mission visited Ghana early in 2012 to assess the legal and practical feasibility of participation in PPPs at the sub-national level of the Government and the possibility that private commercial banks can provide non-sovereign financing to such PPPs. This report will present a summary of the available information on local governments and financial markets in Ghana, and identify potential infrastructure investments that could later be supported directly or indirectly by the International Finance Corporation (IFC) sub-national window, such as with bank guarantees, non sovereign loans, equity or other means. This report also discusses the legal framework for financial operations of SOEs.

This report was initiated at the request of the Iraqi government to get a better understanding of the overall financial sector in Iraq. The main objective of the report was to develop a comprehensive assessment of the financial sector. This report takes a first look at the overall financial system of Iraq with a forward looking approach. Key findings of the report are: 1) Iraq's financial sector is dominated by the banking system, with most assets held by state-owned banks; 2) many private banks are in the process of developing modern banking practices, but still need further strengthening and consolidation; 3) other financial markets are concentrated at the Iraqi stock exchange but capitalization is low, and few instruments are traded; 3) the insurance sector is small, dominated by state- owned enterprises, and is not supervised; 4) weak financial infrastructure is a clear impediment to access to finance; and 5) Small Medium Enterprises (SME) and microfinance is not well developed.

The global financial crisis and ensuing credit crunch has revived the discussion on the role of public sector in the financial system around the world and in El Salvador, authorities have announced plans to step up their activities. A clearly defined strategy for the public banks, focused on complementing private sector activity, is necessary as their activities expand to improve access to finance and diversify the sources of funding. Any process of growth needs to accompany by improvement in risk management processes, governance arrangements and enhanced supervision. Going forward, the two public retail banks should increase their specialization in different market segments. The development bank role can be enhanced while maintaining its second tier status. To make the guarantee funds effective, in addition to scale their size, several operational features need to be improved.

As part of its Global Policy Initiative, Consultative Group to Assist the Poor (CGAP) partnered with the Superintendence of Banks, Insurance and AFPs of Peru in late 2008, with the purpose of enhancing the understanding of the issues and trends in consumer relations when financial services are delivered through branchless banking, particularly through agents, which are used in ever increasing scale in Peru. The product was this joint report. Three other countries with relevant experience in branchless banking (Kenya, Brazil and India) participated in a similar exercise at approximately the same time. As in the case of Peru, the exercise gave an opportunity for regulators of each jurisdiction to look at their regulatory and institutional framework for protecting branchless banking users, evaluate their regulatory and supervisory actions, and identify areas for improvements. A forthcoming CGAP focus note complements the effort, by making an overall evaluation of the lessons learned in these countries and drawing on the knowledge from other pioneer countries such as South Africa, Mexico, Colombia and the Philippines. The focus note will point out and address priority areas of concern and possible regulatory and policy options to address them. The first part of the report outlines the financial inclusion efforts currently being undertaken by the Superintendence. The following section summarizes the most important points of the legal and regulatory framework for financial consumer protection, pointing out any specificity of branchless banking. The third part describes the branchless banking business in Peru and describes the issues and problems identified in the relationship between branchless banking clients and providers, and the supervisory and enforcement implications. The last section draws conclusions and makes recommendations for achieving a balance between openness to innovation and protection in a branchless banking environment.

Este estudio investiga el impacto de la crisis financiera global enfocándose en la propiedad de los bancos comerciales del Estado (SCB) y privados (PCB) y otros factores específicos de la banca y macroeconómi- cos que influyen en el nivel de eficiencia de las ganancias del sector bancario de Bangladesh. Se empleó el método de análisis envolvente de datos basado en el déficit ( Slack-Based Data Envelopment Analysis [SBM-DEA]) para calcular la eficiencia en las ganancias de los 31 bancos comerciales que operaron en Bangladesh en los a ̃ nos 2004 a 2011. Por otra parte, el marco de análisis de regresión multivariante del panel basado en los métodos de mínimos cuadrados ordinarios (MCO) y de mínimos cuadrados generalizados (MCG) que comprenden los modelos de efecto fijo (EF) y de efecto aleatorio (EA) se adoptó para examinar los determinantes de la eficiencia de las ganancias de los bancos. Los resultados indican que los niveles de eficiencia de las ganancias en los SCB y los PCB son crecientes en un 3.7 y un 5.8% durante los a ̃ nos de crisis financiera. Sin embargo, durante el período de a ̃ nos posteriores a la crisis financiera exhibida, los niveles de eficiencia en beneficios en los SCB y los PCB son decrecientes en un 38.7 y un 9.9%. Aunque los niveles de eficiencia en las ganancias de los bancos de ambos tipos de propiedad muestran disminución a lo largo de los a ̃ nos posteriores a la crisis financiera, en los PCB son más altos que en los SCB (67,8% > 60,1%), pero no significativamente distintos. Además, los resultados revelan que las relaciones del tama ̃ no del banco, la liquidez, el crecimiento económico y la concentración del mercado son significativamente negativas con la eficiencia en las ganancias de los SCB pero positivas para los PCB. Mientras tanto, los factores de capi- talización, el riesgo de crédito y la inflación son significativos con el signo positivo y negativo solo para la eficiencia de las ganancias de los SCB durante el período de la post-crisis financiera global.

This study aims to analyze the bank-specific and macroeconomic determinants of non-performing loans (NPLs) of private commercial banks (PCB) in Bangladesh. It considers panel data from 2014 to 2018 of selected 33 listed PCBs and annual macroeconomic data from 2000 to 2018. This study finds equity to total assets, interest income, lending capacity, and return on equity of bank-specific and unemployment and consumer price index of macroeconomic determinants as significant determinants of NPLs in Bangladesh. The impulse response functions (IRF) indicate that the reactions of NPLs are positive toward the shocks on return on equity, return on assets, lending capacity, asset management and operating efficiency of banks. Wald statistics indicate bank-specific and macroeconomic variables can jointly influence the NPLs. It is expected that, the research-based recommendations will benefit bankers and regulatory authority to formulate appropriate policies to reduce the portion of NPLs in Bangladesh.