Central bank rolls out bancassurance guidelines

Banks in Bangladesh will have to maintain a net non-performing loan ratio of no more than 5 percent to get approval for bancassurance, according to related guidelines released by Bangladesh Bank today.

The banks will also have to show positive net profit for three consecutive years to be considered eligible while their capital to risk-weighted asset ratio with capital conservation buffer cannot be less than 12.5 percent.

However, the percentage may be readjusted by the central bank from time to time, it added.

Besides, the banks will have to meet a credit rating of no less than grade-2 as defined by Bangladesh Bank guidelines on risk-based capital adequacy.

Additionally, no bank shall engage in selling bancassurance without getting prior approval from Bangladesh Bank, and obtaining a corporate agent licence from the Insurance Development and Regulatory Authority (IDRA).

On December 11, Bangladesh rolled out bancassurance as the central bank allowed banks to sell insurance products.

Bancassurance is an arrangement between a bank and an insurer, allowing the former to sell products of the latter through its vast network.

The concept might be new in Bangladesh, but bancassurance appears to have begun in France in the 1970s, according to investopedia.com. Since then, it has been embraced by most countries, particularly those in the Asia-Pacific region.

According to research and consulting firm IMARC Group, the global bancassurance market reached a value of $1.268 trillion in 2021.

The key objective of this guideline is to provide banks with a regulatory and supervisory framework for bancassurance, thereby increasing insurance penetration by allowing banks to distribute insurance products using their networks and customers.

Other objectives include increasing the outreach of banking and insurance services, promoting financial inclusion within a safe and sound environment, promoting social security and sustainability through insurance coverage, and providing one-stop service for bancassurance.

Banks shall apply for a corporate agent license from the IDRA upon receiving approval from Bangladesh Bank. They will then have to notify the central bank with a copy of their license from the IDRA within 15 days of receipt, as per the guideline.

Banks will have to comply with all IDRA regulations for the continuation of their corporate agent licence, it said, adding that any amendment to the bancassurance agreement shall be subject to approval of Bangladesh Bank.

In case of renewal or amendment of the existing agreement, the banks will have to inform Bangladesh Bank in writing within 15 days after any renewal or amendment.

Banks shall take approval in due course from Bangladesh Bank to enter into agreements with a new insurer and shall acquire necessary approval from the IDRA as well, the guideline said.

Bangladesh Bank may, in consultation with the IDRA, modify, change or amend these bancassurance guidelines as it deems necessary.

Also, the central bank shall issue explanations, circulars or letters on certain aspects of the guideline, it added.