Bangladesh: Central Bank Strengthening Project -

The World Bank             

  Information Note

Bangladesh: Central Bank Strengthening Project -

Progress in Achieving a Strong Central Bank Gains Pace

The Economic and Sector Work of the World Bank Group titled “Strategy for Establishing a Sound and Competitive Banking Sector” identified three basic problems afflicting the financial system in Bangladesh. These are: (a) a weak central bank; (b) poor governance; and (c) a deficient legal framework. Keeping that in mind, the objective of the Central Bank Strengthening project (CBSP) was to achieve a strong and effective regulatory and supervisory system for Bangladesh’s banking sector.   This would be accomplished by supporting the overall strengthening of Bangladesh Bank (BB) to enable it to play its due role as the country’s monetary authority and bank regulator and supervisor.

The CBSP became effective on September 28, 2003.   The estimated project cost is US$46.13 million of which International Development Agency (IDA) of the World Bank Group is financing US $37.0 million while the rest is financed by Bangladesh Bank.   The project is intended to assist BB in three major areas: (I) Strengthening the Legal Framework; (II) Reorganizing and Modernizing BB by focusing on (a) Functional Reorganization, (b) Automation, and (c) Human Resources Development; and (III) Capacity Building of BB focusing on (a) Strengthening the Research Department, (b) Strengthening Prudential Regulations and Bank Supervision, and (c) Strengthening Accounting and Auditing systems.

Due to the delay in procuring the IT systems (the largest component of the project) as well as a change of both BB Governor and Project Director (PD), a large gap was created between estimated and actual disbursement under the Project. However, the project is revamped recently, and got momentum for the initiative of new governor of BB and support from the Government.

An IDA Mission recently carried out a supervision of the project and conducted a comprehensive assessment of the implementation of all Project components and their continued relevance in ensuring the achievement of the Development Objectives (DOs) for the Project.  Based on the review, it is found that the agreed Project DOs remain fully relevant and can still be fully achieved by the end of the Project period. The mission approved the revised Procurement Plan submitted by the CBSP Cell of BB, and reviewed the progress in procurement with reference to the approved Procurement Plan.  The mission observed that progress in procurement under the Credit has been slow so far and recommended that it be fast-tracked.

Some of the recent achievements by BB under the Project are: (i) adoption of a new promotion policy in April 2005, where, for the first time, merit is a major criterion; (ii) adoption of international central banking accounting and auditing standards; (iii) strengthening prudential regulations and supervisions by revising regulations regarding corporate governance, accounting policy, capital adequacy, loan classification and provisioning, exposure limits to single and group borrowing, limits on liquidity, foreign exchange & interest rate risk, and supervisory enforcement; (iv) restructuring, reorganizing and strengthening the Legal Department of BB, (v) conducting “legal awareness programs” on regular basis, (vi) launching “business process reengineering” from February 2006, (vii) linking training function more closely with HR Department; (viii) assisting, through the World Bank Institute (WBI) and Korean Central Bank, the Research Department for attaining excellence in research and policy analysis; and (ix) automating the work processes.   Initially, the plan was to procure the information system as a single package comprising: Network, Office Automation, Intranet, Electric System; Standard Hardware and Software; ERP; Banking Software; Systems Integration; CIB Online; and Enterprise data warehouse.   However, for the sake of better management and implementation, it has now been decided to split the procurement into six different packages.   A systems integrator will be hired for integration of the six packages into a single integrated information system.   Therefore, the bid documents and specification will be prepared separately for each package.   The World Bank is expected to conduct training in the procurement process as per WB procurement guidelines by February, 2006.

The Bangladesh Bank has already appointed a full time Project Director (PD) to ensure the proper implementation of the consultants’ recommendations and to maintain the momentum of activities under the Project.   The full time PD will monitor, manage and guide the upcoming IT procurement, including the evaluation of the bids, obtaining the required approvals and signing of the contract awards.  Moreover, the entire IT procurement approval process will be documented by BB and shared with the relevant approval authorities and the bidders by January, 2006.  To assist in the effective management of this complex Project, the new PD, with the assistance of the CBSP Cell at BB, will develop a full fledged project plan which includes all the components and the various ongoing activities under the Project.  Moreover, a risk scan will also be carried out by the PD so that the risks are actively managed.

The World Bank has already requested the Government to extend their continued support for the reforms at Bangladesh Bank.   It is also envisaged that, at the end of the project period, a strong and restructured BB would lead the design and implementation of a medium to long-term reform program for achieving a sound and efficient financial system.