Bank-Insurance
Half of insurers don’t have the required minimum paid-up capital
The local life and non-life insurance businesses must maintain a higher-than-required amount of paid-up capital today more than ever to better secure depositors’ money as Bangladesh, like many other countries, is experiencing economic difficulties.
However, the truth is very different. According to unaudited data from the Insurance Development and Regulatory Authority (IDRA) for 2021, 34 of the 79 such organizations failed to maintain the minimum amount of capital needed by law.
19 of these businesses are life insurance companies, and 15 are not. The minimum paid-up capital required by the Insurance Act of 2010 for a life insurance company is Tk30 crore or Tk40 crore for general insurance firms. Sponsors and directors will contribute 60pc of the money, with the remaining 40pc being available to all investors.
The amount of an organization’s paid-up capital that is reliant on equity financing to fund operations. Given a company’s operations, business model, and current industry norms, this number can be compared to its debt level to determine whether it has a healthy balance of finance.
When asked for their opinions, a number of insurers that had fallen short of the minimum paid-up capital requirement stated that having little paid-up capital does not affect them and that it is standard practice in Bangladesh’s insurance industry.
Additionally, they claimed that raising the paid-up capital would cause them problems because of their poor performance in the premium market caused by higher fees. 81 insurance companies operate in the nation at the moment. 46 non-life insurance companies and 35 life insurance companies are among them. By 2020, Tk49,293 crore would have been invested in the industry, which directly employed 40,575 people. In the industry, there are about 42,673 agents at work.
The Bangladesh Bank has adjusted the dollar price to Tk117 from Tk110 by introducing the crawling peg exchange rate mechanism.
Under this new approach, the bank will buy and sell dollars with Tk117 as the mid rate.
This decision was reached during a meeting of the monetary policy committee on Wednesday, May 8th.
Additionally, the committee has opted to discontinue the SMART lending rate mechanism, allowing banks to set their lending rates based on dollar demand and supply, according to a circular issued after the meeting.
The crawling peg system permits a currency with a fixed exchange rate to fluctuate within a specified band of rates, combining features of both fixed and floating exchange rate regimes.
On May 5th, Bangladesh Bank Governor Abdur Rouf Talukder announced the adoption of a market-based interest rate and the implementation of a crawling peg system to stabilize the foreign exchange rate.
He stated that the central bank is collaborating with prominent economists and bankers to devise a contractionary monetary policy aimed at curbing inflation and restoring macroeconomic stability.
Earlier, on April 2nd, the World Bank stressed the importance of a crawling peg mechanism aligned with market-clearing exchange rates to narrow the gap between formal and informal exchange rates, as outlined in the latest Bangladesh Development Update report.
Meanwhile, the International Monetary Fund (IMF) has advocated for a market-based dollar rate. In January 2023, the IMF attached several conditions to a $4.7 billion loan facility over a three-and-a-half-year period. Bangladesh has received two installments of the loan by fulfilling nearly all conditions, except for the reserve requirement.
On Sunday (May 5), the Bangladesh Bank (BB) once again dissolved the board of directors of the National Bank.
In a letter addressed to the managing director of the National Bank, the central bank announced the cancellation of the existing board of directors.
Furthermore, the banking regulator established a new board of directors and appointed Khalilur Rahman, the bank’s sponsor director, as the new chairman, according to the BB’s communication.
Mezbaul Haque, spokesperson for the Bangladesh Bank, commented on the development, stating that the action was taken to bolster the bank’s board of directors.
This move comes after a similar action in 2023 when the central bank ordered the dissolution of the National Bank’s board and formed a new one.
Prime Bank PLC has recently received Bancassurance Business commencement approval from Bangladesh Bank.
Mohammad Shahriar Siddiqui, director, BRPD, Bangladesh Bank handed over the approval letter to Nazeem A Choudhury, deputy managing director – consumer banking of Prime Bank PLC, at a ceremony held at Bangladesh Bank recently.
Mohammad Ashfaqur Rahman, additional director, BRPD, Bangladesh Bank, Ashraful Alam, joint director, BRPD, Bangladesh Bank, Miah Mohammad Rabiul Hasan, chief bancassurance officer, Prime Bank PLC were also present at the ceremony.
Bancassurance is a partnership between a bank and insurance company that will allow a Bank to sell insurance products of the insurance company through its distribution channels.
To offer a wide range of products to its customers and ensure best in class service, Prime Bank has partnered with leading insurance companies National Life Insurance Company Ltd. and Reliance Insurance Ltd.
Being one of the leading banks of the country, Prime Bank hopes to cater to the needs of insurance requirements of its customers through Bancassurance, in Bangladesh market.
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