The commercial banking in Bangladesh has made a significant improvement in terms of service quality as well as products diversification with introduction of retail banking like SME financing, consumer banking. In the past, most banks used to conduct wholesale banking and there was an advantage of big volume of deposit and big loans which are easy to handle.
But the new trend in banking services need highly qualified bankers who are equipped with both banking as well as technological know-how, which the banks need to develop investing huge funds. Syed Mahbubur Rahman, Managing Director & CEO of Dhaka Bank Limited (DBL) and Chairman of the Association of Bankers, Bangladesh (ABB) said this in an exclusive interview with Bangladesh Post on Monday.
The following is the excerpts of the interview:
Bangladesh Post: Economists, experts and analysts are expressing high concern over the country's banking industry in the recent times. Would you explain the reasons?
Syed Mahbubur Rahman: Well, as a practitioner what I can share is that one of the basic indicators of the bank's performance is NPL (non-performing loan). It is very important for any bank because all concerned and stakeholders including foreign observers consider NPL very seriously as it influences pricing issues and puts impact on overall liquidity situation of banks. NPL may put impact on many issues and that's why all concerned keep an eye on it. In recent years, NPL has increased in an unusual rate. In last quarter since March 2019, NPL saw the highest-ever rise of 11.87 percent.
That's why, the concern of analysts and experts is not unexpected. At the same time, what we have seen the situation of some banks have turned bad and their liquidity is also stretched. Most of the NBFI's are now passing bad time. You know, the banks run mainly on deposited funds. Since deposit is lessening, but we are not lowering the interest rate. A huge amount of money is engaged for savings bond, meaning the fund is blocked for a period of time. Recently the lending rate has also increased this will again impact on industrialization. As the private banks are contributing significantly to the growth path, it is usual that the sector will create concern. But I would say, when some crisis is created in any sector them many people pass comments according to their own
observation or knowledge. Even media publishes reports sometimes without digging deep down. This creates problem for us because we have to do trade or correspondence worldwide. All need to be a bit careful in this regard for the wellbeing of the nation.
Bangladesh Post: According to you what are the latest trends of commercial banking in the country?
Syed Mahbubur Rahman: Now there are 69 scheduled banks. Most banks used to conduct wholesale banking and there was an advantage of big volume of deposit and big loans, which are easy to handle. However, over the years, a big number of banks have come to the market and NPL has increased remarkably. Now we have learnt that we need to distribute our risks. The middle-income group is growing and their lifestyle is changing. So a good demand of personal loan, retail loan, consumer products have increased. What I feel is that SME and retail sector focus has gained momentum in the contemporary banking.
Bangladesh Post: What major challenges are the commercial banks facing? Please brief.
Syed Mahbubur Rahman: Biggest challenge in the banking sector at this moment is human resource. You need to have two main resources for smooth running of your bank - financial capital and human capital. Financial capital can be mobilized. If needed, banks can borrow or take any other means to gather fund but human capital is very crucial. Turning an employee as a resource needs lot of investment. As now there are 69 banks and the number of customers is limited. An official has to have the capability to choose good customers by assessing the project proposals.
For their failure, the NPL increases. After disbursing loans, it needs to supervise and monitor whether the amount is utilized properly. Another thing is that employees of a bank switch over when a bank starts operation. So retaining employees is also a challenge. As banks we are custodians of deposits of people. Sponsors of banks invest a little amount of capital but most amount is collected from deposit of people. So we need good quality people. In a nutshell, I can say at this moment banks’ main challenges are human resources, stretched liquidity, NPL and ensuring good governance because in the banking industry there is lack of good governance.
Bangladesh Post: What role Dhaka Bank has been playing in terms of rebuilding the country's economy? How could you differentiate from others?
Syed Mahbur Rahman: If you look over the banking industry since 1990s, we can see that the public sector banks controlled almost 70 percent of banking needs of the people. But now the situation is totally reversed as almost 75 percent is now controlled by the private sector banks. And as a private sector bank, Dhaka Bank, as a second generation bank, is playing a significant part in rebuilding the country's economy. But problem is that as now there are many banks, so the industry is very fragmented. No banks have average contribution of more than 4 to 5 percent and I must say my role is also the same. It is difficult to say that we are playing a very big role. I must not say anything like that. But I must claim that there are many customers who have now grown much bigger and Dhaka Bank is entangled with their growth.
Like Summit Group, United Group, Spectra and so many of such customers have been built up and we were with them since their beginning. They have grown bigger and we also have grown bigger, but what we have done over the years is that we tried to build a robust platform. We are the first private sector bank who brought online in the banking services in 2004, tried to ensure good governance, create a branding and follow compliance issues, that's why you will find no remarkable criticism about us in the community.
We tried to provide best possible services to customers, and did not increase the number of branches aggressively. Now we have 101 branches during 24 years of existence. Off late, we are trying to make focus on digital solution so that convenience of customers can be created. You see, today customers do not intend to come to the branches. We are enjoying the demographic dividend so this particular group is basically coming up. So ultimately we are diversifying our portfolio and trying to build a good human resources.
Bangladesh Post: We know that the banking sector is bearing over burdened with NPL, an issue much-talked about. What are your recommendations to get rid of this vice?
Syed Mahbubur Rahman: As an industry insider, I definitely appreciate the move of our Finance Minister to control the NPL situation. As the guardian of the country's financial sector, Finance Minister has been vocal on NPL and we welcome it, but now we want immediate action in this regard. IMF mission visited recently. They have told one thing - those who are engaged for doing sovereign rating they also are saying about action direct action in this regard. We are doing international trading and correspondence as they are also telling about high level of NPL so this need to be addressed first.
So, as Finance Minister has said, so I am sure it will get a lot of attention. The culture of NPL has to change. There are stringent punitive measures for the same in our neighbouring countries. We have to take some exemplary actions so that when in future we take loans and bear no intention to default. Our judiciary capacity has to strengthen in this regard.