Padma Bank Limited was established in 2013 as a fourth-generation private commercial bank. The bank faced a financial crisis for various reasons. Managing Director and CEO of the bank Md Ehsan Khasru, in an exclusive interview with Bangladesh Post, has divulged what hurdles the bank had to go through and what efforts it had to make to regain the trust of customers. He also spoke of the bank’s future plan to run as a competitive financial institution. The plan includes equipping its manpower with advanced technology, cutting operation cost and running more effective lending operation. Following is full version of the interview:
Bangladesh Post: As you already know that Covid-19 pandemic has posed a challenge to the global economy. Can you please give us your views on how you see the crisis in the context of Bangladesh? How the banking activities have been affected with this and what can be the strategies to tackle the adverse impact of the disaster?
Ehsan Khasru: Look, the Covid-19 has been a new reality not only in our country but also for the whole world. It seems so that the impact of the virus (Covid-19) may hang around for a decade and beyond. The World Health Organization (WHO) has already predicted about lingering of the crisis. Although the economy has stumbled due to coronavirus, but what I think that the life cycle of the economy may not be connected with the life cycle of Covid-19. The pandemic has been taking the energy and dynamism of people to a downward trend.
The banks and other financial institutes which are the driving force of the economy, they have to move forward based on reality. The government has come up with a stimulus plan of more than taka one lakh crore, this package may not continue for a very long time. This also cannot be a CSR for the bankers. I believe that the banking sector may not work as the stimulus plans expect. Industrial productivity has become the worst affected because of the pandemic. The ready-made-garments industry or the RMG sector also suffered tremendously, which is why the government has announced a Tk 5000 crore stimulus package. Sadly, the sector could not revive as expected because there is Covid-19 recession internationally.
The brighter side of the recession is that the export is increasing, buyers have started placing their orders but the usual flow is yet to pick up. So, it is clear that our banking business also has experienced a huge set back because export and import have fallen. Now come to local financing, there is no new initiative in local financing. Most of the banks are not running their lending activities as usual. Many businessmen have already suffered losses and so further bank (loan) financing any new projects at this moment would be quite risky. Banks have already been indebted. Again, to face the challenge the central bank has postponed the definition of ‘default loan’ up to September, which I expect to be further extended.
Actually, we are waiting to see where we stand today? We were nearly to reach the production life cycle, but we later had to come down in that scale, so we are not around the peak any more. Now how the banks may come to finance? If you see the liquidity market, banks are full of liquidity. Even it’s becoming hard to lend money at 1 percent interest rate in the call money market.
What would be the economic growth in the next 10 years? Credit growth was 14 percent but now it hardly reaches 7 percent. If there is no growth in loan activities then how can you expect economic growth? So, in a nutshell, these are the challenges, which are not possible to face solely either by banks or central bank or even by the government.
Bangladesh Post: Please explain about the strategies that the banks can adopt to face the challenges.
Ehsan Khasru: The banks generally have three major responsibilities -- to pay interest to the depositors, to pay dividends to the shareholders and finally to manage and meet up the needs of the bank employees. Following the Covid-19 situation the banks have already started a move to reduce operational costs by shunning some of their luxuries or unnecessary expenditures. Here rental is a big issue. Banks are reducing rental spaces to cut costs, and we are also being serious about increasing productivity side by side reducing costs. To find new avenues of opportunities to offer loans and we are expanding disbursement of small-scale credit for reducing risks.
The recent flood had posed another setback for the banking business. We are to provide agriculture loans keeping certain targets in mind, it’s mandatory but still we are failing to move ahead.
Bangladesh Post: As we know that Padma Bank had suffered turbulence in the recent past. Have you framed any new policy or strategy to overcome the adverse impact?
Ehsan Khasru: Well, as you know our bank had to face a huge financial setback and our fund literally had fallen to almost zero. There was a huge crisis of trust of the depositors; they hurried to withdraw their deposited money. Our challenge was to rebuild their trust, creating new cash flow and attracting new deposits. Earlier we had not thought of cash flow, rather we had to think of maintaining the balance sheet. We had to lay emphasis on reactivating the cash flow, stability and finally we were able to draw the trust of customers. Eventually, cash flow came back on track and at one stage our surplus fund remarkably grew. In respect to such credible work, the central bank was convinced and gave us permission to disburse loan again. Since 2017 our loan disbursement was held up and just a few days back we were back on track. Now we are allowed to approve small scale loans in export, import, trade or retail sectors.
We are now preparing a budget to run the lending process. We are trying hard to come to the breakeven level this year. We had faced losses of more than Tk 200 core during that time in 2017. Bad loan was 78 percent at that time. Now it has come down to 61 percent and we have targeted to bring it at 50 percent by this year. Our AD (advances to deposits) ratio was 128/130 which we have brought down to 96 and we hope to be at 90 by the end of the current year.
As you know the lending rate has come down at 9 percent but the rate of deposit has still not been possible to bring to less than 7 percent. In such a situation how can we maintain the operating cost? I believe the way out is to increase non-funded income. We have already discussed the issue with the central bank.
The Finance Minister, in the meantime, has suggested the public and private sector banks come to a common platform. In respect to that we have already approved a payment system under a common platform, which means along with Sonali, Rupali, Agrani and Janata banks we have prepared a common platform for payment system. Once it is possible to launch the service, we would greatly benefit from it as there are about four crore account holders in these five banks altogether.
Bangladesh Post: As an analyst, do you think that the Padma Bank may come back as a mainstream bank?
Ehsan Khasru: As you may know that in the country’s banking sector there are defaulted loans worth more than Tk 1 lakh crore. Usually bankers are blamed as the market operators. What I believe is that the central bank is a big team and the banks are also part of that big team as market operator. So, these teams have to work together in harmony so that the banking operation system can be more efficient. Without downsizing the economy, we have to turn the banking operation system more efficient. Globally the banks are getting smaller; banks are now being accommodated into a teller machine, into the residence of people or their mobile phone or into other cyber devices.
This transformation of banking practices has occurred following the impact of Covid-19. It has made distancing among us but we are not overcoming the hurdles of distancing. Now we have decided that the home-grown solutions have to be created. I personally dream of turning into the best digitized bank. In the meantime, the situation has changed. The Central Bank has also realized that different banks can follow different ways to maintain the Core Banking System (CBS). The central bank has instructed us to disburse loans only in the retail sector primarily - I mean housing loan, personal loan, car loan, credit card and non-funded sector. Non-funded sector is a huge sector. Our country started drawing foreign direct investment, FDI remarkably well or having foreign projects mainly from China, Japan and other countries. Currently, all these projects from FDI have gone static. Everyone across the globe has to maintain their own economy. The spider net of globalization will need to be weaved in a new way. It’s hard to predict when the economy would be back on track again.
In our country we have already introduced agent banking. Another thing we prefer is low cost transactions through digital payment like paying electricity bill on mobile or online. We have also started collecting gas bills, rural electricity bills, DESCO, DPDC bills. Many people are still crowding at the banks to pay bills being physically present. E-KYC (know your customer) is needed for this, the central bank guided us for having e-KYC of customers. And we have already been prepared in this regard.
Bangladesh Post: Do you have any innovative ideas in modernising the banking services?
Ehsan Khasru: Yes, I have one idea. It is already practiced in the developed country. The ATM Machine we operate in our country is very expensive because the price of the machine itself is very high, its security assurance and also there are risks of ATM forgery. Developed countries have introduced POS (points of service) machines. I think POS-based transactions can be introduced gradually.
Bangladesh Post: The government decided to keep the financial sector alive by announcing certain initiatives like the stimulus package. There are many other similar moves aimed at keeping the economy running in the right direction. How can such initiatives act effectively to revitalise the economy?
Ehsan Khasru: Well, I believe that the timing of the stimulus package was not perfect. It is also needed to offer grants for certain groups of people to recover from the crisis. The stimulus is distributed involving certain interest rates on taking loans. The government is creating pressure to distribute stimulus packages but banks are not so interested as there are doubts on whether people are ready to receive this.
Bangladesh Post: Would you please tell us about the branch network, infrastructure, asset base and other things of Padma Bank.
Ehsan Khasru: The biggest challenge we are facing in Padma Bank is the lack of digitally-equipped manpower. As we have come across a bad condition, the employees also think of their job security. A well-experienced person will not be so interested to join us. Another challenge is that we have to make huge investments, especially in the information technology sector. But we have a barrier to investing here. The board will not allow me to do so and I also do not want time lag.
So, we are trying to identify some projects which can give us quick results.
We have a total of 57 branches now. We are not interested to open more branches; rather we have plans to relocate some unproductive branches to some potential areas. Another problem is that no fixed deposit is available now in any third-generation bank at the rate of 5 percent interest rate.
Many guidelines are there in terms of savings bond and subsidy is also given for lenders but the depositors have to always sacrifice. They are failing to meet their demands, expectations, retirement planning, future education planning for their children etc. Bankers have no scope of thinking for them, they are struggling to preserve 4 percent spread. After paying corporate tax, providing dividend to shareholders and paying salary of employees has become very difficult. We are also moving towards a modern banking era. It will not take much time, but it depends how far the investment is made possible by the bank authorities. I believe that within the next 5 years the whole banking system will turn into a digital system. Covid-19 has expedited the digital transformation in our country. It is time for us to put this digital system into massive use in our daily life.