Bancassurance will help banks improve their profitability and boost liquidity, in addition to making them more responsible towards clients, said Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank PLC.

"The insurance sector will be revived through bancassurance. As claims settlement is very important, insurance companies will have to work to increase it," he said in an interview with The Daily Star yesterday.

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

Bangladesh Bank recently permitted the practice and introduced an associated guideline.

Stating the advantages of banks, Rahman, also the former chairman of the Association of Bankers Bangladesh (ABB), said banks selling insurance products would be able to generate an additional cash flow for themselves, boosting liquidity.

He also said it would improve their non-interest fee income and enhance relationships with customers.

"Bancassurance will increase the banks' responsibility as they will have to be more transparent and alert before signing agreements with the insurance companies because many companies are not good enough to settle claims," said Rahman.

He further mentioned that bancassurance would increase the clients' trust on the insurance sector as banks offer a lot of credibility while the insurance sector suffers for a lack of it.

"With insurance added to the mix, bancassurance will diversify customers' portfolio, increasing the insurance penetration rate which stands below one percent now," he said.

The former ABB chairman suggested preparing a training curriculum for bank personnel on insurance products so that persons involved in selling insurance have a good understanding of the products.

Bancassurance is new in Bangladesh, but it 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.

Currently, there are 35 life insurance and 46 non-life insurance companies in Bangladesh.

The central bank on December 20 issued the bancassurance guidelines, saying that banks which maintain a net non-performing loan ratio of less than 5 percent would get approval for bancassurance.

The banks will also have to show positive net profits 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.