Bangladesh

Introduction

 

About Bangladesh

Bangladesh’s economy has grown by around 6% a year since 2005, largely driven by exports. It has been named one of the ‘Next Eleven’ countries that are expected to become among the biggest economies in the world in the 21st century and is classified as a frontier market by the OECD.

It has a growing industrial sector, of which the garment industry is the key contributor, accounting for around 80% of total exports in 2016/2017. Many multinational companies use the country as a manufacturing base. Bangladesh also has a developing services sector, which now accounts for more than half of GDP.

The country has a young, well-educated workforce. English is widely spoken as a second language and wages are among the lowest in the region. Its geographical location between India and China makes it well-placed to access these markets as well as the ASEAN countries.

The government has introduced a series of economic reforms to encourage foreign direct investment and is establishing 100 economic zones. Bangladesh allows 100% foreign ownership in all but a few restricted industries, as well as easy remittance of profits, subject to approval from Bangladesh Bank (the country’s central bank).

 

Bangladesh Treasury Prism Market Profile Infographic_Small
 

Corporate Treasury in Bangladesh

Bangladesh is a fast-growing, emerging economy and has been named one of the ‘Next Eleven’ countries that are expected to become among the biggest economies in the world in the 21st century. Here, we highlight some of the key factors relevant to treasury and cash management in Bangladesh.

 

Financial Market Development

  • The World Economic Forum ranks Bangladesh 98th in the world for financial market development in The Global Competitiveness Report 2017-2018.
  • It ranks Bangladesh 111th for the soundness of its banks, while corruption and access to finance are seen as two of the biggest barriers to doing business there.
  • Bangladesh has foreign exchange controls in place, which are overseen by the central bank. Prior approval from Bangladesh Bank is required for the remittance of funds from certain transactions. Branches of foreign firms can repatriate post-tax profits without prior approval, but they may only do so through banks that are authorised to deal in foreign exchange.
  • The Bangladesh taka has been convertible since 1994.
  • The country has a young, well-educated workforce. English is widely spoken as a second language and wages are among the lowest in the region.

 

Sophistication of Banking Systems

  • There are 58 scheduled banks and five non-scheduled banks in Bangladesh, including six state-owned commercial banks and 40 private commercial banks, of which eight are Shariah banks and nine are branches of foreign commercial banks.
  • Total turnover of inter-bank foreign exchange transactions by authorised dealers was USD17.3 billion in 2017.
  • Bangladesh’s bond market is dominated by government issues, without standing treasury bills and bonds totalling BDT1,274 billion at the end of May 2018.
  • Bangladesh is a member of the Asian Clearing Union.

 

Regulatory Bodies

  • The banking system in Bangladesh is regulated by Bangladesh Bank, which is also the central bank. It is introducing Basel III regulations in phases between 2015 and 2019. Prior approval of Bangladesh Bank is required for some foreign exchange transactions.

 

Tax

  • The corporate income tax rate is 25% for publicly-traded companies and 35% for other companies. Banks, insurance companies and financial institutions are taxed at 42.5%, falling to 40% if they are publicly-traded. Mobile phone operators and cigarette manufacturing companies are taxed at 45%.
  • A minimum tax of 0.6% on gross receipts from all sources of income is charged on companies (other than mobile phone operators and manufacturers of cigarettes and other tobacco products) or a firm that has gross receipts above BDT5 million, irrespective of profit or loss, if the minimum tax is higher than the corporate tax liability. The minimum tax is 0.1% of gross receipts for firms manufacturing goods for the first three years after production commences.
  • Dividends received from resident companies are generally taxed at 20%.
  • Resident companies are taxed on worldwide income. Foreign companies are taxed on income that is received or generated in Bangladesh.
  • A branch remittance tax of 20% is charged on the remittance of profits to the head office by the branch of a foreign company.
  • The standard rate for Value Added Tax (VAT) is 15%; certain supplies of goods and services are exempted, zero rated or lower rates. The application of the new VAT Act 2012 has been postponed until 1 July 2019 from the earlier date 1 July 2017.
  • Capital gains are taxed at 15%, although there are some exceptions.
  • Interest expenses that are used for business purposes are generally tax deductible. There are no thin capitalisation rules in Bangladesh. 
  • Stamp duty is charged on financial instruments, property and other transactions.
  • Withholding tax of 20% is charged on interest paid or payable to non-resident companies where no tax treaty is in place. Rates range from 5% to 15% where a tax treaty is in place and the non-resident can provide a Certificate of Residence.
  • Tax incentives are in place for certain sectors, such as IT, and for industrial companies operating in specific regions.
  • Bangladesh has tax treaties with around 30 countries and territories.

 

Benefits for Local Treasury

  • Bangladesh has a pro-business government that allows 100% foreign ownership in all but a few industries.
  • Bangladesh’s geographic location offers easy access to India, China and ASEAN markets.
  • Bangladesh is a low-cost country in which to operate, with an educated, English-speaking workforce.
  • Cash concentration is limited to accounts belonging to the same parent company and accounts must be BDT-denominated. Cross-border cash concentration is not available.
  • Notional pooling is not permitted in Bangladesh.

 

Banking

 

Banking System

  • Bangladesh has 58 scheduled banks, which are licensed under the Bank Company Act. Within this total, six are fully or majority state-owned commercial banks, and three are specialised banks established for specific objectives, such as agriculture or industrial development. These are also fully or majority government-owned. There are 40 private commercial banks, including eight Shariah banks, and nine branches of foreign commercial banks.
  • The country also has five non-scheduled banks which were created for specific purposes and cannot perform all of the functions of a scheduled bank.
  • The top five banks held 30.8% of assets at the end of 2017, while the top ten banks held 44.3%. Six of the top ten banks are private commercial banks and four are state-owned commercial banks. Foreign commercial banks held 4.6% of assets.
  • The eight Islamic banks collectively had 1,120 branches and accounted for nearly a fifth of total banking assets.
  • The banking sector has a high proportion of non-performing loans, which accounted for 10.4% of all loans in the financial year 2017/2018. Nearly half of all non-performing loans were concentrated in the six state-owned commercial banks.

 

Bank Accounts

  • Residents may open foreign currency accounts domestically if they are Bangladesh nationals working or residing abroad, foreign nationals residing abroad or in Bangladesh, or Bangladesh nationals who have travelled abroad. Accounts must be opened with authorised dealer banks.
  • Non-residents who meet certain conditions can open both BDT accounts and foreign currency accounts through authorised dealer banks.

 

Legal and Regulatory

  • Bangladesh Bank overseas regulation of the banking sector. It also overseas foreign currency controls. The Securities and Exchange Commission regulates capital market intermediaries and the issuance of capital and financial instruments by public limited companies. Microfinance institutions are regulated by the Microcredit Regulatory Authority.
  • Bangladesh allows 100% foreign ownership in most sectors. A number of different corporate structures are available.
  • Under the Bangladesh Companies Act, foreign entities looking to set up a branch in Bangladesh must register with the Board of Investment and comply with its regulations.
  • Bangladesh has anti-money laundering registration in place and is a member of the Asia/Pacific Group on Money Laundering (APG). It also operates the Bangladesh Financial Intelligence Unit under Bangladesh, which is tasked with analysing suspicious transactions for money laundering and terrorism financing and exchanging information with its foreign counterparts.

 

Payments

 

Payment Systems

BEFTN

 

Bangladesh Electronic Funds Transfer Network

  • For paperless electronic inter-bank funds transfer.
  • Operated by Bangladesh Bank.
  • Offers secure, fast, cost-effective electronic debit and credit transactions between participating banks.
  • Handles payments including payrolls, foreign and domestic remittances, government payments and commercial payments.
  • Offers real-time batch processing, with payment transactions calculated into a single multilateral netting figure for each individual bank.

BACPS

Bangladesh Automated Cheque Processing Systems

  • Processes cheque payments and other paper-based instruments in Bangladesh.
  • Operated by Bangladesh Bank.
  • Uses Cheque Imaging and Truncation (CIT) technology for electronic presentment and payment of paper-based instruments.
  • High value cheques of up to BDT500,000 must be received before 12pm, with lower value ones received before 12.30pm. Settlement is made by 3pm and 5pm respectively on the relevant day of clearing.

NPSB

National Payment Switch Bangladesh

  • A system offering interoperability among participating banks for account and card-based transactions.
  • Operated by Bangladesh Bank.
  • Used for ATM, point of sale (POS) and internet banking fund transfer (IBFT). Mobile phone transactions could be added in the near future.
  • The maximum limit per IBFT transaction is BDT50,000.
  • 51 banks use the system for ATM transactions, 50 for POS transactions and 18 for IBFT transactions.
  • Participating banks must use two factor authentication for all card not present (CNP) transactions.

RTGS

Real Time Gross Settlement System

  • For real-time settlement of high value, time critical interbank payments.
  • Operate by Bangladesh Bank.
  • For payments of BDT100,000 or more.
  • Payments can be made in local currency or domestically held foreign currency.
  • Available at 7,000 bank branches.

BACH

Bangladesh Automated Clearing House

  • An electronic clearing house with two components: Automated Cheque Processing and Electronic Funds Transfer.
  • Operated by Bangladesh Bank.
  • Transactions received from banks during the day are processed at a pre-fixed time.
  • System operates through a Virtual Private Network established between participating commercial banks and the system’s Data Centre and Disaster Recovery Sites.

 

 

Payment Instruments

 

Credit Transfers

  • High-value (more than BDT100,000) and urgent credit transfers are made through the Real Time Gross Settlement System in real time.
  • Low-value, non-urgent, bulk credit transfers are settled through the Bangladesh Electronic Funds Transfer Network on the same day.
  • One-to-one electronic payments are settled through the National Payment Switch Bangladesh on the same day.

 

Direct Debits (auto debits)

  • Direct debits are available in Bangladesh but not widely used. They are made through the Bangladesh Electronic Funds Transfer Network.

 

Card Payments

  • 53 of Bangladesh’s 58 banks provide payment cards for ATM withdrawals and/or point of sale transactions. Debit card users increased by 17.1% in 2017.
  • Visa and MasterCard are the main brands of credit card available in Bangladesh. Credit card users declined by 4.1% in 2017.
  • National Payment Switch Bangladesh is the domestic debit and credit card payment network.
  • Bangladesh Bank recently approved the rollout of contactless payment cards.
  • Electronic money schemes are available through top-up prepaid cards.

 

Online Payments

  • A Mobile Financial Services (MFS) system was introduced by Bangladesh Bank in 2011 to help drive financial inclusion. The system enables person-to-person and business-to-business transactions via mobile phone numbers, and facilitates payments to and by businesses and government.
  • Available through 18 banks, MFS has 58.6 million registered users – over one-third of the country – and has made a significant impact on Bangladesh’s rural economy.
  • 36 banks in Bangladesh offered internet banking services as of the end of 2017.
  • Bangladesh has an Online Payment Gateway Service established by several banks and a couple of technology companies to enable e-merchants to receive payments online from domestic and international buyers.
  • Bangladesh Bank has permitted six banks to collect inward remittance through PayPal.
  • iPay has been granted a licence by Bangladesh Bank to provide a digital wallet service across the country.

 

Digital Currencies

  • Cryptocurrency is not legal tender in Bangladesh, and the central bank has warned that using the currencies could breach foreign exchange, anti-money laundering and anti-terrorism regulations. Bangladesh Bank is exploring the use of digital money to help Bangladesh move towards a cashless economy.

 

Cash, Cheques and Money Orders

  • Cash remains widely popular and highly used in Bangladesh, with around 80% of the population unbanked.
  • Cheques are the most widely-used form of cashless payment. The use of cheques for high value payments is increasing, but their use for low-value payments fell by 14.5% in 2017.
  • Money orders are handled by Bangladesh Post, which has bilateral agreements with 15 countries, as well as Western Union and MoneyGram.
  •  

Demographics

Bangladesh Market Profile Infographic

 

 

Recent developments

 

Collaboration Needed to Boost Rural E-commerce

Rural e-commerce is key to increasing digital financial inclusion, but stakeholder cooperation and increased consumer awareness is needed to ensure continued growth, the Bangladesh Digital Financial Inclusion Conference heard. Rural e-commerce has been on an upward trend during the past few years as a result of efforts by a range of stakeholders. But it remains difficult for rural people to find the right platform on which to do business, while there is a low level of awareness and financial literacy skills.

Read more about the development here.

 

UnionPay Virtual Payment Services Launched

Mutual Trust Bank has joined forces with China’s UnionPay to offer a range of credit and debit card virtual payment services. The tie-up enables customers to use e-wallets, QR code payments and digital card services through mobile phones for the first time in Bangladesh. The service is initially being piloted with UnionPay debit cards on a limited scale before a full roll out.

Read more about the development here

 

Online Bill Payment Made Simpler

A new online payment switch is being developed to make it easier for people to pay utility bills over the internet. The payment switch, ekPay, which is being developed by the Access to Information Programme, will enable people to settle bills using any credit or debit card or mobile financial services account. Only around 10% of people in Bangladesh currently pay utility bills online, but the government has set a target of raising the number to 50% within the coming five years.

Read more about the development here

 

Mobile Financial Services to Boost Financial Inclusion

Mobile financial services have significant potential to boost financial inclusion in Bangladesh due to the country’s high smartphone penetration, if quality could be guaranteed. Earlier this year, mobile financial services provider bKash signed a partnership with Alipay operator Ant Financial Services to promote financial inclusion among unbanked and underbanked communities. Ant Financial will invest in bKash to increase its technological capabilities enabling it to provide greater security for mobile financial transactions.

Read more about the development here

 

This Market Profile is brought to you by DBS. Get in touch with us for further insights on doing treasury in Bangladesh and take advantage of our innovative solutions to empower your business. Click here to find out more.

 

Sources: World Bank, OECD, Bangladesh Bank, National Board of Revenue Bangladesh, Deloitte, CIA World Factbook, The World Economic Forum, Dhaka Tribune, PKF Asia Pacific Tax Guide

The information herein is published by DBS Bank Ltd. (“DBS Bank”) and is for information only. The information is assembled based on information available and accurate as at Apr 2019.

The information is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

The information herein may be incomplete or condensed. Any terms, conditions and opinions contained herein may have been obtained from various sources and neither DBS Bank, its subsidiaries/affiliates nor any of their respective directors or employees (collectively the “DBS Group”) make any warranty, expressed or implied, as to its accuracy or completeness and thus assume no responsibility of it. The information herein may be subject to further revision, verification and updating and DBS Group undertakes no responsibility thereof.

DBS Bank Ltd. All rights reserved. All services are subject to applicable laws and regulations and service terms. Not all products and services are available in all geographic areas. Eligibility for particular products and services is subject to final determination by DBS Bank Ltd and/or its affiliates/subsidiaries.

 

Last updated on 18 Apr 2019