Has Bangladesh Bank ignored CSR?

RECENTLY I got a copy of the annual report of Bangladesh Bank (BB). It is an impressive document and contains pertinent information on the economy and the financial sector. As a financial analyst I looked into the income statement and balance sheet of the bank. Based on that, I will make a few comments on the financial performance and corporate social responsibility of BB.
First is the fact that there was drastic reduction in the income of the bank in 2009 compared with 2008. Sources of income (Table-1), and expenditure (Table-2).
It may be seen that income from foreign currency assets decreased by 60.1 percent in 2009, whereas income from local currency assets increased by 6.7 percent, resulting in a net decrease of 21.9 percent. Financial costs (interest expense) decreased by 47.3 percent.
One can raise a question about this wide discrepancy in interest income earned locally and the interest expense incurred in the year 2009. That is, BB did not lower its charges on local currency lending to banks proportionate to the decrease in interest expense while it had been urging member banks to charge lower rates to its borrowers.
It is true BB's loans to banks increased by about Tk.4 billion in 2009 over 2008. However, deposit from banks with BB increased by Tk.113 billion in 2009 over 2008. That is, it paid much lower rate of interest on the huge deposits from banks. Hence, financial costs were lowered by 47.3 percent.
Had BB charged lower interest on its lending to banks its income from local currency assets would have been much lower, as it has happened with its financial costs. As a result, BB's operating profit would have been lower by a greater percentage. Given the huge increase in foreign exchange revaluation, loss the net loss in 2009 would have been much higher.
The report mentioned that "revaluation loss arose due to movement of the taka against major currencies." This is not understood, as the taka depreciated slightly against the dollar during the year but that should not have caused such a huge amount of revaluation loss in 2009. Is this because of failure in management of foreign currency assets by BB in 2009?
More important is the payment of dividend (surplus) to the GoB, amounting to Tk.17.3 billion, out of the operating profit when the net profit was minus Tk.5.67 billion in 2009 and it fell by 110.9 percent compared with net profit earned in 2008. Normally, such dividend payments should be made out of net profit.
Overall equity of the bank decreased by Tk.9.5 billion, which was due to its payment to the GoB. It may be mentioned that the nation was run by a military backed CTG and they had no difficulty in raising revenue from the public. In fact, an agency of the government forcibly deposited Tk.12 billion from some businessmen on some pretext or other. That money is still lying with BB in 2010. Why did BB pay such a huge amount when it could do many things with the fund -- as mentioned below?
Interestingly, the administrative cost of the bank remained unchanged in 2009. The report said that 1,932 positions of officers and staff remained vacant during the year and overall number of employees decreased from 4,031 to 4,020. This is a matter that needs to be explained further.
When the bank was expanding its functions in many new areas it should have added new manpower and trained them to assume new functions, such as checking money laundering, encouraging internet and mobile banking and faster CIB operation.
Also, when unemployment is so high in the country, BB could have recruited about 1,000 new staff out of the unemployed youths and reduced the pains of 1,000 families. Their earnings would also have contributed to increased GDP.
The SME and agriculture sectors needed a lot more special credits that BB could provide. The CTG terrorised investors and investment fell drastically during that period. BB could have done something special to increase investment instead of playing the same tune with the CTG. It could have granted additional support to the RMG sector that was facing fall in sales due to recession in the USA, the biggest market.
The attitude and vision of the top management of a large organisation, like the BB, can contribute directly and indirectly to the development of the nation. That is why it is essential that BB should be more independent as a central bank and pursue policies for the long-run good of the economy. Making huge profit from captive customers cannot be a priority of the central bank of a country.

Prof. Dr. M. Shamsul Haque is Vice-Chancellor, Northern University, Bangladesh.