Banking History of Bangladesh

Banking industry of Bangladesh has achieved noteworthy force throughout the recent years and contributing to the economy of the country. Even though there is a lot of controversy about the present banking system, nobody will disagree that this is the lifeline of Bangladesh economy. 

Banking of Bangladesh has a long history. Even though all the Bangladeshi bank was established after liberation war in 1971, the base of banking was established in British period. After the independence of the country, there was emergence of new banking system to reform the economy. However, the banking acts and regulations has changed time to time to cope with the modern world. Presently, there are 60 scheduled banks actively working toward the advancement of economy. 

For the purpose of better understanding we can divide the banking history of Bangladesh into five broad categories.

1. Pre-British Period ( From 14^th Century )
2. British Period ( 1846-1947)
3. Pakistani Period (1947-1971)
4. Post Liberation period (1972-1982)
5. Decentralization and privatization (1982-)

1.       Pre-British Period ( From 14^th Century )

In 13^th century the Muslim businessmen from Kabul came to India and started money lending business. They are famously known as Kabuliwalas in the history. During their time the native Indians were highly influenced by their financial and business activities. Though there was no form of institutional banking general financial transaction took place at that time. 

2.       British Period (1846-1947)

During the period of British rule merchants established the Dacca Bank in 1846. Which is the first private owned bank in the present Bangladeshi territory.Later it was purchased by Bank of Bengal in 1862. The Bank of Bengal opened its first branch in the eastern piece of Bengal (presently Bangladesh) late in 1862 and afterward opened two different branches in Serajgonj and Chittagong separately in 1873.

However, those two branches were shut in 1877. Gradually, Imperial Bank of India spread its branches in various parts lying within Bangladesh that including Dhaka (in 1862)/ Chittagong (in 1906)/ Mymenshing( in 1922)/ Rangpur  (in 1923) /Chandpur (in 1924)/ Narayanganj (in 1926).

3.       Pakistani Period (1947-1971)

The emergence of 2 independent states of India and Pakistan in August 1947 inflicted a great shock to the banking system of the erstwhile East Pakistan (now Bangladesh) that followed in the wake of shifting headquarters and transfer of assets from the then East Pakistan to India by the non- Muslims who mostly owned the banking sector. Nonetheless, the East Pakistan (Present Bangladesh) was oppressed by the West Pakistan in each and every way. For this reason even after one year of independence of Pakistan there was only two branches of 25 scheduled banks. 

No new banks were established until 1959 when Eastern Mercantile Bank was set up with head office in Chittagong and subsequently, in 1965 the Eastern Banking Corporation was set up with head office in Dhaka - both under the then East Pakistani entrepreneurship. This had a significant impact on the East Pakistan economy.

4.       Post Liberation period (1972-1982)

After the independence , Bangladesh inherited a fragile banking system consisting of 2 Bangladeshi banks (with 155 branches), 10 Pakistani banks (with 920 branches) and 3 foreign banks (with 14 branches). Right after independence, the owners and the top executives of Pakistani banks operated in Bangladesh left after they had transferred their resources to Pakistan.

This put a hindrance on the development of the financial part of the nation which was at that point in a delicate and temperamental condition directly after independence. To fulfill the need of the time, a few changes were realized in a steady progression through Nationalization/Denationalization and Privatization/Shariah based Islamic Banking System/FSRP (Financial Sector Reform Project)/CBRP (Commercial Bank Restructuring Project)/Automation.

The base of independent banking system in Bangladesh was laid through the establishment of the Bangladesh Bank in 1972 by the Presidential Order No. 127 of 1972 (which took effect on 16th December,1971). Through the Order, the eastern branch of the former State Bank of Pakistan at Dhaka was renamed as the Bangladesh Bank as a full-fledged office of the central bank of Bangladesh and the entire undertaking of the State Bank of Pakistan in, and in relation to Bangladesh has been delivered to the Bank. Apart from that, Bangladesh Bank Nationalization Order 1972, all the prevailing banks were restructured into 6 nationalized banks, namely Sonali, Agrani, Janata, Rupali, Pubali and  Uttara Bank. The general objective behind the nationalization program was to ensure social justice and equity, equitable distribution of wealth, economic power and opportunities. But later on, for a variety of reasons, the spectacular achievement in the banking sector came to a halt. Wrong and imprudent policy monopolized the whole banking system.

5.       Decentralization - privatization and modern banking (1982-)

The method of denationalization and privatization included 2 types of reforms - transfer of existing publicly owned resource to private sector and induction of competition between the NCBs (Nationalized Commercial Banks) and the newly emerging private banks. Arab Bangladesh Bank is the 1st private sector bank in Bangladesh which was set up in 1982 later National Bank Limited was set up in 1983. Five more commercial banks was established in 1983 and initiated a moderate growth in banking financial institutions. 

As more and more private banks were introduced the banking sector is now passing an era of huge competition. Many of even argue that, the country has greater number of banks that it requires. Even in this controversy the bank and bankers are working toward a stable economy for Bangladesh.