Concept and History of Bank

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Concept and History of Bank

Concept & History of  Bank and the Banking System in Bangladesh

  1. Concept of Bank

 The historians of banking tell us that the word ‘bank’ comes from Italian word ‘banko’ which means bench. It is thought that the banking in an unorganized structure started in Babylon some four thousand years ago. People of that period made transactions sitting on a long bench in the open street. The banking in an organized form started at a later day in Greece and Rome. Then the banks were used to receive deposits and lend money only. Generally, a Bank is any financial institution that receives, collects, transfers, pays, exchanges, lends, invests or safeguards money for its customers. Now, a Bank renders many other services like issue of letter of credit, bid bond & bank guarantee, remittance, collection of utility bills, locker’s services and many other financial services of a client.

  1. The Evolution of Banking

 Italy is said to be breeding grounds of modern banking. The ‘Bank of Venice,’ established in 1157, is supposed to be the most ancient bank. Thereafter, the Bank of Genoa was established in 1407, when the banking business radiated from Italy to Spain and Holland. The Bank of Amsterdam was established in 1609 to meet the needs of the merchants of the city. It accepted all kinds of deposits which could be withdrawn on demand or transferred from the account of one person to another.
In England, it was the goldsmiths who were responsible to initiate banking business in the country. They used to receive their customers’ valuables and funds for safe custody and issue receipts/notes. These notes, in course of time, became payable to bearer on demand and hence enjoyed considerable circulation. In fact, the goldsmith’s note may be considered as the precursor of the bank note. In England, the growth of private banking started with the establishment of the ‘Bank of England’ in 1694. Then, the function of bank was confined to “financial intermediation only”. Banking is “the accepting, for the purpose of lending or investment of money from the public, repayable on demand or otherwise, and withdrawable by draft, order or otherwise”.

  1. Origin of Banking in Bangladesh

 Bangladesh shares a common past with India and Pakistan in respect of development of the banking business. With the advent of Muslim rule in India, the fortune hunting Afghan traders started money lending business in exchange of interest sometime in 1312 A.D. They, were known as ‘Kabuliawallas.’ During the period of Moguls, the banking was run by wealthy families. At the time of British occupation of Bengal, there was English type agency houses in Kolkata. They initiated what can be called forerunners of present day commercial banks. A European style bank named Hindustan Bank was set up in 1860. Afterwards a good number of modern banks were established in the then Indo-Pak sub-continent.

  1. Banking System in Bangladesh

 At the top of the Banking System, there is Bangladesh Bank which is working as the Central Bank of the country. It came into being on the 16th December, 1971 under the Bangladesh Bank (Temporary) order, 1971 (subsequently substituted by the Presidential Order No. 127 of 1972).
In a summarized way, the Banking System in Bangladesh is as follows:

Bangladesh Bank

Commercial Banks – 43


Specialized Banks-4
State Owned Banks – 04
Private Banks -30
Foreign Banks – 09


Private Banks -27
Islamic  Banks – 07


  1. Banking Structure (as on 30-06-2010)


Bank Types No. of Banks No. of
Total assets % of industry assets Deposits % of
State Owned Banks 4 3394 1272.64 28.85 952.72 28.62
Private Commercial Banks 30 2427 2539.27 57.55 1967.78 59.11
Foreign Commercial
9 59 308.70 7.00 230.68 6.93
4 1366 291.37 6.60 177.90 5.34
47 7246 4411.98 100.00 3329.08 100


A.    Bangladesh Bank

It is the Central Bank of Bangladesh. The Governor of the Bank is the Chief Executive Officer appointed by the Government for a period of four years and is eligible for re-appointment till he attains the age of sixty five years.

Core Functions of Bangladesh Bank
  1. i) Formulation and implementation of Monetary Policy
  1. ii) Issue of notes

iii) Regulation and supervision of the financial system

  1. iv) Banker’s Bank
  1. v) Lender of the last resort
  1. vi) Banker to Government

 Commercial Banks
 1) Nationalized/State Owned Commercial Banks
 After liberation of Bangladesh, the 12(twelve) banks which had been functioning prior to liberation were compressed into Sonali Bank, Janata Bank, Agrani Bank, Rupali Bank, Pubali Bank & Uttara Bank through a process of amalgamation or mergers. Subsequently, the Pubali Bank and Uttara Bank were denationalized in 1984 & 1983 respectively and turned into Private Commercial Bank. Sonali Bank, Janata Bank & Agrani Bank became Public Limited Company as per Vendors’ Agreement signed between the Government and the respective bank. In December, 1986, Rupali Bank turned into a Public Limited Company , keeping 51% share in the government sector. Subsequently, the above bank’s ownership in the government sector was raised to 94.5% in 1996.
2) Private Commercial Banks
 In order to bring competition among the banks, the Government allowed a few Private Banks to operate in Bangladesh for the first time in 1982 & 1983. These banks are AB Bank Limited, International Finance and Commerce (IFIC) Bank Limited, National Bank Limited (NBL), The City Bank Limited, Islami Bank Bangladesh Limited (IBBL), ICB Islami Bank Limited and United Commercial Bank Limited. In addition, the Pubali Bank and Uttara Bank became Private Commercial Banks in 1984 & 1983 respectively. These 9 Banks are commonly known as First Generation Bank. In the second phase, 8 Banks were given permission for operating in the private sector which are known as Second Generation Banks and lastly 13 banks are allowed to operate as Third Generation Banks in Bangladesh. Now, there are 30 (thirty) Private Commercial Banks in the country. Out of 30 Private Banks, there are 7 (seven) full fleged Islamic Banks. 23 Banks are Conventional Banks. But 20 branches of 9 Conventional Banks are also doing Islamic Banking activities obtaining necessary permission from the Bangladesh Bank.

3) Specialized Banks
 At present, there are 5 (five) Specialized Banks in Bangladesh. These are Bangladesh Krishi Bank (BKB), Bangladesh Smal Industries and Commerce (BASIC) Bank Limited, Rajshahi Krishi Unnayan Bank (RAKUB) and Probashi Kallayan Bank (started operation from April 20, 2011)
Concept and History of Bank

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Concept and History of Bank
Concept and History of Bank