Although the global financial crisis is now seven years behind us, the worlds

economy is still struggling to regain momentum. Growth continues to falter in

advanced economies and, while there is considerable divergence of performance
across emerging market and developing economies, their overall growth remains
below potential.
Looking ahead, the prospects of global growth remain muted. Emerging market
and developing economies face challenges, including the fall-out of sluggish
advanced economy growth, tighter financial conditions, and stubbornly low
commodity prices, though the latter impacts economies differently, depending
on their nature of trade. Exporters of oil and other key commodities have been
particularly hard hit, while their importers have been more resistant to economic
headwinds. Overall, the global outlook faces pronounced risks of another stretch
of muted growth.
Growth prospects have been weakened throughout the world economy. The
world economy is projected to expand at 2.4 percent in 2016, roughly at the
same insipid pace we experienced last year. Global growth is projected to pick up
slowly to 3.0 percent by 2018. Although global growth is projected to accelerate
gradually, a wide range of risks threaten to derail the recovery, including a
sharper-than-expected slowdown in major emerging markets, sudden escalation
of financial market volatility, heightened geopolitical tensions, slowing activity in
advanced economies, and diminished confidence in the effectiveness of policies
to spur growth. These risks are compounded by the fact that for many countries
policy buffers have eroded substantially, particularly in commodity exporting
emerging and developing countries. Against this backdrop of weak growth,
pronounced risks, and limited policy space, policymakers in emerging and
developing economies should put a premium on enacting reforms, which, even if
they seem difficult in the short run, foster stronger growth in the medium and
the long run. In low-income countries (LICs), growth slowed to 4.5 percent in
2015 though growth is projected to pick up to 5.3 percent this year (figure 1.B).
The world economy stumbled in 2015, amid weak aggregate demand, falling
commodity prices and increasing financial market volatility in major economies.
The world gross product is projected to grow by a mere 2.4 per cent in 2015
(figure 1.A), marking a downward revision from the 2.8 per cent forecast in the
World Economic Situation and Prospects as of mid-2015. The growth rates of
gross fixed capital formation and aggregate demand continue to remain
subdued. The world economy is projected to grow by 2.9 per cent in 2016 and
3.2 per cent in 2017, supported by generally less restrictive fiscal and still
accommodative monetary stances worldwide. The anticipated timing and pace of
normalization of the monetary policy stance is expected to reduce policy
uncertainties, while preventing excessive volatility in exchange rates and asset
prices. While the normalization will eventually lead to higher borrowing costs,
rising interest rates should encourage firms to front-load investments in the short
run. The improvement in global growth is also predicated on easing of downward
pressures on commodity prices, which should encourage new investments and

lift growth, particularly in commodity-dependent economies. Global Growth

Indication for upcoming years based on previous information is shown below

Figure 1.A. Global Growth

5.0
4.5
4.0
3.5
3.0
2.5

World

Advanced economies

Emerging and developing economies

2.0
1.5
1.0
0.5
0.0

2.42013
1.1 4.7

2.62014
1.7 4.2

2.42015
1.8 3.4

2.42016
1.7 3.5

2.82017
1.9 4.4

3.02018
1.9 4.7

Figure 1.B. LICs with growth below long-term averages

All LICs

Agriculture

Metal

Energy

Commodity importers

70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0

39.3
17.9
7.1 3.610.7
2014

60.7
25.0
7.1 3.625.0
2015

50.0
21.4
3.6 3.621.4
2016

Figure 1.C. Global infrastructure investment gap

28.6
14.3
3.6 3.6 7.1
2017

3.5
2.9
2.2
1.0
0.0
Roads

Rail

1.3

1.3

1.5

Ports

Airports

Power

Water

Telecom

Total

The group of least developed countries (LDCs) is experiencing a modest

slowdown of their economies, with growth rates falling from 5.1 per cent in 2014
to an estimated 4.5 per cent in 2015. Weaker export demand from emerging
economies, lower commodity prices, net capital outflows, and weak investment
growthand, in some cases, military conflicts, natural disasters and adverse
weather effects on agricultural outputexerted downward pressure on growth
this year. A rebound to 5.6 per cent growth in both 2016 and 2017 is projected,
underpinned by stronger demand from developed economies, growing domestic
demand and stabilizing commodity prices. Lower commodities prices
(particularly oil) have reduced the import bills of resource-importing LDCs and
contributed to lower inflation, although in some countries the gains have been
partially offset by depreciating exchange rates.
Bangladeshthe largest LDC in terms of both the population and size of gross
domestic product (GDP)is expected to benefit from the recovery in the
developed economies, and is projected to grow by 6.5 per cent in 2016, largely
driven by private consumption, investment and additional export demand from
Europe and the United States of America. Government spending on power, water
and transportation infrastructure projects is expected to increase significantly,
supporting growth in the short term, but likely to result in a larger budget deficit.
Unlike the global economy, the economy of Bangladesh has been achieving an
amazing growth in the current fiscal year. And the future looks even brighter.
Investments are likely to gear up in 2016 as the fiscal and monetary authorities
are coordinating in the areas of inflation, interest rates, exchange rates and
revenue collection, and Annual Development Program (ADP) implementation. The
government seems committed to augmenting the availability of infrastructure
and energy. Given the experiences of 2015, political turbulence does not appear
to flare up to destabilize the whole gamut of economic decisions in 2016. The
Economy of Bangladesh remained strong and resilient despite external and
internal challenges. Bangladesh is among the top 12 developing countries with a
population of over 200 million that achieved 6 plus percent growth in 2016. By
any standards, Bangladesh economy has done well. Bangladesh needs to focus

on a growth agenda centered on sustainable and inclusive growth. The projected

growth rate of Bangladesh for 2016 will be almost double of the Worlds and
higher than Chinas. A recent World Bank study shows that one percentage point
increase in Indias growth contributes to an increase in Bangladeshs growth by
0.4 percentage points. Hence, the highest growth at 7.5 percent of India in the
region will be beneficial for Bangladeshs investment and growth through the
channels of trade and services.
Overall inflation declined from 6.5% in March 2015 to 5.65% in March 2016. Food
inflation declined from 6.4% to 3.9%, thanks to a good rice harvest, declining
international food prices and a stable exchange rate. However non-food inflation
rose from 6.1% to 8.4% as a result of suppressed domestic demand, increase in
wages, electricity and gas prices. The balance of payment (BoP) remains
comfortable with a large surplus in both current and financial accounts, due to
recovery in export, increased Foreign Direct Investment and aid disbursements.
Monetary targets are underachieved due to limited growth in domestic credit.
With its contribution to gross domestic product (GDP), growth declining from 1.5
percentage point to 1.3 percentage point, stagnating private investment remains
a concern. Other challenges to the economy include: decline in agricultural
growth, appreciation in Real Effective Exchange Rates, a struggling banking
sector with weak governance in state banks coupled with slow pace and quality
of development spending. Progress on export product and market diversification
remain slow. There is also excessive dependence on the countries of Gulf
Cooperation Council (GCC) for remittance inflows.
Revenue collection target in FY16 may fall short causing budget deficit to rise.
Public expenditure will be higher than the planned budget size. The 7th Five Year
Plan estimates about US$ 410 billion financing, twice the size of GDP, needed for
developing the countrys infrastructure. However, the deficit is likely to remain
within sustainable limits. While the government has already approved a few
important legal amendments pertaining to special economic zones such as,
export processing zone labor rights and bus rapid transit, implementation of the
said needs to be reinforced. Sustained low oil prices bode well for external and
internal balance. With modest fiscal expansion and some easing of the
infrastructure bottlenecks, GDP growth is projected to rise gradually towards 7
plus percent.
On the other side, few factors continue to hinder growth: infrastructure
bottlenecks; power and primary energy shortage; credit shocks in the banking
system; difficulties of doing business; and lack of reform continuity. Bangladesh
needs strong structural reforms and effective public investment efforts to be on a
higher and faster growth path. Furthermore, weakness in the financial sector also
disrupts investment and growth. Weak bank balance sheets and governance in
the State owned Banks limit lending capacity, divert credit away from productive
investment, and impose large fiscal recapitalization costs. High levels of nonperforming loans and the high rates on national savings certificates increase

banks operating and funding costs, keeping interest rates high despite large
excess liquidity.
Based on the Monetary Policy Statement of Bangladesh Bank for the period
between January-June 2016, the following highlights may be noted:
Broad money (M2) is projected to grow at 15.0 percent in June 2016 from
14.2 percent in December 2015. M2 is adequate to support the growth and
inflation targets. It has also taken the growth rates of both public and
private credit into account. Domestic credit is projected to grow at 15.5
percent at the end of the fiscal year 2015- 2016 from 10.9 percent in
December 2015.
Private sector credit is projected to grow at 14.8 percent in June 2016 from
13.8 percent in December 2015. Public sector credit is expected to grow at
18.7 percent from a negative number of 1.7 percent in December 2015.
Inflation is expected to land in 6.07 percent in June 2016 from 6.20
percent in December 2015. Some effects of pay rise in the government
sector are likely to be canceled out by the dampening fuel and commodity
prices.
After keeping a static set of policy rates: repo and reverse repo rates for a
while, Bangladesh Bank has decided to lower the repo rate and reverse
repo rate by 50 basis points, sending the repo to 6.75 percent and reverse
repo to 4.75 percent from the previous rates. This move will attempt to
dampen other interest rates in the market and thus will help investment
stimulate. Necessary market alignments warranted this change.
The falling fuel and commodity prices have globally created a low-inflation
environment, paving the way for a considerable reduction in policy rates
and thus signaling the market to raise investment when macro stability is
commendable.
Bangladesh Bank made a strategic shift in loan disbursement policy. All
banks will be encouraged to substantially increase advances for micro,
small, and medium enterprises. Bangladesh Bank's supervisory vigilance
on banking governance will be straightened further to clamp down on loan
delinquencies.
The financial sector of Bangladesh is dominated by the banking entities. The
dominance of the banking sector highlights the crucial importance of the sector
in resource mobilization and economic growth. The role of the banking sector in
accelerating growth is contingent upon the soundness and depth of the sector. In
Bangladesh, the banking sector has travelled through a journey where the sector
has experienced several ups and downs. Presently, there are 56 scheduled banks
in Bangladesh which are fully under the supervision of Bangladesh Bank of which
4 State Owned Commercial Banks, 4 Specialized Banks, 31 Conventional Private
Commercial Banks, 8 Islami Shariah based Private commercial banks and 9
Foreign Commercial Banks.
NPL has become a major concern in the Banking Sector across the globe.
Banking system of Bangladesh gasps under an over 15 per cent rise in nonperforming loans (NPLs) in the first quarter (Q1) of this year, belying the central

bank surveillance. The volume of the bad loans rose to Tk 594.11 billion during
the January-March period of this calendar year from Tk 513.71 billion in the
preceding quarter. The share of NPLs in the lending operations of the banks rose
to 9.92 per cent during the period under review from 8.79 per cent three months
back. In general the volume of NPLs normally rises slightly during Q1 and Q3 of
each year as most bankers normally remain less serious in the Q1 for recovering
their classified loans. The classified loans cover substandard, doubtful and
bad/loss of total outstanding credits. These altogether stood at Tk 5986.48 billion
as on March 31 last. The amount of classified loans found a high rise because of
less rescheduling of unpaid loans and a relaxed trend in recovery.
During the January-March 2016 period, the total amount of NPLs with six stateowned commercial banks (SoCBs) rose to Tk 272.89 billion from Tk 237.45 billion
in the previous quarter. On the other hand, the volume of classified loans with 39
private commercial banks (PCBs) reached Tk 253.31 billion in the Q1 from Tk
207.60 billion three months ago. The NPLs with nine foreign commercial banks
(FCBs) came down to Tk 18.22 billion during the period under review from Tk
18.97 billion of the previous quarter. The classified loans with two developmentfinance institutions (DFIs) remained unchanged at Tk 49.69 billion in the Q1.
Banks' non-performing loans (NPL) have substantially declined in the second
quarter (Q2) of the outgoing fiscal due to central bank measures after several
large financial scams. The banks' capital adequacy ratio (CAR) to risk weighted
assets has also increased to 10.8 per cent in the Q2 from 10.5 percent in the Q1.
The total risk weighted asset of the sector grew 0.6 percent in the Q2, while the
total eligible capital increased by 3.6 percent. Besides, most banks see off 2015
with slight rise in profits.

Figure 1.D. Profit Growth

700
600
500
400
300
200
100
0

578605
443410

389419

2014

455
273303

203225
17 2015
65

389

To make banks resilient with the ongoing change of economy, BB is shifting from
a compliance-based approach to a forward-looking risk-based approach in
regulation and supervision. Basel-III, the revised regulatory capital framework,
has been implemented to improve the resilience of individual banking institutions
during the periods of stress, while addressing system-wide risks that arise across
the banking sector. Two new tools namely the Liquidity Coverage Ratio (LCR) and
Net Stable Funding Ratio (NSFR) have been introduced for measuring liquidity
under Basel-III to ensure stronger and more targeted liquidity management of
banks. A Basel-III Compliance Unit has been established by each bank as per
instruction of BB, and steps have been taken to increase board awareness
through arranging meetings with the boards of non-compliant banks.
Given all the positive indications, the key challenge for banking industry now is
to attract good investors. Reportedly, the banks are sitting on huge idle money
but cannot lend due to absence of good projects/ borrowers. If the banking
industry of Bangladesh can tap the advantage of bullish economic growth of the
country and attract good projects/ investors, surely the banks will enjoy a more
fruitful year.
Trust Bank Limited is a private commercial Bank which does its banking activities
across the country with a vision of building long term sustainable financial
institution through financial inclusion and deliver optimum value to all
stakeholders with the highest level of compliance. Trust Bank Limited has
performed remarkably well during the year 2015 while the banking industry as a
whole suffered a sluggish growth due to increase in the defaulted loans, cut in
interest rates, excess liquidity burden and a lack of demand from the investors/
business people. During the year, Trust Bank had maintained satisfactory growth
of asset and liabilities and eventually a growth in its net profit. This incremental
growth has been possible due to the banks emphasis on sustainable business,
relentless effort and compliance.

NPL Comparison with Peer Group

9.00%
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%

0.08

6.69%

6.00%

4.95%

4.26%

3.58%

2.70%

CRAR
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%

10.84%

10.93%

11.87%

12.23%

12.46%

12.83%

10.63%

Cost to Income (%)

60.00
50.00
40.00
30.00
20.00
10.00
0.00

48.19

48.46

41.84

48.02

50.45

45.71

AD Ratio
90.00%
85.00%
80.00%
75.00%
70.00%
65.00%

86.58%
80.31%

83.96%

83.57%
73.41%

81.33%